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[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

 
          ODYSSEY OF THE CVE (CENTER FOR VETERANS ENTERPRISE)

=======================================================================

                             JOINT HEARING

                               before the

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                and the

               SUBCOMMITTEE ON ECONOMIC OPPORTUNITY (EO)

                                 of the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                        THURSDAY, AUGUST 2, 2012

                               __________

                           Serial No. 112-73

                               __________

       Printed for the use of the Committee on Veterans' Affairs

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                     COMMITTEE ON VETERANS' AFFAIRS

                     JEFF MILLER, Florida, Chairman

CLIFF STEARNS, Florida               BOB FILNER, California, Ranking
DOUG LAMBORN, Colorado               CORRINE BROWN, Florida
GUS M. BILIRAKIS, Florida            SILVESTRE REYES, Texas
DAVID P. ROE, Tennessee              MICHAEL H. MICHAUD, Maine
MARLIN A. STUTZMAN, Indiana          LINDA T. SANCHEZ, California
BILL FLORES, Texas                   BRUCE L. BRALEY, Iowa
BILL JOHNSON, Ohio                   JERRY McNERNEY, California
JEFF DENHAM, California              JOE DONNELLY, Indiana
JON RUNYAN, New Jersey               TIMOTHY J. WALZ, Minnesota
DAN BENISHEK, Michigan               JOHN BARROW, Georgia
ANN MARIE BUERKLE, New York          RUSS CARNAHAN, Missouri
TIM HUELSKAMP, Kansas
MARK E. AMODEI, Nevada
ROBERT L. TURNER, New York

            Helen W. Tolar, Staff Director and Chief Counsel

                                 ______

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                      BILL JOHNSON, Ohio, Chairman

CLIFF STEARNS, Florida               JOE DONNELLY, Indiana, Ranking
DOUG LAMBORN, Colorado               JERRY McNERNEY, California
DAVID P. ROE, Tennessee              JOHN BARROW, Georgia
DAN BENISHEK, Michigan               BOB FILNER, California
BILL FLORES, Texas

                                 ______

               SUBCOMMITTEE ON ECONOMIC OPPORTUNITY (EO)

                 MARLIN A. STUTZMAN, Indiana, Chairman

GUS M. BILIRAKIS, Florida            BRUCE L. BRALEY, Iowa, Ranking
BILL JOHNSON, Ohio                   LINDA T. SANCHEZ, California
TIM HUELSKAMP, Kansas                TIMOTHY J. WALZ, Minnesota
MARK E. AMODEI, Nevada

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
published in electronic form. The printed hearing record remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing record, the process 
of converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

                               __________

                             August 2, 2012

                                                                   Page

Odyssey of The CVE (Center For Veterans Enterprise)..............     1

                           OPENING STATEMENTS

Chairman Bill Johnson, Subcommittee on Oversight and 
  Investigations.................................................     1
    Prepared Statement of Chairman Johnson.......................    43
Chairman Marlin A. Stutzman, Subcommittee on Economic Opportunity     3
    Prepared Statement of Chairman Stutzman......................    44
Hon. Joe Donnelly, Ranking Democratic Member, Subcommittee on 
  Oversight and Investigations...................................     4

                               WITNESSES

Mr. Thomas J. Leney, Executive Director, Office of Small and 
  Disadvantaged Business Utilization, U.S. Department of Veterans 
  Affairs........................................................     5
    Prepared Statement of Mr. Leney..............................    44
Mr. Richard J. Hillman, Managing Director, Forensic Audits and 
  Investigative Service, U.S. Government Accountability Office...    20
    Prepared Statement of Mr. Hillman............................    49
Mr. James J. O'Neill, Assistant Inspector General for 
  Investigations, Office of the Inspector General, U.S. 
  Department of Veterans Affairs.................................    23
    Prepared Statement of Mr. O'Neill............................    54
Mr. Richard F. Weidman, Executive Director, Policy & Government 
  Affairs, Vietnam Veterans of America...........................    35
    Prepared Statement of Mr. Weidman............................    57
    Executive Summary of Mr. Weidman.............................    61
Mr. Scott F. Denniston, Executive Director, National Veteran 
  Small Business Coalition.......................................    36
    Prepared Statement of Mr. Denniston..........................    61

                       SUBMISSION FOR THE RECORD

From: James F. McDonnell, Chairman & CEO, Trinity Applied 
  Strategies Corporation to the Committee........................    64

                        QUESTIONS FOR THE RECORD

Letter and Questions From: Hon. Joe Donnelly, Ranking Democratic 
  Member, Subcommittee on Oversight and Investigations To: Hon: 
  Eric K. Shinseki, Secretary, Department of Veterans Affairs....    68
Responses From: Hon: Eric K. Shinseki, Secretary, Department of 
  Veterans Affairs To: Hon. Joe Donnelly, Ranking Democratic 
  Member, Subcommittee on Oversight and Investigations...........    70
Letter and Questions From: Hon. Joe Donnelly, Ranking Democratic 
  Member, Subcommittee on Oversight and Investigations To: Hon: 
  Gene L. Dodaro, Comptroller General of the United States, 
  Government Accountability Office...............................    73
Responses From: Hon: Gene L. Dodaro, Comptroller General of the 
  United States, Government Accountability Office To: Hon. Joe 
  Donnelly, Ranking Democratic Member, Subcommittee on Oversight 
  and Investigations.............................................    74

                   MATERIALS SUBMITTED FOR THE RECORD

Letter From: George J. Opfer, Inspector General, Department of 
  Veterans Affairs To: Hon. Joe Donnelly, Ranking Democratic 
  Member, Subcommittee on Oversight and Investigations and to the 
  Hon. Bruce L. Braley, Ranking Democratic Member, Subcommittee 
  on Economic and Opportunity....................................    80
Letter From: Joe Donnelly, Ranking Democratic Member, 
  Subcommittee on Oversight and Investigations To: Mr. Scott 
  Denniston, Executive Director, National Veteran Small Business 
  Coalition......................................................    80
Letter From: Joe Donnelly, Ranking Democratic Member, 
  Subcommittee on Oversight and Investigations To: Mr. Richard F. 
  Weidman, Executive Director for Policy & Government Affairs, 
  Vietnam Veterans of America....................................    81
Letter From: Joe Donnelly, Ranking Democratic Member, 
  Subcommittee on Oversight and Investigations To: Mr. George J. 
  Opfer, Inspector General, Department of Veterans Affairs.......    82

          ODYSSEY OF THE CVE (CENTER FOR VETERANS ENTERPRISE)

                        Thursday, August 2, 2012

             U.S. House of Representatives,
            Committee on Veterans' Affairs,
      Subcommittee on Oversight and Investigations,
                                             joint with the
                      Subcommittee on Economic Opportunity,
                                                   Washington, D.C.
    The Subcommittees met, pursuant to call, at 10:03 a.m., in 
Room 334, Cannon House Office Building, Hon. Bill Johnson 
[Chairman of the Subcommittee on Oversight and Investigations] 
presiding.
    Present from Subcommittee on Oversight and Investigations: 
Representatives Johnson, Roe, Benishek, Donnelly, McNerney, and 
Barrow.
    Present from Subcommittee on Economic Opportunity: 
Representatives Stutzman, Bilirakis, Huelskamp, and Walz.

          OPENING STATEMENT OF CHAIRMAN BILL JOHNSON, 
          SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

    Mr. Johnson. Good morning. This hearing will come to order.
    I want to welcome everyone to today's joint hearing on the 
Center for Veterans Enterprise.
    I thank the Members of the Subcommittee on Economic 
Opportunity for their participation and their efforts in 
improving the process for veteran-owned and service-disabled 
veteran-owned small businesses to conduct business with the VA.
    The two Subcommittees have worked throughout this Congress 
to improve the certification process for veteran-owned and 
service-disabled veteran-owned small businesses or as we refer 
to them VOSBs and SDVOSBs.
    We have patiently waited for signs of progress following 
the installation of a new executive director of small and 
veteran business programs at the VA. And while some 
improvements have been made, unfortunately the goals 
established nearly a year ago have yet to be achieved.
    This Committee has an oversight responsibility to the 
American people to ensure that tax dollars administered by the 
VA are going to legitimate, qualified veteran-owned businesses.
    I am hopeful that today's hearing will encourage and assist 
the VA in reaching their goals of improving the CVE once and 
for all.
    As this Committee's own investigations and multiple 
Government Accountability Office investigations have shown, the 
ad hoc processes implemented by the CVE to verify and reverify 
businesses are not working. The recommendations made by the GAO 
and the VA's inspector general go unheeded.
    Regardless of the reasons, the time has come for the CVE to 
take a hard look in the mirror, dig down to the root of the 
problem and fix it.
    I can assure you veteran business owners are losing 
patience. This Subcommittee is losing patience and the American 
people are losing patience.
    With the attention that this issue has received, the 
findings of the recent GAO study, Service-Disabled Veteran-
Owned Small Business Program, Vulnerability to Fraud and Abuse 
Remains, are very troubling.
    One of the many flaws in the system substantiated by GAO 
includes the VA's providing GAO with seven different accounts 
of how many SDVOSBs are verified by the CVE under the Veterans 
Benefits Healthcare and Information Technology Act of 2006 and 
the Veterans Small Business Verification Act of 2010.
    Given the amount of resources, we have urged the VA to 
commit to the CVE, it is safe to say we expected better than 
this.
    Over the past several months, this Committee provided the 
department with feedback and input regarding the CVE's 
reverification problem. With this in mind, we welcome the 
secretary's recent announcement that the VA will move from 
annual reverification to a biannual reverification, something 
this Committee had been strongly urging the VA to do for a long 
time.
    While this move is commended, the problems plaguing the CVE 
go beyond reverification. For instance, the VA's decision to 
ignore the Small Business Administration's regulations 
regarding ownership and control of a business has resulted in 
unnecessary problems.
    The VA's choice to create its own standards for ownership 
and control has led to the CVE applying inconsistent standards 
to businesses applying for verification.
    In some instances, these arbitrary standards involve 
requests that are invasive and have needlessly hurt legitimate 
veteran-owned small businesses.
    It is not only the legislative branch that believes the 
CVE's improvised standards and reasoning is lacking, but also 
the judicial branch.
    This past March, a Federal district judge for the District 
of Columbia stated in an opinion that, and I quote, ``Several 
of the grounds cited by the CVE as a basis for denying the 
application for inclusion in the VetBiz VIP database are 
described in such generalized and ambiguous terms that the 
court is essentially left to guess as to the precise basis for 
the agency's decision.''
    Unfortunately, this characterization describes the 
experience of many businesses who have applied for 
certification and have been denied.
    On July 11th, Chairman Stutzman and I sent a letter to 
Secretary Shinseki detailing these and other problems and we 
continue to await a response.
    Today's hearing provides an opportunity to candidly discuss 
CVE's failures and where and how it can be improved.
    I want to thank all of our witnesses for their 
participation today and I look forward to the testimony.
    I now yield to Chairman Stutzman of the Subcommittee on 
Economic Opportunity for his opening statement.

    [The prepared statement of Hon. Johnson appears in the 
Appendix]

        OPENING STATEMENT OF CHAIRMAN MARLIN STUTZMAN, 
            SUBCOMMITTEE ON ECONOMIC AND OPPORTUNITY

    Mr. Stutzman. Thank you, Mr. Chairman.
    And good morning to you all.
    Everyone here knows about the problems VA has had 
implementing the small business provisions of a series of 
Public Laws beginning with Public Law 109-461. And we will hear 
more about it today, I am sure.
    While addressing those continuing issues is important, 
especially those which may include criminal activity, the past 
is not my focus here today.
    I want to know how and equally important when VA will put 
in place the systems and policies that will shorten the time to 
be approved, decrease the level of effort needed to pass 
muster, and lower the cost and finally create a community of 
veteran-owned businesses that is reasonably free from 
unqualified companies.
    This is not just a VA task. There are issues we in Congress 
need to deal with as well. For example, current law effectively 
eliminates any company funded through investors because of the 
hundred percent control requirement. That means should we adopt 
a less stringent definition of control which then begs the 
question of how to prevent rent-a-vet operations from 
flourishing at the expense of fully qualified companies.
    Another issue is what VA describes as negative control 
where a veteran majority owner can potentially be thwarted by a 
non-veteran minority owner.
    Another is how to best judge the level of control when 
there is a disparity in the resumes of a veteran majority owner 
and a minority owner.
    Finally, there is the issue of recertification. I believe 
the current approach of recertifying every business, whether 
every year or every two years or three years or four years, may 
overwhelm CVE resources.
    Let me explain using an assumed increase of 2,000 approved 
businesses annually.
    [Chart]
    Mr. Stutzman. As you can see on the monitors that we have 
above here that if we use the current two-year recertification 
process, at the end of the tenth year, CVE will be recertifying 
18,000 businesses.
    Even using what Mr. Leney will describe as the simplified 
recertification process, I do not see how that magnitude of 
workload can be managed with a significant increase in 
resources beyond the current $30 million per year.
    We need another approach, perhaps a risk-based one that 
recertifies companies only when they are identified as a 
potential contract winner.
    So, Mr. Leney, you have your work cut out for you. And I 
know you know that as well. And I truly want you to succeed 
because the work that you do will be good not only for 
taxpayers, it will be good for the veteran community as well.
    With that, Mr. Chairman, I yield back.

    [The prepared statement of Hon. Stutzman appears in the 
Appendix]

    Mr. Johnson. Thank you, Chairman Stutzman.
    I now yield to Ranking Member Donnelly for his opening 
statement.

  OPENING STATEMENT OF HON. JOE DONNELLY, RANKING DEMOCRATIC 
      MEMBER, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

    Mr. Donnelly. Thank you, Mr. Chairman.
    The veteran-owned small business and service-disabled 
veteran-owned small business programs are designed to foster 
veteran entrepreneurship by increasing available business 
opportunities. Business ownership is especially a great 
opportunity for veterans with disabilities.
    As part of the process to ensure opportunities for verified 
service-disabled veteran-owned businesses, verified businesses 
are assured a portion of the VA's contracts and in order to 
ensure that only those firms that are actually SDVOSBs or VOSBs 
are awarded contracts, the VA Center for Veterans Enterprise is 
responsible for verifying the veteran ownership of respective 
businesses.
    Companies that have been determined to be eligible are 
listed in the VetBiz Vendor Information Pages database. CVE, 
however, continues to struggle with the verification process as 
progress confirming veteran ownership of firms listed in the 
VetBiz database has been slow and despite the slow pace of 
verification, the GAO remains concerned that CVE is unable to 
control its own program.
    Specifically in an ongoing investigation, the GAO found 
that CVE provided conflicting information on a number of 
reverifications they have done under the old law and the new 
law. We will give CVE the opportunity to clarify this.
    CVE's move to require reverification every two years may 
reduce the backlog, but unless those businesses who are 
considered verified met eligibility requirements in the first 
place, we risk awarding ineligible businesses VOSB and SDVOSB 
sole-source and set-aside contracts.
    We must find the proper balance among verifying business 
ownership or control, making the process easy and streamlined, 
and protecting taxpayer dollars from fraud.
    I look forward to hearing from our witnesses.
    Thank you, and I yield back.
    Mr. Johnson. Thank you, Ranking Member Donnelly.
    I now invite our first panel to the witness table, and I 
see he is already there. We will hear from Mr. Tom Leney, 
Executive Director of the Small and Veteran Business programs 
at the VA's Office of Small and Disadvantaged Business 
Utilization or OSDBU.
    Mr. Leney, your complete written statement will be made 
part of the hearing record, and you are now recognized for five 
minutes.

  STATEMENT OF THOMAS J. LENEY, EXECUTIVE DIRECTOR, OFFICE OF 
 SMALL AND DISADVANTAGED BUSINESS UTILIZATION, U.S. DEPARTMENT 
                      OF VETERANS AFFAIRS

    Mr. Leney. Thank you, Chairman Johnson, Chairman Stutzman, 
Ranking Member Donnelly, Members of the Subcommittee. Thank you 
for inviting me to testify on the status of VA's Veteran-Owned 
Small Business Verification Program and our response to the 
Government Accountability Office report.
    The VA has made substantial progress in improving the VA 
Verification Program. These improvements have reduced the 
potential for ineligible firms to take improper advantage of 
the Veterans First Program at the VA that was established by 
this body under Public Law 109-461 while at the same time 
making it easier and faster for legitimate Veteran-owned small 
businesses to gain greater access to the VA procurement 
opportunities.
    The VA has addressed the issues raised in the GAO report 
and believes the current verification process provides a high 
level of assurance that only eligible firms are verified.
    We have improved our quality control. We have expanded our 
program for referral of firms that we suspect are 
misrepresenting their status to the Office of the Inspector 
General and to the Debarment Committee.
    At the same time, we have taken action to improve the 
process in order to enable eligible firms to be verified 
quickly and efficiently. By regulation, VA has 90 days to make 
an initial decision where practicable.
    When I appeared before you a year ago, it took more than 
130 days on average to process an initial verification 
application. In April, we had reduced that average time to 73 
days.
    In 2011, only one-third of initial applications as noted in 
the GAO report were approved. In June, due in part to our 
increased efforts to educate potential applicants on how to 
become compliant with the regulation, more than 60 percent of 
initial applicants were approved.
    CVE has improved the verification process and is able to 
track its inventory of firms. Unfortunately, due to limitations 
in the capabilities of our verification case management system, 
we must do so off-line and that has resulted in problems in 
providing accurate aggregate reports.
    I can say with confidence, however, that no firm appears in 
VIP as eligible for an award unless it has been verified as 
owned and controlled by a Veteran.
    To ensure that it only verifies eligible firms, CVE has 
made a number of improvements. We have established a Legal 
Review Program to address potential errors. We have 
strengthened the review of requests for reconsideration by 
adding a legal review. We have established a risk management 
program. We have established a formal referral process to the 
Office of the Inspector General and the Debarment Committee.
    In addition to these kinds of actions we have taken to 
reduce the risk of verifying ineligible firms, we have also 
made improvements in the process aimed at reducing the time it 
takes to receive a determination of eligibility.
    We have established an online application process. We have 
expanded our customer service help desk. We have created a 
simplified reverification process to get at some of the issues 
that were raised by you, Chairman Johnson, here. And we have 
initiated a Verification Assistance Program.
    The impact of improvements has been limited by the high 
rejection rate of initial applications. In 2011, almost two-
thirds of the initial applications were denied.
    Our analysis of this result revealed that most rejections 
occurred as a result of a lack of understanding of the 
requirements of the regulation, not fraudulent intent.
    In order to address this problem, we have taken action to 
help Veterans better understand the regulatory requirements. We 
developed verification assistance briefs. We have provided 
briefings to veteran businesses on how to meet the standards.
    In response to stakeholder recommendations, we have 
developed an online verification self-assessment tool and we 
have partnered with the Procurement Technical Assistance 
Centers and veteran Service Organizations to provide counseling 
and to answer questions from applicants.
    In particular, I would like to acknowledge the support of 
VET-Force and the National Veterans Small Business Coalition 
for their active support of this effort.
    Some have raised concerns about the regulation itself. We 
have coordinated with the SBA to ensure that the VA regulations 
concerning verification are consistent with the SBA regulations 
covering the standards for government-wide SDVOSB program.
    We will continue this coordination as we have initiated a 
formal process seeking input from stakeholders in order to 
draft a significant change in the regulation.
    The VA has made significant progress in the verification 
program. We have overcome many of the challenges and 
vulnerabilities raised by the GAO and the IG. Bottom line, the 
program works.
    So far this year, 20 percent of VA procurements went to 
veteran businesses. That is real money to real Vets.
    Thank you, Mr. Chairman. I look forward to taking your 
questions.

    [The prepared statement of Thomas J. Leney appears in the 
Appendix]

    Mr. Johnson. I thank you for your testimony.
    We will now begin with the questioning.
    Mr. Leney, you heard the quote that I read just a little 
bit ago from the Federal district judge for the District of 
Columbia who said several of the grounds cited by the CVE as a 
basis for denying the application for inclusion in the VetBiz 
VIP database are described in such generalized and ambiguous 
terms that the court is essentially left to guess at the 
precise basis for the agency's decision.
    So what steps has the CVE taken to ensure that decisions 
for appeals are sufficiently reasoned so that if the issue does 
go to court, a judge can properly exercise judicial review?
    Mr. Leney. Sir, I find that judicial concern troubling.
    Mr. Johnson. Okay. I know you find it troubling. And we 
have got a lot of witnesses to hear from today. I do not want 
to spin our wheels.
    Have you made any improvements as a result of that district 
judge's finding and the input that we have given you from this 
Subcommittee to make sure that appeals are sufficiently 
reasoned so that they can be understood? Has any action been 
taken?
    Mr. Leney. Yes, sir. As I mentioned in my oral statement, 
every request for reconsideration receives a legal review from 
our Office of General Counsel on the basis of ``Are we prepared 
to defend it in court.''
    Mr. Johnson. Have you made any changes to your process to 
make sure that they are efficient?
    Mr. Leney. That is, in fact, a change to the process. Every 
one of our requests for reconsideration receives a legal 
review.
    Mr. Johnson. Okay. And that was not being done prior to?
    Mr. Leney. That was not being done prior.
    Mr. Johnson. Okay. Does VA possess the necessary expertise 
in making determinations of ownership under their current 
process?
    Mr. Leney. Yes, sir.
    Mr. Johnson. Okay. VA does not allow for affiliations 
whereas--because you testified just a few minutes ago that your 
process is consistent, I think, with--your regulations are 
consistent with SBA's regulations if I heard you correct.
    Mr. Leney. Yes, sir.
    Mr. Johnson. The VA does not allow for affiliations whereas 
government-wide rules do allow for affiliations.
    Why is there a difference between SBA and VA's 
interpretation?
    Mr. Leney. Sir, in response to engagement with this 
Committee, we undertook a review of our regulation with respect 
to 13 CFR 125 and 13 CFR 124 which are the SBA regulations.
    We found that not only are our regulations similar, our 
interpretations are similar as well. In fact, based on our 
review to date, the SBA under its regulations routinely reaches 
similar if not identical decisions as the VA.
    We have undertaken a review of the regulation. We are doing 
that in collaboration with the SBA. And, in fact, one of the 
elements if you compare the two regulations, our regulation is 
much more detailed than 13 CFR 125.
    Mr. Johnson. What about 13 CFR 121, Mr. Leney? That is also 
a part of this discussion. That describes the intent of the 
Congress. How do you involve 13 CFR 121 in your process?
    Mr. Leney. Sir, the 13 CFR 121 is one of the regulations we 
are now looking at as part of our review of our regulations.
    Mr. Johnson. But it has been there for a long time and we 
have suggested that you look at it and that you include it for 
a long time. And you are just now looking at it?
    Mr. Leney. Sir, my focus has been to implement the 
regulation that the VA utilizes for the Verification Program.
    Mr. Johnson. But shouldn't the regulation be based on the 
law, Mr. Leney?
    Mr. Leney. The regulation, we believe, is based on the law, 
sir.
    Mr. Johnson. But not if you exclude 121.
    Mr. Leney. Sir, like I say, the Secretary has directed us 
to review the regulation. We are doing so in conjunction with 
the SBA and stakeholders. I cannot speak to why it was not done 
previously, but it is being done now.
    Mr. Johnson. How long have you been here, Mr. Leney?
    Mr. Leney. Sir, I have been here a year.
    Mr. Johnson. And this is not the first time you have 
testified before this Subcommittee?
    Mr. Leney. It is not the first time.
    Mr. Johnson. We have talked about 121 before?
    Mr. Leney. Yes, sir.
    Mr. Johnson. Okay. So why are you waiting for the Secretary 
to tell you to do something that the law clearly requires?
    Mr. Leney. Sir, as I stated, my focus has been to implement 
the regulation that is in place with the VA. That regulation is 
long-standing and has been tested. We are now reviewing that 
regulation based on an extensive series of stakeholder 
engagements and I will be happy to come back and report the 
results.
    Mr. Johnson. You will get a chance to come back, Mr. Leney, 
because it is a violation of the law. 121 is part of the 
process and that is what this Subcommittee demands. It is what 
the American people demand.
    That is why we are losing patience with the process because 
we keep making these suggestions and we keep spinning our 
wheels and chasing this same rabbit around the corner over and 
over and over again.
    So I am sure I will have more questions. I am going to go 
now to Mr. Stutzman for his questions.
    Mr. Stutzman. Thank you, Mr. Chairman.
    I believe the VA has a fairly robust statistical analysis 
division; is that correct?
    Mr. Leney. Sir, I cannot speak to that. I do not know.
    Mr. Stutzman. You do not know that?
    Mr. Leney. I do not know the extent of the statistical 
analysis----
    Mr. Stutzman. You do have one?
    Mr. Leney. I cannot speak to that. I do not know.
    Mr. Stutzman. Okay. Well, the answer should be yes.
    In my opening remarks, I mentioned the effects of 
recertification and showed a very simple model of the potential 
effect of the current recertification process which is still up 
on the screen.
    So, therefore, I am asking the VA to provide Chairman 
Johnson and myself with an operational analysis of keeping the 
current two-year cycle in place as well as other alternative 
systems that would be appropriate.
    If you could cover a ten-year time period, and I would ask 
that you provide that to us during the first week of September.
    I would also ask that you consult with staff, VA staff in 
identifying alternatives as the analysis begins so that we can 
see what your responsibilities will be and how you plan to deal 
with the recertification process. Is that possible?
    Mr. Leney. We will be happy to provide that analysis, sir.
    I would note that it is important to keep in mind of the 
over 6,000 firms currently in VIP, fewer than 3,000 of them do 
business with the VA.
    Mr. Stutzman. Okay.
    Mr. Leney. So the notion that we would continue to see a 
huge increase in firms in the VIP may be a fundamental 
assumption that we need to look at.
    Mr. Stutzman. Okay. Do you believe you have a good handle 
on the number, actual numbers of firms in the VIP database?
    Mr. Leney. Yes, sir.
    Mr. Stutzman. I want to talk a little bit about the budget 
for your department. Currently your budget is about $30 
million; is that correct?
    Mr. Leney. Sir, the budget for OSDBU is $33 million.
    Mr. Stutzman. Thirty-three million?
    Mr. Leney. The budget for CVE is approximately $24 million.
    Mr. Stutzman. Okay. And that comes from the VA Supply Fund; 
is that correct?
    Mr. Leney. Yes, sir.
    Mr. Stutzman. And do you anticipate that this is going to 
increase your budget and what is your position on continuing 
your source of funding in the future?
    Mr. Leney. Sir, I have received all the resources that are 
necessary to perform the mission from the Supply Fund. The 
Supply Fund provides flexible and rapid response to changes in 
the mission.
    This mission has expanded in scope and complexity even in 
the, and correction, in the 15 months I have been at the VA. 
And the Supply Fund has enabled us to respond to those changes.
    Mr. Stutzman. Who is in control of the Supply Fund?
    Mr. Leney. Sir, there is a board that manages and governs 
the Supply Fund.
    Mr. Stutzman. Okay. Could you give us an idea of what is 
the process for deciding to send a firm to the IG or begin 
debarment actions?
    Mr. Leney. Sir, the CVE makes a determination of 
eligibility for participation in the Vets First Program. If our 
examiners and evaluators determine there is risk that the firm 
is misrepresenting itself, we have a process whereby we do site 
visits.
    If, in conjunction with a site visit, we make a 
determination that there has been misrepresentation, we refer 
the firm to the Office of Inspector General.
    Mr. Stutzman. Do you have any firms that are still in the 
database that are classified under self-certification?
    Mr. Leney. No, sir. We have no firms in VIP who are 
eligible to receive awards from the VA that have not been 
verified.
    Mr. Stutzman. And how many firms do you have under the Lite 
process or the----
    Mr. Leney. Right now as of the 31st of July, we had 6,150 
firms in VIP; 3,825 of those firms have been verified under the 
process that was established as a result of Public Law 111-275, 
and 2,325 of those firms were verified under the earlier 
process.
    Mr. Stutzman. Is that all of them? All of them would have 
some sort of certification or verification?
    Mr. Leney. Sir, all the firms in the database are in one of 
two categories.
    Mr. Stutzman. Okay. All right.
    Mr. Leney. They are either eligible to receive awards from 
the VA. They are verified and current. We have a category of 
firms in VIP that is called reverification. Those are firms 
whose verification period has expired. However, we have reached 
out to them to initiate reverification. And rather than 
disadvantaging those firms because they have expired, we have 
kept them available in the database. They are eligible to 
submit proposals. They are not eligible to receive an award.
    And we have established a process by which if they are 
pending an award, we call it fast tracking their application to 
determine whether or not they are eligible. If they are 
eligible, they may receive the award. If not, they are dropped 
from the VIP database.
    Mr. Stutzman. Okay. Thank you, Mr. Chairman. I will yield 
back.
    Mr. Johnson. I thank the gentleman for yielding back.
    I will now go to Ranking Member Donnelly for his questions.
    Mr. Donnelly. Thank you, Mr. Chairman.
    Mr. Leney, thank you for being here.
    One of the key things obviously is we have Vets from all of 
our conflicts who need jobs, who want to be employed.
    And so when we see various businesses turned down, do we 
have some type of ability to work with them? You know, there 
are some who are just not eligible for various reasons. You 
know, maybe they are not Veterans or whatever.
    But for the ones who are trying to get paperwork right, who 
are trying to figure the system out, who are trying to become 
eligible, does the VA have an advocate for them to sit down 
with them and say, okay, listen, your paperwork is all fouled 
up, you do not have this and this and this right, but these are 
the things you need to do and we will work through this with 
you to try to make sure you can become one of our guys?
    Mr. Leney. Sir, we have done two things. First, in the 
reconsideration process, when I reported to this Committee a 
year ago, the reconsideration process was limited to a 
determination of whether or not CVE had made an error in its 
initial determination.
    Subsequent to that hearing and in conversation with members 
of your staff, we changed the reconsideration process to give 
Veterans a second chance, that, if in their initial 
determination they were found to be noncompliant with a 
regulation, we laid out what the rationale for noncompliance 
was and under the request for reconsideration process, we 
enabled them to make corrections to those elements of their 
application that are noncompliant and resubmit. That is the 
first thing we did.
    The second thing we have done is we have partnered with a 
number of external organizations to provide counseling for 
applicants to provide this kind of assistance.
    We have also provided verification assistance briefs which 
lay out in plain language what is required to be compliant with 
the regulation.
    We have just developed a self-assessment tool that the 
veteran can walk through every element of the regulation to 
determine whether or not his business model is consistent with 
the regulation.
    Mr. Donnelly. The reason I ask this is it is clear some 
folks do not qualify, but then it is also clear that some folks 
do not qualify simply because they are trying to work through 
the maze.
    And so I think one of the things the VA ought to do is be 
an advocate to help them get through the maze, that they served 
us, they served our country, and we should be there for them in 
this process to say, hey, listen, your stuff is not right yet, 
but we will work with you. We will get you to that point.
    And one of the other issues is that we are at 20 percent. 
We are happy for the 20. Our goal is to go higher and to try to 
have even more veteran work done.
    So how do we make veteran businesses that are out there, 
whether it is in Idaho or in Indiana where I am from, aware 
that there is an opportunity here, there is an opportunity for 
business to be part of the VA vendor group?
    What is being done now and what is being looked at to try 
to make sure that every Vet who comes home, young man or woman 
comes home from Afghanistan wants to start their own business, 
how do we make it clear to them that, hey, one of your clients 
can be the Veterans Administration?
    Mr. Leney. Yes, sir. We have done several things. One, we 
have engaged in the redesign of the Transition Assistance 
Program. And the new Transition Assistance Program will be 
rolling out a veteran entrepreneurship module that helps 
educate Veterans about entrepreneurship opportunities.
    We have worked with our acquisition community to reach out 
to Veterans. At our National Veterans Conference in Detroit, we 
brought over 650 procurement decision-makers to Detroit and 
they spent three days focused on engaging with veteran small 
businesses. We reached out to 47,000 veteran small businesses 
to let them know about that opportunity to connect directly 
with procurement decision-makers.
    Mr. Donnelly. How do you find all the Veteran-owned small 
businesses out there?
    Mr. Leney. How do we find them, sir?
    Mr. Donnelly. Yes. Like if there is one in Rochester, 
Indiana and the man or woman running it, they have a little 
office supply company, is there any way for you to find them or 
do they have to find you?
    Mr. Leney. Sir, there is approximately, and I am not exact 
in my figures, I believe the Census Bureau says about over 
three million Veteran-owned businesses.
    Mr. Donnelly. Uh-huh.
    Mr. Leney. About two million of them have one employee. We 
start with the CCR which is the registry by which veteran 
businesses register to do business with the Federal Government. 
And that has been the group that we focused on.
    Mr. Donnelly. Okay, because my goal in this is for the 20 
percent to become 25 percent, the 25 percent to become 30 
percent, and for the other 70 percent, and up and up, and for 
the companies who are not Vet owned to see that they have as 
many Vet employees as possible.
    Mr. Leney. Sir, I share your goal.
    Mr. Donnelly. --I am hopeful and I am sure that is the goal 
on your part as well, but that is what we want to head towards.
    Thank you very much, sir.
    Mr. Johnson. I thank the gentleman for yielding.
    We will now go to Mr. Benishek for his questions.
    Mr. Benishek. Thank you, Mr. Chairman.
    Good morning.
    Mr. Leney. Good morning, sir.
    Mr. Benishek. How are you?
    You know, we talked last week a little bit and, you know, I 
have a Veteran-owned business in my district that, you know, 
went through this application process and, you know, asked our 
office to help with the process.
    It just seems like it must be complicated because even 
after our office talked with your office and, you know, talked 
to my constituent and his attorney and put them on the right 
course to, you know, correct the problems with their articles 
of incorporation and all that, then they reapplied and they 
still got rejected.
    Apparently, you know, my staff, their attorney and them 
could not figure out how to do it properly even after going 
through that, you know, whole process of getting my office 
involved, getting your office involved.
    And it seems to me that this has got to be a pretty 
complicated process considering also that you have got 60 
percent initial rejection rate.
    How many people are rejected the second time? Is that a 
very common occurrence, like what happened to my constituent?
    Mr. Leney. Sir, approximately 40 percent are rejected after 
a request for reconsideration.
    Mr. Benishek. It just seems to me that there is more people 
being rejected for technical problems with the application than 
they are for being fraudulent. Is that your----
    Mr. Leney. Sir, firms are being rejected for being 
noncompliant with the regulation. Having examined over the last 
year the rationale for denial, a very small percentage are 
rejected because we perceive them to be fraudulent.
    All the ones that we perceive to be misrepresenting or 
fraudulent we now refer to the Office of Inspector General.
    Mr. Benishek. Isn't that sort of a problem with the way you 
are doing things then? I mean, it seems to me that, you know, 
most of them are small businesses because they are, you know, 
not shareholder companies and, you know, within the means of, 
you know, hiring a corporate attorney which they have to figure 
all this out and they still cannot get it right.
    It seems like it must be an over-complicated process to me 
if even on the second application there is 40 percent 
rejection. So, you know, I do not know the answer to that, but 
it seems to me that you should just reevaluate your whole 
system.
    And I am not as familiar with some of the details as some 
of the other Members of the Committee perhaps, but, you know, 
these are just regular people trying to get communication with 
the government and you know how difficult it is to get some 
sort of a reasonable answer out of the government. It makes it 
frustrating for our Veterans who are trying to, you know, 
legitimately because of all these problems.
    Let me ask you one other question and this is sort of a 
technical detail maybe. One of the reasons why my guy was 
rejected was that although he has majority owner, my veteran 
had the majority ownership of the company, on his death, you 
know, the--because he was dying, then his stock would go to his 
other shareholders, that made it ineligible somehow? I mean, 
how does that----
    Mr. Leney. Upon the death of the Veteran, the firm would no 
longer be eligible.
    Mr. Benishek. Right. But because that is in the articles, 
then the firm is not eligible today?
    Mr. Leney. I cannot speak to the specific instance because 
I do not know the details. But the majority of firms that are 
denied eligibility are denied for a failure of the veteran to 
have a hundred percent control. That is the standard that is in 
the regulation. And that standard is the same standard that is 
applied in the SBA regulations.
    Mr. Benishek. So a majority ownership does not----
    Mr. Leney. Majority ownership is necessary, but not 
sufficient. Our challenge, sir, is we are balancing the--with 
this regulation the concerns that you have read about in the 
GAO report, the concerns you have read about in the IG report 
of ensuring that, as was mentioned by one of the Members, you 
know, rent-a-Vets do not occur, that we have only eligible 
veterans being part of the program.
    So we are balancing that with a process that is expected to 
have a high standard of execution with having a process that is 
easy for a veteran to get through.
    I having spent a great deal of time looking at the process 
and the regulation, that is why we have put out some of these. 
Sometimes reading a regulation is a tough thing to do. That is 
why we have put out assistance briefs, et cetera.
    Mr. Benishek. Well, I tend to agree with Mr. Donnelly that 
it just seems to be overly complex and that you should be 
providing these firms with some further assistance because 
obviously, you know, after coming to, you know, coming to you, 
coming to me, you know, us talking to you, talking to their 
attorney, they still could not get it right.
    And, you know, the people, I know these people. They are 
not uneducated people. They are trying to comply and yet having 
gone through that process once, they still were unable to 
comply. And I just think there is a failure somewhere of making 
it so difficult for people to get into this program.
    I see my time is up. Thank you.
    Mr. Johnson. Thank you for yielding.
    We will now go to Mr. McNerney for his questions.
    Mr. McNerney. Thank you. Thank you, Mr. Chairman.
    Mr. Leney, a few minutes ago, you stated that about 60 
percent of applicants were denied in 2011, but because of 
outreach efforts of your department, that number has decreased 
to 30 percent.
    But you also stated that most of those applicants that were 
denied were not denied because of fraudulence.
    So what percentage of applicants are denied because of 
fraudulence? Is that number consistent between 2011 and today?
    Mr. Leney. Every application that we believe has 
intentionally misrepresented their status we refer to the 
Office of Inspector General. So far in 2012, we referred 59 
firms. In 2011, we referred 25 firms.
    The difference in those numbers is less a function of the 
incidence of potential misrepresentation than it does to 
represent a change in the establishment of a more rigorous 
process and formal process for review and referral.
    So 59 firms, again, that is less than five percent of those 
firms who apply. The vast majority of the firms that I said 
before have a business model that it is not compliant with the 
regulation. And some of it is they are ignorant of the fact 
that their business model does not comply with the regulation 
or they do not like the fact that their business model does not 
comply with the regulation.
    But we verify as eligible those firms whose business model 
complies with the regulation in place.
    Mr. McNerney. Well, what is the most common lack of 
compliance then that would disqualify a business?
    Mr. Leney. The most common rationale for lack of compliance 
is on the issue of control of the business. There has been 
criticisms of the process that it is capricious, subjective.
    And, therefore, what we have tried to do is, and the 
regulation seeks to do, is draw bright lines and to make it 
clear if a veteran meets the control requirements and the 
ownership requirements, it is very straightforward. In 
ownership, do you have 51 percent or more of the ownership.
    In control, the standard is 100 percent control which means 
the veteran can do anything he wants or she wants with that 
company and none of their partners, none of the other owners 
can prevent them from doing so.
    What we find in many business models is that the minority 
partners seek to have some control of the business. And the 
requirement in the current regulation, and that is a regulation 
we are looking at, but I will tell you there is a wide range of 
views as to how do you determine 90 percent control, how do you 
determine 70 percent control.
    Mr. McNerney. So in going from a 60 percent rejection rate 
to roughly half of that, I mean, what you are describing is a 
fairly complicated process. You know, a veteran wants to apply 
for business ownership. I do not suppose he has or she has an 
MBA.
    How hard is this application? Is it the difficulty of the 
application or is it the difficulty in showing ownership? I 
mean, where is the rub here? I do not quite understand why it 
is so hard to comply.
    Mr. Leney. Two reasons. And, by the way, I need to clarify 
for the Committee. I would like to say that the reduction in 
initial denials is a function of our Verification Assistance 
Program. I do not believe we have enough data yet to be able 
for me to state that with great confidence.
    We have undertaken an effort to make it very clear to 
Veterans what their business model needs to look like. Hence, 
things like our verification assistance briefs.
    I will tell you, sir, that probably 80 percent of denials 
are issues that are very clear cut. They do not take an MBA. 
They do not take a lawyer.
    If you have a board with three people and two of the 
members of the board are non-Vets and you have an operating 
agreement or a set of bylaws that calls for governance and 
control of the firm based on the majority vote of the board, 
you are noncompliant.
    And there have been hundreds of cases where issues that 
simple or if the members, other members of the board who are 
non-Vets can put restrictions on the Veteran's ability to 
transfer, to sell the business, to transfer the business, to 
make decisions, then that firm is noncompliant. That is not a 
complicated issue.
    Mr. McNerney. Well, how much subjectivity is there in this 
process?
    Mr. Leney. We have sought to minimize the subjectivity 
wherever possible which tends to drive us to areas where we 
have bright lines. That is why the issue of a hundred percent 
control.
    People say, wow, I feel like I am in control of my firm, 
but I have an investor who wants to make sure that I cannot 
sell the company out from underneath them because he has 
invested money in the firm.
    The current regulation would define that business model to 
be noncompliant. Not complicated, but it is a model that that 
particular business does not fit.
    So I think that given the efforts we have made to clarify, 
given the efforts we have made to draw bright lines, I think 
there is much less basis to say I just cannot understand what I 
need to do. It is ``my business model does not fit what I need 
to do to be compliant.''
    Mr. McNerney. Okay. I think I have run out of time, Mr. 
Chairman.
    Mr. Johnson. I thank the gentleman for yielding.
    We will go to Dr. Roe.
    Mr. Roe. I do not have many questions today, Mr. Chairman.
    But just back to control, the definition of control. I have 
owned some businesses and if I have got 51 percent, I have got 
control. And anybody that owns 51 percent of the shares in a 
business is in control of that business.
    The last time I looked, you are the majority stockholder 
unless there is some language in the contract that you have 
that you are not. But, I mean, that is the point in owning 51 
percent. You are in control.
    And so that is my question here. What is the definition of 
control? I think control, if you own 51 percent of General 
Motors stock, you control that company. You absolutely do. And 
so by narrowing the definition, do you have to have a--I am not 
sure whether you own a hundred percent of the stock.
    That means you could have no other investors if that is 
what you are talking about. It would just have to be me, the 
veteran investing all the money. I think that was where Mr. 
McNerney was going.
    And it sort of confused me when you said--and I get when 
you say if you have three on the board and two of them can 
veto, no, you do not have control of that. You have one vote, 
not two. If you have got two of the three, you absolutely do 
control that business.
    So you confused me by your definition of control. Explain 
it to me again. Fifty-one percent is not control.
    Mr. Leney. Fifty-one percent is not control. It is 
ownership.
    Mr. Roe. And that is in the statute.
    Mr. Leney. Simple definition of control is that you as the 
business owner can do anything you want with that firm and 
nobody can prevent you from doing so.
    Mr. Roe. Let me back up again. Stop right there. If I have 
got 51 percent of my business, and I have been involved in 
several, I control that business period.
    Mr. Leney. Sir, that is not the definition applied in the 
regulation.
    Mr. Roe. So what you are saying is, is that control is not 
only the majority of the stock?
    Mr. Leney. Yes, sir.
    Mr. Roe. That is not control?
    Mr. Leney. It is not majority of the stock.
    Mr. Roe. And that is written in the regulation where if the 
veteran does not have a hundred percent--so he cannot get an 
equity owner? In other words, if I start a business, I am a 
veteran, if I start a business, I have got to do it with all my 
money, no outside investors at all, basically just me; is that 
right?
    Mr. Leney. The regulation does not require a hundred 
percent ownership. The regulation requires a hundred percent 
control. You have identified a very real issue for veteran 
businesses.
    If you have a minority owner or an investor----
    Mr. Roe. Let me stop there. If I come in, and to Dr. 
Benishek's point, if I come in as a veteran-owned small 
business and I come and I make this application and I say to 
you I have got 51 percent of this company, I control what 
happens, I have got veto power over everything in my company, 
but I have got other investors, that means by that definition I 
cannot get a veteran-owned small business contract?
    Mr. Leney. If your investors can limit your ability to make 
decisions about that company, you will not be eligible.
    Mr. Roe. But I----
    Mr. Leney. An example would be you can have a hundred 
percent control----
    Mr. Roe. I think we are playing board games here.
    Mr. Leney. No, sir.
    Mr. Roe. And it is bothering me some because, look, have 
you ever owned a business before?
    Mr. Leney. No, sir. But I have run businesses. And you are 
right, no investor is going to give you 100 percent control of 
his investment.
    Mr. Roe. Well, let me back up and say if they invest in 
your company and you own 51 percent of the stock, they just did 
that. That is the point in owning 51 percent.
    Mr. Leney. Sir----
    Mr. Roe. You can vote on a board all you want to. I do not 
care if the board--and when you have a vote at the General 
Motors board, when one more than a simple majority votes yes, 
that is what that company does.
    Mr. Leney. Yes, sir. And if you have two non-veterans on a 
board of three, you can own 100 percent of that company and if 
those two non-veterans take a vote on the board----
    Mr. Roe. No, I got that. I mean, I get two out of three.
    Mr. Leney. Yes, sir.
    Mr. Roe. So I understand. That is pretty simple math. I get 
that. It is when you have 51 percent, that is what I do not.
    Anyway, let's go another way. I want to ask also on the 
business model, and, again, I am learning a lot here, what 
complies? In other words, what makes you a compliant company? 
We have sort of muddled this definition, but what else do you 
have to go through?
    As Dr. Benishek brought up, obviously an attorney and his 
client and so forth. How do you become compliant? What are the 
criterion to be a compliant company?
    Mr. Leney. Put most simply, you have to have at least 51 
percent ownership. You must have 100 percent control. You must 
demonstrate that you manage the firm's day-to-day operations 
and set the strategic direction of the firm.
    Mr. Roe. Okay. Restate what you just said to begin with. If 
you have 51 percent ownership----
    Mr. Leney. Yes, sir.
    Mr. Roe. --you would not have control if you did?
    Mr. Leney. The regulation does not define 51 percent 
ownership or even 100 percent ownership as being in 100 percent 
control.
    Mr. Roe. Well, I think we need to re-look at that, Mr. 
Chairman, because I have never heard where--I always thought if 
I owned 51 percent of the----
    Mr. Johnson. Will the gentleman yield?
    Mr. Roe. I will.
    Mr. Johnson. You said you are going toward lines of clear 
delineation. Give us the definition of control. You ought to be 
able to do that. You are the director of this department.
    Mr. Leney. Yes, sir.
    Mr. Johnson. Tell this Subcommittee right now, tell the 
people that are listening today what is the definition of 
control if 51 percent ownership does not qualify. What is it?
    Mr. Leney. The definition of a hundred percent control is 
that you can do anything you want with that business, make any 
decision concerning that business to include selling that 
business for a dollar and no one else in that business to 
include other owners, other minority owners can do anything to 
prevent you from doing so.
    Mr. Johnson. Mr. Leney, do you know of any business in the 
world that has more than one owner where that definition would 
qualify? Can you name me one business, one?
    Mr. Leney. I can name you----
    Mr. Johnson. One?
    Mr. Leney. --six thousand businesses.
    Mr. Johnson. Where that definition qualifies?
    Mr. Leney. Yes, sir.
    Mr. Johnson. Under a court of law?
    Mr. Leney. Yes, sir.
    Mr. Johnson. I would like to see them. Would you write them 
down and submit them to this Committee?
    Mr. Leney. Yes, sir.
    Mr. Johnson. I would like you to do that. I question that.
    Mr. Leney. To make it clear, sir, the businesses that can 
do that are the businesses that are currently in VIP.
    Mr. Johnson. And you are excluding a lot of veterans' 
businesses.
    And I thank the gentleman for yielding. Would you like to 
reclaim your time?
    Mr. Roe. No. I will yield back.
    Mr. Johnson. We will go now to Mr. Bilirakis.
    Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it.
    I have a couple questions. How many days approximately does 
it take to complete the reconsideration process?
    Mr. Leney. Right now in our most recent calculation, it is 
over 200 days on average.
    Mr. Bilirakis. Two hundred days?
    Mr. Leney. Yes, sir.
    Mr. Bilirakis. That is a long time for a veteran to have to 
wait.
    Mr. Leney. Very long time.
    Mr. Bilirakis. Then are they notified immediately once the 
process is complete, the veteran?
    Mr. Leney. Yes, sir, they are notified.
    Mr. Bilirakis. How can we improve upon that?
    Mr. Leney. We are improving upon that. We are adding 
resources to the reconsideration process. The main reason that 
that process takes so long, is that is the lowest priority in 
the priority of application examinations.
    We give a higher priority to those firms that are 
undergoing the initial determination because, remember, we made 
a change to the process. The change to the process was that if 
you were denied, you have a second chance to correct that which 
made you ineligible----
    Mr. Bilirakis. What about the----
    Mr. Leney. --noncompliant.
    Mr. Bilirakis. --businesses--excuse me, sir. I am sorry. 
But I want to ask what about the businesses that were denied 
through no fault of their own? Say that the CVE made a mistake, 
are they put to the top of the pile or do they have to wait 
those 200 days for reconsideration?
    Mr. Leney. No, sir. We have a legal review process that if 
a veteran asserts that we made a substantive error in the 
determination, we have a legal review process. We normally turn 
those in less than seven days.
    Mr. Bilirakis. Less than seven days.
    Mr. Leney. That is a determination did we make an error. 
And all of those actions are reviewed by our Office of General 
Counsel.
    Mr. Bilirakis. Okay. Is the veteran certified immediately 
once that decision is made?
    Mr. Leney. If there were no other issues, then the veteran 
is immediately verified. And that does go to the very top of 
the pile. Those are put in the front of the line because we do 
not want to disadvantage a business because of a substantive 
error. And that is why all of those are reviewed by our Office 
of General Counsel.
    Mr. Bilirakis. All right. Well, thank you very much, Mr. 
Chairman. I yield back.
    Mr. Roe. Would you yield just a moment?
    Mr. Bilirakis. Yes, I will yield to the doctor, sure. Of 
course.
    Mr. Roe. Back to where I was before, is it legislative 
language? Have we as Congress put you in implementing this in a 
box as far as determining what a compliant veteran-owned or 
disabled veteran business is? Is it legislative language that 
has done that or is it rulemaking and your interpretation?
    Mr. Leney. It is not legislative language, sir. It is 
rulemaking. And I would----
    Mr. Roe. Who made the rule?
    Mr. Leney. Sir, the VA made the rules. And the VA made the 
rules based on rules that were established by the SBA under its 
SDVO Program and the 8(a) Program. The rules are the same.
    Mr. Roe. So the rules are the same. So I think we need to 
get into a little later, Mr. Chairman, I do not want to belabor 
this, but I think this is very critical to a lot of Veterans 
and maybe other small businesses being able to get business 
with the Federal Government.
    So I yield back.
    Thank you for yielding.
    Mr. Johnson. I thank the gentleman for yielding.
    Mr. Leney, you mentioned just a few minutes ago that you 
can show thousands, several thousands, I think you said, of 
businesses that comply with the 100 percent control criteria.
    How many of those are sole proprietorships with no other 
owners in the company?
    Mr. Leney. I can provide that information for the record, 
but I do not have that on the top of my head.
    Mr. Johnson. Yeah, I would like to see that as well.
    Mr. Leney. Yes, sir. We can give you that.
    Mr. Johnson. And can you define for me what day-to-day 
operations mean, control of day-to-day operations? What is day-
to-day operations?
    Mr. Leney. Control of day-to-day operations is focused on 
the role of the veteran in managing what the firm does on a 
daily basis.
    Mr. Johnson. But there is a lot of day-to-day operational 
decisions that are made. What defines day-to-day operations? A 
Veteran's role as a manager coming in to work every day does 
not put them in control nor out of control necessarily of day-
to-day operational decisions. What defines day-to-day 
operations?
    Mr. Leney. Sir, I cannot give you a----
    Mr. Johnson. It is subjective, right?
    Mr. Leney. It is----
    Mr. Johnson. It is interpretative?
    Mr. Leney. It is inter----
    Mr. Johnson. Mr. Leney, I will submit to you that you--you 
made a statement earlier that this is a very real issue for 
veteran businesses. I am going to tell you that this is a very 
real issue for the VA because you just confirmed to Mr. Roe 
that this is a rulemaking issue. This is a decision that the VA 
is making. It is not legislative language. It is rulemaking.
    And we have submitted to you already that there are 
disparities between the way the SBA handles this and defines 
this and the way the VA does, but you persist in denying that 
and say that they are the same. They are not. And I think we 
are going to get into that with our second panel.
    I appreciate the testimony, Mr. Leney, but we clearly have 
a lot of work left to do. And with that, you are now excused.
    Mr. Leney. Thank you, sir.
    Mr. Johnson. We will now call our second panel to the 
table. We will hear from Mr. Richard Hillman, Managing Director 
of Forensic Audits and Investigative Service at the Government 
Accountability Office; and Mr. Jim O'Neill, Assistant Inspector 
General for Investigations at the VA Office of Inspector 
General.
    Both of your complete written statements will be made part 
of the hearing record.
    Mr. Hillman, you are now recognized for five minutes, sir.

 STATEMENTS OF RICHARD J. HILLMAN, MANAGING DIRECTOR, FORENSIC 
       AUDITS AND INVESTIGATIVE SERVICE, U.S. GOVERNMENT 
 ACCOUNTABILITY OFFICE; JAMES J. O'NEILL, ASSISTANT INSPECTOR 
 GENERAL FOR INVESTIGATIONS, OFFICE OF THE INSPECTOR GENERAL, 
              U.S. DEPARTMENT OF VETERANS AFFAIRS

                STATEMENT OF RICHARD J. HILLMAN

    Mr. Hillman. Chairmen Johnson and Stutzman, Ranking Member 
Donnelly, and Members of the Subcommittees, I am pleased to be 
here today to discuss our most recent assessment of fraud 
prevention controls within the Service-Disabled Veteran-Owned 
Small Business Program or the SDVOSB Program.
    This program which is designed to honor disabled veterans' 
service by providing them with exclusive contracting 
opportunities has both a government-wide and VA component.
    [Chart]
    Mr. Hillman. As shown on the monitors, in fiscal year 2010, 
Federal agencies awarded $10.8 billion in SDVOSB contracts 
according to the Small Business Administration. The Department 
of Veterans Affairs awarded $3.2 billion or approximately 30 
percent of government-wide awards. DoD and other Federal 
agencies awarded the remaining $7.6 billion or about 70 percent 
of government-wide awards.
    SBA administers the government-wide program which relies 
almost solely on firms self-certifying their status as an 
SDVOSB. In contract, VA is bound by law to verify firms' 
eligibility and oversees its own contracts.
    Specifically the Veterans Benefits, Healthcare, and 
Information Technology Act of 2006 or the 2006 Act requires VA 
to maintain a database of SDVOSBs and VOSBs that were confirmed 
to be eligible to receive VA set-aside and sole-source 
contracts.
    Because of weaknesses identified in VA's verification 
process and in response to the Veterans Small Business 
Verification Act or the 2010 Act, around 2011, VA implemented a 
more thorough verification process.
    In prior work, we have reported on weaknesses in the fraud 
prevention controls in both the government-wide program and 
VA's program.
    My testimony today discusses our recent assessment of fraud 
prevention controls instituted by VA as part of the SDVOSB 
Verification Program and summarizes the status of the 
government-wide SDVOSB Program.
    Regarding our first objective, we have concluded that VA's 
program continues to remain vulnerable to fraud and abuse. 
While it has been proven difficult to determine an accurate and 
complete status of the program, according to the most recent 
information provided to us by VA, over 38 percent of the firms 
were listed in its verified database called VetBiz using the 
less rigorous process that VA chose to implement after the 2006 
Act and have not verified under the more thorough process used 
in response to the 2010 Act.
    Mr. Leney this morning said to you today and to us during 
the course of our work that all the firms in VetBiz are 
verified. But what he fails to acknowledge are the differences 
in the quality of the two verification processes used for the 
firms that are in VetBiz.
    As shown on the monitors, the 2010 Act verification process 
implemented by VA is a more thorough process. It has more 
checkmarks showing that it includes unannounced and announced 
site visits and a review and analysis of company documentation 
to validate a firm's eligibility.
    The presence of firms that have only been subjected to the 
less stringent process that VA previously used represents a 
serious vulnerability.
    We have reported in 2009 and 2010 that this verification 
process allows ineligible firms to be wrongly certified. In 
2011, VA's Office of Inspector General also reported on the 
basis of a random selection of 42 firms that 32 of the 42 firms 
listed in the VetBiz database or 76 percent were ineligible for 
the program.
    The OIG further reported that the earlier verification 
process was insufficient to establish control and ownership of 
a firm which is a key requirement of the program and, in 
effect, allowed businesses to self-certify as SDVOSBs with 
little supporting documentation.
    As a result, our most recent report includes a 
recommendation that VA take immediate steps to ensure that all 
firms within VetBiz have undergone the 2010 Act verification 
process. VA agreed in principle with this recommendation.
    Also, in 2011, we issued 13 recommendations to VA related 
to vulnerabilities in the verification process implemented by 
VA after the 2010 Act.
    I am pleased to report that as of June 2012, VA has 
provided us with documentation demonstrating that it has 
established procedures in response to six of these 
recommendations, although we have not assessed the 
effectiveness of any of the procedures that VA has established 
thus far.
    For example, VA has established formal procedures for staff 
to refer suspicious applications to the OIG. It has also 
formalized a process for conducting unannounced site visits to 
firms identified as high risk and has explored the feasibility 
of validating applicant information with third parties.
    We are still looking for more progress to be made on seven 
recommendations including guidance for Debarment Committee 
decisions to debar firms that misrepresent their status as well 
as procedures on removing contracts from ineligible firms.
    Regarding the government-wide SDVOSB program, no action has 
been taken by agencies to improve fraud prevention controls. 
Relying almost solely on firms' self-certification, the program 
continues to lack controls to prevent fraud and abuse.
    While SBA is under no statutory obligation to create a 
verification process, five new cases of potentially ineligible 
firms discussed in our most recent report highlight the danger 
of taking no action. These firms received approximately $190 
million in SDVOSB contract obligations.
    In one case, a firm found ineligible by VA continued to 
self-certify as an SDVOSB and received about $860,000 from the 
General Services Administration and Department of Interior.
    Further, the Department of Defense OIG reported in 2012 
that DoD provided $340 million to firms that potentially 
misstated their SDVOSB status.
    To address these vulnerabilities, we previously suggested 
that Congress consider providing VA the authority necessary to 
expand its SDVOSB eligibility verification process government-
wide. Such an action is supported by the fact that VA maintains 
the database identifying which individuals are service-disabled 
veterans and is consistent with VA's mission of service to 
veterans.
    However, the problems we have identified with VA's 
verification process indicate that an expansion of VA's 
authority to address government-wide program problems should 
not be undertaken until VA demonstrates that it has a process 
that is successful in reducing its own vulnerabilities to fraud 
and abuse.
    This completes my prepared statement. I would be pleased to 
answer any questions that you may have at the appropriate time.

    [The prepared statement of Richard J. Hillman appears in 
the Appendix]

    Mr. Johnson. Thank you, Mr. Hillman.
    Gentlemen, if we could beg your indulgence. Unfortunately, 
Mr. O'Neill, votes have been called. I think the best thing to 
do so we can get consistency in the hearing is to go ahead and 
recess at this point, go vote, and then let you do your five-
minute statement after we return from votes.
    So I anticipate about a half an hour or so delay, but we 
really have no choice here because votes have been called. So 
with that, we will stand in recess.
    [Recess.]
    Mr. Johnson. The hearing will now come to order.
    I thank you for your indulgence while we went about the 
people's business.
    Mr. Hillman, thank you for your testimony.
    Mr. O'Neill, you are now recognized for five minutes.

                 STATEMENT OF JAMES J. O'NEILL

    Mr. O'Neill. Chairman Johnson, Members of the 
Subcommittees, thank you for the opportunity to discuss the 
OIG's investigative work in the SDVOSB Program.
    In 2010, VA OIG decided to invest considerable resources in 
conducting criminal investigations of SDVOSB fraud despite 
being unable to identify a single felony conviction in Federal 
Court associated with this type of eligibility fraud.
    We consider these crimes analogous to stolen valor cases 
and the true victims to be the deserving service-disabled 
veteran entrepreneurs who had earned the right to government 
contracts specifically set aside for them.
    We realized then, as GAO has noted in several SDVOSB 
reports, that a program of aggressive investigations resulting 
in prosecution, debarment, or both is a critical component of 
preventing fraud.
    Further, if this crime was to be deterred, there had to be 
meaningful consequences meted out to those whose greed led them 
to lie about their eligibility to participate in this program.
    My counterparts at other Offices of Inspectors General, 
particularly SBA OIG, agreed to jointly investigate SDVOSB 
fraud whenever appropriate and to collaboratively convince 
Federal prosecutors that this fraud merits prosecution.
    Since few of the SDVOSBs suspected of eligibility fraud 
failed to fulfill their government contracts, some assistant 
U.S. attorneys were reluctant to prosecute because the 
government did not seem to suffer a loss.
    However, in addition to the persuasiveness of the stolen 
valor argument made by the investigating agents, I believe 
multiple congressional hearings as well as GAO and IG audit 
reports help convince prosecutors to pursue set-aside fraud 
more vigorously.
    Additionally, on October 3rd, 2011, the Executive Office 
for United States Attorneys advised all Federal prosecutors 
that DoJ agreed with SBA that the Small Business Jobs Act of 
2010 established a presumption of loss to the United States 
equal to the total amount expended on a contract whenever a 
concern seeks and receives a contract intended for small 
business concerns by misrepresentation.
    This means that the SDVOSB defendant can be sentenced to 
forfeit all monies received from the government for a 
particular contract irrespective of whether the company 
fulfilled the terms of that contract.
    In the 144 SDVOSB investigations VA OIG has opened to date, 
we have issued 419 subpoenas and executed 26 search warrants. 
Fourteen individuals and one company have been indicted and six 
of the individuals indicted have been already convicted.
    We currently have 96 open SDVOSB investigations. The 
contract value of these open cases is $908 million including 
$159 million in ARRA funds.
    We have completed our investigation in 20 of these cases 
and await a final decision by AUSA regarding criminal or civil 
prosecution.
    Another 29 cases have earned prosecutive interest by DoJ 
but still require more investigation.
    Consequently, I expect many others to be prosecuted. And if 
sentencing trends continue, defendants face a very unpleasant 
future.
    As noted in detail on my written statement, Warren Parker's 
guilty plea will result in a $6.8 million judgment against him 
in addition to any term of imprisonment he may receive upon 
sentencing.
    Joseph Madlinger was sentenced to two years in prison and 
fined $50,000.
    Michael Woodling will forfeit more than $1.5 million to the 
government.
    Russell Todd, a former VA employee who conspired with 
Madlinger and Woodling, was sentenced to 15 months' 
imprisonment.
    John Raymond White has spent the last 12 months in custody 
awaiting sentencing.
    We hope that our vigorous criminal investigations deter 
this type of crime and help preserve the integrity of a program 
designed to benefit the service-disabled veteran entrepreneur.
    Chairman Johnson, this concludes my statement. I welcome 
any questions you or other Members of the Subcommittees will 
have about our work in this area.

    [The prepared statement of James J. O'Neill appears in the 
Appendix]

    Mr. Johnson. I thank you, gentlemen, for your testimony. We 
will now begin questioning.
    Mr. O'Neill, would it benefit the VA to use the Small 
Business Administration's regulations defining ownership and 
control of a small business?
    Mr. O'Neill. I am not certain I am really qualified to 
answer, sir, in all honesty. We investigate fraud associated 
with the program and I have not devoted any attention or have 
any knowledge in depth about SBA regulations.
    Mr. Johnson. In terms of the certification process?
    Mr. O'Neill. Yes.
    Mr. Johnson. Okay.
    Mr. O'Neill. I think that listening to the discussion 
today, this control issue, I just want you to understand we are 
talking about absolute fabricated fraud here where----
    Mr. Johnson. Okay.
    Mr. O'Neill. --overt acts were committed, where the veteran 
is no----
    Mr. Johnson. I understand.
    Mr. O'Neill. --way in charge of the company.
    Mr. Johnson. I understand.
    Mr. Hillman, do you have an opinion on that?
    Mr. Hillman. We have not specifically looked at this issue, 
but we are aware through our lawyers' most recent review that 
the differences between SBA's and VA's regulations are really 
very slight, very minor in nature.
    For example, we understand that VA defines a service-
disabled veteran as someone who possesses a service-connected 
rating disability of zero to 100 percent or a DoD disability 
determination whereas SBA's definition of a service-disabled 
vet is a disability that is service-connected.
    Differences in interpretation between those two definitions 
can cause problems in the extent to which veterans are 
knowledgeable of what it may take to qualify for a program.
    An example of another small difference is that VA allows a 
surviving spouse to operate the business. In other words, the 
service-disabled veteran must pass away before the spouse is 
eligible to manage and control the business. SBA's provisions 
require a spouse or primary caregiver to be able to manage the 
business.
    So due to these small differences in these regulations, it 
can cause major differences in whether or not a firm is 
eligible or not for the program.
    Mr. Johnson. And do either of you have an opinion about 
what documents the VA should require for certification?
    Mr. Hillman. Given the very specific requirements of the 
SDVOSB program having to determine ownership and control, and 
something that has not been mentioned today, having to 
determine whether or not the performance of the contract has 
been consistent with the regulations, requires VA to have a 
stringent certification process.
    For example, an SDVOSB must manage at least 50 percent of 
the contract dollars if it is a service contract, and 15 
percent of contract dollars if it has to do with contracting.
    Given these very specific requirements, it is very 
important that you rely on more than publicly available 
information to assess a firm's eligibility. Reviewing an 
operating plan of a firm is very important. Reviewing contract 
performance information is very important. Conducting 
unannounced site visits is very important.
    Although we are aware that documentation sometimes can be 
voluminous and that can discourage the service-disabled veteran 
from applying for the program, we are aware that VA is 
developing a document matrix to explain why documents are being 
asked for and their importance.
    They are also developing a very good question and answer 
document which they are sharing widely which further explains 
the requirements of the program.
    Hopefully through tools such as these, the eligibility 
requirements can become better understood.
    Mr. Johnson. Mr. O'Neill, do you have an opinion on how 
often the VA should recertify business?
    Mr. O'Neill. No, sir, I really do not. We believe that when 
the fraud is egregious, it won't matter how long it takes, how 
often they are recertified. So we do not have an opinion on 
that.
    Mr. Johnson. Okay. In your testimony, you talked about some 
of the legal results and prosecutions.
    On average, how many hours does it take to produce results 
as you mentioned on a case?
    Mr. O'Neill. Well, as of the end of June, we had expended 
roughly 9,300 hours to conduct seven investigations that have 
gone to court so far.
    Now, some of these will go to trial. That will mean many 
more hours of court. So on average, about 1,325 hours give or 
take.
    Mr. Johnson. Okay.
    Mr. O'Neill. Excuse me, sir. I am sorry. That is only us. 
Many of our cases are joint investigations, so SBA is putting 
in time, FBI. That is just our hours.
    Mr. Johnson. Have you seen any improvement in the tone of 
prosecutors towards pursuing these cases?
    Mr. O'Neill. Yes, sir. I think that for the variety of 
reasons I mentioned, there is a friendlier atmosphere to our 
presentations. There is more willingness to prosecute 
definitely over the last two years for sure.
    Mr. Johnson. Okay. Thank you, gentlemen. My time has 
expired. We may do a second round.
    But I will go to Mr. McNerney.
    Mr. McNerney. Thank you, Mr. Johnson.
    I think our first panel showed the difficulty that we are 
facing in terms of coming up with a nonsubjective standard for 
awarding veteran status to businesses. The 100 percent control 
clearly raised a lot of question within the Committee. But the 
fraud issue is another part of this that we have not really 
talked about too much.
    Mr. Leney was saying that only five percent of applicants 
tend to be fraud. But my fear, and I think that is something 
that you are showing in prior testimony, is that that five 
percent can end up awarding a lot of contracts to people that 
are undeserving and should be prosecuted.
    How much of a problem do you think fraud is in the overall 
program, Mr. Hillman?
    Mr. Hillman. The work that we have done looking at 
individual case studies is not something that we can 
extrapolate to the universe as a whole to give you a percentage 
of fraud that we think may exist within the program.
    The closest example of that would be a study done by VA's 
OIG who in 2011 did a study that was a statistically valid 
random sample projecting the extent to which there may be fraud 
within the program.
    What they found as part of their study was that in a review 
of 42 firms, 32 of the 42 or 76 percent of those firms were not 
eligible for the program.
    However, during the study's assessment period, VA was using 
the less rigorous process under the 2006 Act as well as just a 
plain self-certification process that was implemented before 
the 2006 Act.
    And, if you look at only those firms that were included as 
part of the 2006 verification process, you see a similar 
percentage. About 10 of 14 firms that were included in the VA 
OIG's sample were found not to be eligible or 70 percent of 
those programs, a very comparable percentage.
    Mr. McNerney. Well, do you think this 100 percent control 
standard is contributing to fraud? Is that a standard that is 
difficult to verify in some way? Is there some way we can 
improve that standard in order to reduce the appeal of fraud 
to, you know, unscrupulous players?
    Mr. Hillman. Like Jim has said, in the cases that we have 
examined as part of our work, there has been very little 
ambiguity as it relates to an ownership or control issue when 
we have gone out and conducted our own investigations.
    For example, ownership of a business is determined by 
reviewing the business's operating agreement and operating 
plans. And you can document the extent to which on paper an 
individual is an owner of the business or not.
    Control on the other hand is a much more subjective 
determination. For example, conversations this morning 
suggested that if a service-disabled veteran-owned 51 percent 
of a company, and the veteran decided to sell that company, 
then the veteran both owned and controlled the company.
    However, there could be wording in the operating plan or 
other agreements of that firm that if the principal decides to 
sell that business, there is a requirement that the principal 
consult with the minority owners first to get their agreement.
    That would be an example where there was maybe 51 percent 
ownership, but because of an operating agreement, not a hundred 
percent control. So----
    Mr. McNerney. That is informative. That is informative 
because then ownership is subjective, it is easy to establish, 
it means something, everybody can understand it. And if people 
are committing fraud, then they can be prosecuted whereas 
control is a much more subjective standard that we are having 
to try and manage.
    Mr. Hillman. In our cases that we have investigated, we 
have found instances where individuals may be living and 
working in other businesses that are 500 miles away from the 
SDVOSB. We have seen instances where the service-disabled 
veteran may be receiving a salary of $12,000 where a minority 
owner may be receiving a salary of $80,000.
    Examples like these suggest that while on paper, ownership 
exists, the veteran is not controlling the business. In those 
instances, we provided our case results to the enforcement 
organizations and they adjudicate over those issues.
    Mr. McNerney. So ownership has its own risks then with 
regard to somebody just using a veteran on paper and maybe 
skimming off some of the profits but not having control. Okay. 
So this is still a difficult issue for us.
    Mr. Hillman. And in addition to ownership issues, there are 
also issues that you just referred to as a ``pass through'' 
where you have a service-disabled veteran as the owner of the 
business, but that service-disabled veteran may pass that 
contract through to an entity that is run by non-veterans or 
non-service-disabled veterans to manage that activity.
    And in accordance with the provisions of the program, if 
the veteran owner does not handle 50 percent of that service 
contract or up to 15 percent of a contractor-related contract, 
then the veteran is not fulfilling the provisions of the 
program as well.
    So the details dictate whether or not the service-disabled 
veteran is eligible for the program and I think that is a 
source of confusion and something that the program has 
attempted to clarify.
    Mr. McNerney. Thank you.
    I yield back.
    Mr. Johnson. I thank the gentleman for yielding back.
    We will go to Mr. Stutzman.
    Mr. Stutzman. Thank you, Mr. Chairman.
    Mr. O'Neill, in your testimony, all of the cases you cite 
involve companies that self-certified their status as veteran-
owned and controlled.
    CVE has now installed a more rigorous verification program 
to determine whether a company is truly veteran-owned and 
controlled.
    Can you tell us how many of your cases open or closed 
involve companies certified under the more rigorous process and 
whether that process is meeting the goals of eliminating most 
of the cheaters?
    Mr. O'Neill. No, I cannot tell you here. I can give you a 
written response. I would have to do some research.
    But I know of one instance, for example, where the company 
had been certified under more rigorous standards, but it was at 
the beginning of the process and mistakes were made in CVE.
    And do not forget. We can execute search warrants. We can 
get e-mail. We can uncover evidence of fraud that even the most 
rigorous standards applied by CVE won't find.
    So it is going to happen. I think it is certainly far fewer 
of our cases, and I do not think the number will exceed ten. I 
will be surprised if it does, because companies are passing 
that level of scrutiny by CVE.
    But I will respond to you in writing.
    Mr. Stutzman. Okay. Thank you.
    Mr. Hillman, looking at just the highlights, you start off 
the first paragraph saying that the SDVOSB Program remains 
vulnerable to fraud and abuse and you mentioned that several 
times.
    And even with your recommendations at the conclusion of the 
one paragraph, you say GAO made some changes to the report that 
you had made after the Veteran Affairs, after they had 
challenged some of them or you guys discussed them. But you 
continue to believe that the program remains vulnerable to 
fraud and abuse.
    Do you feel that the VA is concerned about this particular 
program? What kind of response do you get from them when you 
discuss your concerns about fraud and abuse? Is it as much of a 
concern to them as it is a concern to you?
    Mr. Hillman. When you are reviewing organizations such as 
the Veterans Administration or perhaps maybe even the Small 
Business Administration, these entities have largely a roll of 
advocacy and service to their constituent groups, either 
veterans or small businesses.
    The OSDBU function which Mr. Leney operates is also more of 
a service-oriented function. The idea of having a strong 
controlled environment to help deter or detect fraud and abuse 
is not necessarily part of their DNA.
    So when we are going in and evaluating the extent to which 
a program has strong prevention controls or detection and 
monitoring controls or controls to ensure that the program is 
taking aggressive actions against bad actors, we are evaluating 
the extent to which the program is vulnerable to fraud and 
abuse.
    I believe Mr. Leney's organization is attempting to develop 
a greater awareness of the potential for fraud and abuse 
through additional training, through additional guidance, but 
it really has not existed to the same degree as we would hope 
that it might to date.
    Mr. Stutzman. Why do you think that is?
    Mr. Hillman. I believe it has an awful lot to do with the 
organization's mission as an advocate for those constituent 
groups, in this case the veterans. The interest in ensuring 
that there is strong oversight and protection over the fraud, 
waste, and abuse angle is not something that is really what 
they see as their primary function.
    Mr. Stutzman. What is your opinion of the VA's process for 
debarring companies? Have they set the thresholds high enough? 
Are more companies getting denied verification that should be 
also considered for debarment? What is your opinion?
    Mr. Hillman. The statistics that we have seen show that 
over time, the Debarment Committee within VA is making more 
debarment decisions and has more proposed debarment decisions 
than they have had in the past.
    As of July 26, 2012, there were 11 SDVOSB cases that had 
been tried by this Debarment Committee, including five 
debarments and six proposed debarments. And these debarments 
when they occur, last for up to a four to five-year period of 
time. They are taking aggressive action in that regard.
    However, you use numbers such as five debarments, six 
proposed, and you are seeing many more being provided to them 
for their review.
    The Committee itself was established in September 2010, 
almost two years of activity. I do believe that is sufficient 
time for someone to go in and take an evaluation of how well 
that Committee has been functioning over that two-year period 
and what additional steps could possibly be taken.
    Mr. Stutzman. Okay. One last question. Do you think that 
self-certification was a mistake? Does it open the door for 
more fraud and abuse?
    Mr. Hillman. Absolutely. The government-wide program which 
manages 70 percent of all SDVOSB contracts is largely a self-
certification program and it is very susceptible to fraud and 
abuse.
    The VA is the only agency that has a verification process 
for its service-disabled veteran-owned small businesses and 
that has reduced the vulnerability of fraud.
    We are hoping that Mr. Leney will continue to make 
additional improvements to make that level of fraud as low as 
possible commensurate with the cost of establishing controls.
    And we are very concerned about the government-wide program 
being a self-certified program and that it is not serving 
veterans well.
    Mr. Stutzman. Thank you.
    I will yield back, Mr. Chairman.
    Mr. Johnson. We will go into a second round of questions.
    Mr. Hillman, in your most recent report, you detailed and 
talked about five new case studies that received SDVOSB 
contracts despite evidence that they are ineligible for the 
SDVOSB Program.
    Do you know if any of these were at one point recently 
certified or verified by the VA?
    Mr. Hillman. We do have some information on that. Two cases 
are included in the five that we looked at where VA's more 
rigorous verification process ultimately denied them 
application into the program.
    There was another example where a third case study upon 
request from VA for additional documentation consistent with 
the 2010 process questions arose. The owner then withdrew from 
the program.
    Mr. Johnson. Let me be clear.
    Mr. Hillman. Sure.
    Mr. Johnson. In your study, I thought you detailed five new 
case studies that had received SDVOSB contracts----
    Mr. Hillman. That is correct.
    Mr. Johnson. --despite that they are ineligible. Are these 
the ones that we are talking about? I mean, they received 
contracts, so they were awarded contracts in spite of--they 
were not denied eligibility.
    Mr. Hillman. Well----
    Mr. Johnson. They received contracts. You guys found them, 
correct?
    Mr. Hillman. Yes, Chairman. At the time that we began our 
investigations, those contractors had received SDVOSB 
contracts. Some were verified through the VA's process. Some 
were self-certified as part of the SBA process.
    Mr. Johnson. Were any of those five recently verified under 
the new rigorous program?
    Mr. Hillman. That is what, I was not speaking as clearly as 
I could have. As we progressed in our review, what we later 
learned is that two of the firms that were included amongst the 
five that we looked at had then begun to go through the 2010 
process and were rejected.
    Mr. Johnson. Subsequently rejected?
    Mr. Hillman. Correct.
    Mr. Johnson. After they had----
    Mr. Hillman. That is correct.
    Mr. Johnson. --been awarded contract?
    Mr. Hillman. So that is evidence to us that the 2010 
process is a process that can work. It is a process that can 
keep out ineligible firms.
    Mr. Johnson. Were those firms once they were identified, 
were those contracts terminated, rejected, canceled?
    Mr. Hillman. I do not have information on the specifics on 
those five, but experience has shown us that firms are often 
allowed to continue to complete those contracts.
    Mr. Johnson. Wait a minute.
    Mr. Hillman. But I can provide specifics for the two firms 
in our study. I do not have that information in front of me 
now.
    Mr. Johnson. Yes, would you, please. And let me clarify and 
make sure I understood what you said.
    That in your experience----
    Mr. Hillman. In my experience, in the contracts that we 
have looked at in the past, firms have been allowed to complete 
those contracts.
    Mr. Johnson. Even though they had been found----
    Mr. Hillman. Even though they had been found to be----
    Mr. Johnson. Ineligible?
    Mr. Hillman. --ineligible.
    Mr. Johnson. Wow. Okay.
    Mr. Hillman. Due to either timeliness associated with 
completing that contract or exigencies in how that contract 
process evolved.
    Mr. Johnson. Okay. All right. Thank you.
    When did you first become aware that a number of firms 
still verified in VetBiz had not been verified under the more 
thorough process?
    Mr. Hillman. We have been under the impression from 
testimony that was provided by VA back in the fall that all of 
the firms within their program had now been verified.
    As was mentioned earlier this morning's, we were under the 
impression that VA was confirming that all firms in the program 
had been verified under the 2010 Act or the more rigorous 
process.
    So as part of doing our case studies, Chairman, we 
identified firms that should have received the more rigorous 
verification process but did not. We found cases that had not 
being verified under the more rigorous process and later found 
out that over 2,000 firms, 2,355 firms were included in VetBiz 
that were verified under the less rigorous process.
    That less rigorous process is a source of concern to us and 
we are hopeful that VA can expeditiously ensure that all firms 
in its VetBiz system have received the more rigorous review.
    Mr. Johnson. Clearly given your testimony, we see the 
benefit of that more rigorous process as well.
    In your report, you mentioned that the VA had provided 
seven differing accounts of the numbers of SDVOSBs verified 
under the process of the 2006 Act and 2010 Act, the number of 
SDVOSBs they plan to remove and the timing of the removals.
    Can you give us some examples of the differing accounts 
that the VA provided during your review?
    Mr. Hillman. I have a couple of pages of examples that 
demonstrate conflicting statements made by VA that I would be 
happy to submit for the record.
    Mr. Johnson. Okay. If you would do that, I would appreciate 
it.
    And one final question, then we will move on to my 
colleagues.
    In your analysis or your analysis shows that as of April 
1st, 2012, 60 percent of the firms listed as eligible in VetBiz 
had yet to be verified using this more thorough process. We 
just talked about that. And 134 of these firms received a total 
of $90 million in new VA SDVOSB contracts during a four-month 
period.
    So do you still feel that there is a vulnerability here 
until all of the firms have been verified under the new 
process?
    Mr. Hillman. Yes, Mr. Chairman. The results of VA's OIG 
study which found that 70 percent of the firms verified under 
the less rigorous process were found to be ineligible for the 
program causes us significant pause and we believe that VA 
needs to immediately ensure that the more rigorous process is 
being followed for all firms within VetBiz.
    Mr. Johnson. And given the fact that we are talking about 
tens of millions, in this case a total of $90 million in new 
contracts during a four-month period, there are millions of 
dollars of taxpayer dollars at risk here of going to companies 
that are ineligible, thereby diminishing the amount of contract 
awards that should be going to eligible veteran companies.
    Would you agree with that?
    Mr. Hillman. The VA study through its work determined that 
for a one-year period of time, there were potentially $500 
million going to ineligible firms. And if actions were not 
taken to address that problem over a five-year period of time, 
$2.5 billion would be provided to ineligible firms.
    Mr. Johnson. And given the fact that, according to your 
statements a few minutes ago, that previous experience is that 
oftentimes even after they are found ineligible they are 
allowed to complete those contracts, we are talking about 
millions, hundreds of millions of dollars of taxpayer dollars 
going to ineligible firms that walk away scot-free, correct?
    Mr. Hillman. It seems that is so.
    Mr. Johnson. Yes, sir. Thank you.
    I yield now to Mr. McNerney.
    Mr. McNerney. That was pretty sobering, Mr. Chairman.
    Mr. O'Neill, you cited several cases that are being 
prosecuted effectively.
    Do you have any evidence to show that those cases are 
forming some sort of a deterrent to potential bad actors or do 
you have any evidence whatsoever that we are being effective in 
that effort?
    Mr. O'Neill. Well, after the conviction of John White, 
during our investigation of another company, we found an e-mail 
where they were talking about how they are going to have to be 
more careful. I do not know if that is effective deterrent, but 
it clearly was in their consciousness.
    We are doing all we can to publicize the ramifications of 
this type of fraud, so hopefully it will have more and more 
deterrent as you see more and more defendants in the next six 
months to a year. But beyond that, I do not have empirical 
evidence.
    Mr. McNerney. Well, what fraction or what portion of the 
fraudulent cases do you think you are prosecuting? Is there any 
way to estimate that? I know it is an open-ended question.
    Mr. O'Neill. No, we do not know what we do not know to be 
perfectly frank. But certainly we are seeing traction with 
prosecutors.
    In the very beginning, there was more of a tendency to 
decline prosecution because of the theory that there was no 
loss to the government. That has changed. And we have more in 
the hopper now that I believe, again, will be successfully 
prosecuted either criminally or civilly. And we are more 
aggressive about debarments as another tool we can use to try 
to deter this type of crime.
    Mr. McNerney. Is there any authority that Congress can give 
you that would make your office more effective in identifying 
fraud cases and prosecuting?
    Mr. O'Neill. Not at this time. I mean, to be honest, it has 
been more of an issue of convincing prosecutors to accept our 
cases which they are now doing.
    And the laws that exist that we use, whether it is major 
crimes against the government or false statements or wire fraud 
or whatever, they seem adequate to do the job if there is a 
willingness to prosecute.
    In terms of detecting, we are going more proactively into 
databases that have become available to us and hopefully that 
will yield some more results. Beyond that, I am not prepared to 
ask for anything in particular.
    Mr. McNerney. So do your prosecutions usually end up 
targeting veterans?
    Mr. O'Neill. No. Actually, so far, out of the 14 
individuals who have been arrested, I believe only one was 
purporting to be the SDVOSB, service-disabled veteran.
    Now, some of our other defendants were veterans, but they 
were not service-disabled and many, the majority, I suspect, 
were not veterans at all.
    So, no, most of the people so far have not been the person 
propped up to pretend to be in charge of the particular 
company.
    Mr. McNerney. Thank you, Mr. Chairman. I am going to yield 
back.
    Mr. Johnson. Mr. Stutzman.
    Mr. Stutzman. Thank you, Mr. Chairman.
    Mr. Hillman, in reading through your highlighted report, a 
question I have is, of these 3,717 firms, 134 received $90 
million in new VA SDVOSB set-aside or sole-source contract 
obligations from November 2011 to April 2012.
    Do we know, did all 134 of those go through the more 
rigorous certification?
    Mr. Hillman. No. The point that we are making there is that 
all of those firms went through the less rigorous process.
    Mr. Stutzman. And the 134 that received $90 million in 
contracts----
    Mr. Hillman. Yes.
    Mr. Stutzman. --went through the less rigorous 
certification?
    Mr. Hillman. Correct.
    Mr. Stutzman. Because prior to this, you say that VA has 
made inconsistent statements about its progress verifying firms 
listed in VetBiz.
    Can you elaborate on that, the inconsistent statements?
    Mr. Hillman. Yes, I would be happy to do that.
    We, as I mentioned, have a couple of pages of statements 
which we would be happy to submit for the record. But 
conflicting statements that VA has made cause us concern about 
whether VA actually knows how many firms have been verified 
under the more thorough 2010 process.
    For example, in one instance, we were told by VA that their 
new process for verifying firms began in February 2011. 
However, while we were reviewing our case studies, we later 
learned that there were cases that we were looking at that were 
still confirmed under the old process well after the timeframe 
that we were told the new process was in place.
    Later, in April 2012, we learned that VA had removed 
thousands of firms because they had not supplied the supporting 
documentation required under the more rigorous process.
    Over the next month, VA officials provided us with at least 
seven differing accounts of the number of SDVOSBs verified 
under its process for the 2006 Act and the 2010 Act, the number 
of the SDVOSBs they planned to remove, and the timing of those 
removals.
    These conflicting statements create uncertainties about the 
status of the agency's efforts to verify firms under the more 
rigorous process.
    Mr. Stutzman. So would you say that given the presence of a 
significant number of firms in the VIP database that have only 
been verified using the Lite process, is it time to stop 
verification of new applicants until CVE has completed at least 
the initial decision on all of the remaining Lite firms under 
the more thorough process?
    Mr. Hillman. I do not believe I would be in favor of 
necessarily stopping the process to verify those done under the 
Lite process, but I would like to see a greater level of 
attention afforded to ensuring firms are verified using the 
more rigorous process.
    And, in fact, that may actually be occurring with the new 
interim rule that VA put in effect where there is now a two-
year reverification process. That may indeed allow VA to focus 
on those that had been verified two years back mostly being 
under the less rigorous process, paying greater attention to 
those first than those that have been done potentially over a 
two-year period under the more rigorous process.
    But we continue to remain concerned that with such a large 
percentage of firms included in the program under that less 
rigorous process that veterans are not being served well.
    Mr. Stutzman. Mr. Chairman, I just have a lot of concerns 
here. And with the testimony and the answers that Mr. Hillman 
has given, as a taxpayer, as a business owner, as an American 
watching this sort of or hearing about this sort of testimony, 
my confidence is really shaken.
    And what is going on and are we making sure that veterans 
are really being served through this particular program?
    So I will just say thank you for being here and thank you 
for your testimony and answers.
    With that, I will yield back.
    Mr. Johnson. Thank you, Mr. Chairman, for yielding.
    And, gentlemen, that concludes our questions. We could 
probably spend all day and drill down into this thing, but I 
think we have got a pretty accurate picture that we have got a 
lot of work left here yet to do.
    I appreciate your testimony and with that, you are excused. 
Our thanks to the panel.
    I would now call our third panel to the table. On our third 
panel, we will hear from Mr. Rick Weidman, Executive Director 
for Policy & Government Affairs at Vietnam Veterans of America 
and current Chairman of VET-Force; and from Mr. Scott 
Denniston, Executive Director at the National Veteran Small 
Business Coalition.
    Both of your complete written statements will be made part 
of the hearing record.
    Mr. Weidman, you are now recognized for five minutes.

STATEMENTS OF RICHARD F. WEIDMAN, EXECUTIVE DIRECTOR, POLICY & 
    GOVERNMENT AFFAIRS, VIETNAM VETERANS OF AMERICA; SCOTT 
DENNISTON, EXECUTIVE DIRECTOR, NATIONAL VETERAN SMALL BUSINESS 
                           COALITION

                STATEMENT OF RICHARD F. WEIDMAN

    Mr. Weidman. Thank you, Mr. Chairman, and thank both Mr. 
Chairmen and Members.
    I think it might be useful at this point just to go back 
and set some context to all the discussion today which drilled 
down then of necessity to a lot of specific details.
    106S50 when it was originally passed, we decided to stay 
together the task force that worked with the leadership of this 
Committee, at that time Mr. Stump, and with Jim Tallon of 
Missouri to get that legislation through. And it was all that 
time spent since then mostly is focused on getting the agencies 
to implement it successfully.
    Several years ago, we became very concerned about fraud, 
about rent-a-vets coming into the situation. And it was us who 
approached the Committee to ask for assistance to weed out 
these folks when a friend of mine said you should know better 
than calling people in who then will say we are from the 
Federal Government and we are here to help you.
    And, unfortunately, a lot of our businesses have literally 
been destroyed and very few, relatively few people have been 
caught who are the real crooks. They are still out there 
operating. They may not be operating in VA, but they are 
operating in other agencies because of a lack of due diligence.
    So we have a number of suggestions here this morning that 
perhaps have the way forward, but let me just say that one of 
the things that would help significantly is for this Committee 
to communicate to the Authorizing and Appropriation 
Subcommittees about the problems with those other agencies, 
whether it be the Department of Interior or whoever it might 
be, where it is clear that staff, procurement staff is not 
doing due diligence on this program or other programs probably. 
And, therefore, there are people who are getting in on self-
certification who really are ineligible for the program.
    There are number of things in the short-run that we would 
suggest that need to be done. First is provide transparency to 
the OGC opinions because we have not had those to look at to 
understand why and how people came.
    Let me just say as a general note as we have noted to Mr. 
Leney and noted to your colleagues over on the Oversight and 
Investigations Committee of the House of Representatives that 
if you are teacher and 60 percent of your students flunk the 
test, you have a real bad test or you are a real bad teacher or 
both. And that is a failing school.
    So we argue that it has not been clear heretofore what are 
these criteria, one.
    Two, that some of the criteria just make no sense, the 
ownership thing as an example. If I own a hundred percent of 
the business and I do not have a board of directors, I am a 
sole proprietorship, then they would declare, okay, you have 
got control.
    But to think that I can make a decision without consulting 
with my spouse about what supports the family is ludicrous on 
the face of it. Maybe your family works different, Mr. 
Chairman, but that is the way it works in, I believe, most----
    Mr. Johnson. I assure you, Mr. Weidman, it is much more 
complex than that at my home.
    Mr. Weidman. But consultation must be made, I am sure.
    And so the notion of ownership and in the way in which VA 
is doing it is not in statute. It makes no sense operationally 
and it is not weeding out the real crooks.
    What is the purpose of this whole thing? Is it to see how 
many angels can dance on the head of a pin of minute things 
laid down, or is it to weed out people who are not eligible for 
the program?
    I would suggest that it is the larger issue that we need to 
focus on.
    Secretary Shinseki often says do not worry about doing all 
things right. Worry about doing the right thing for the 
veteran. This is what he has told to all the adjudicators 
within the compensation and pension section. In other words, do 
not worry about crossing all the T's and dotting the I's and 
regulation that may not really pertain.
    The key question that was asked here this morning was when 
one of the Members of this panel asked Mr. Leney who wrote the 
regulations. They wrote the regulations.
    When the GI Bill was first implemented, they had 17 
different steps and it turned into a real mess getting the 
money out to the young people coming home to go to school.
    And Secretary Shinseki called the 57 people from the 
regional offices in and said why is this taking so long. Walk 
me through what happens when a young person sends in an 
application for the 21st century GI Bill. And they did and it 
was 17 steps.
    And he asked, well, why do you go through all these steps. 
And they said, well, the regulations require it. Well, who 
wrote the regulations. Well, we did. And they reduced it to 
three steps, three steps.
    And you have not heard any problems with fraud there 
because it focused back on the real question which is, are 
people eligible or are they not, are they legitimate or are 
they not, and did not get into the kinds of details.
    I am out of time, I can see, Mr. Chairman, and I apologize 
for going over. I did not get into the specific 
recommendations, but hopefully we can get into those in the 
question period.
    I thank you, all of you very much on both Subcommittees for 
your leadership on this issue and doggedly pursuing trying to 
get this straightened out.

    [The prepared statement of Richard F. Weidman appears in 
the Appendix]

    Mr. Johnson. Thank you, Mr. Weidman.
    Mr. Denniston, you are now recognized for five minutes.

                  STATEMENT OF SCOTT DENNISTON

    Mr. Denniston. Chairman Johnson, thank you, Chairman 
Stutzman, thank you for holding this hearing.
    I am fighting a cold, lost my voice last night, so we will 
do the best we can.
    The National Veteran Small Business Coalition was 
established two years ago to be the honest broker middleman 
between the veteran business community, Federal agencies, and 
prime contractors.
    And we have been imminently involved with this whole 
verification process since the very beginning and also because 
Mr. Leney as part of his improvements for the program asked the 
coalition if we would be involved and be one of his partners to 
help veterans and have veterans understand what are the issues 
with verification.
    So we have got a fairly good background as to what some of 
the issues are. And I would like to in the short time that we 
have address what we believe to be those issues.
    First, the greatest weakness we believe is the lack of 
communication between a veteran and the CVE. When an 
application is submitted, it basically goes into a black hole. 
You heard from Mr. Leney that a reconsideration takes 200 days. 
There has got to be a way to communicate.
    We have got a veteran that drove up from South Carolina 
because he tried the VA help desk and was told that he was 
caller number 30 and his approximate wait time was 4,116 
minutes. He said he could fly up here faster than that.
    The second area of weakness we see in the CVE verification 
process is the restrictive rules as a result of Public Law 111-
275. Some of the issues that we see that are absolutely 
critical here with the rules being too restrictive.
    And I know that Mr. Leney said that the rules are the same 
for the SBA programs and also for the service-disabled vet 
programs. We have many veterans that come to us that have been 
denied CVE verification but yet are 8A contractors.
    So the question then becomes how are the rules the same? 
Then it must be in the interpretation.
    We also are concerned about what we see as CVE's focus on 
events that may happen in the future, things like vets that are 
in community property states who may go through a divorce, 
rights of first refusal which are very standard in most 
business contracts which, again, that is something that is 
going to happen in the future. But if there is a right of first 
refusal clause in the bylaws, the articles of incorporation, 
the agreement between two partners, that is going to reject you 
for CVE verification.
    I mean, realistically no non-veteran investor in his right 
mind is going to invest in a service-disabled veteran-owned 
business the way the rules are written now.
    We also have a difference between the ownership and control 
issues that were mentioned, the gentleman from GAO talking 
about contract performance, and it is important that we do not 
get those confused in my opinion.
    The next issue we have with the VA is the inconsistent 
interpretation of the rules. And this becomes very critical 
when CVE is looking at the past experience of a veteran versus 
a non-veteran because many times the non-veteran is going to 
have more years of experience in the given industry than the 
veteran is because the veteran has been serving their country.
    And, again, there is no hard and fast rule as to what 
constitutes acceptable experience. That is a very subjective 
decision that we think is being unfair to folks in the 
veterans' community.
    The other problem that we see is CVE staff not 
understanding basic business principles, what questions to ask, 
and how to ask the questions.
    Many times, the VA staff from what we are learning are 
confusing operating agreements which are LLCs with articles of 
incorporation and bylaws. And CVE staff does not appear to 
understand the functions and duties of officers versus 
directors of small businesses and how they relate to operation 
and control of the business.
    So many times CVE is asking for documentation that we do 
not believe is relevant to the control issue.
    So in our testimony, we have come up with eight specific 
suggestions that we think would help the CVE verification 
process.
    One is an in-depth development of standard operating 
procedures.
    Number two is open lines of communication with the veteran 
applicants through e-mails and phone calls.
    Number three, assign a caseworker to every application and 
inform the veteran who it is that is processing their case so 
they know who they need to talk to.
    Establish a management review board which would be people 
internal to VA that before anyone is denied or before there is 
a request for additional information, that review board would 
make sure that the reviewer knew what they were talking about 
before they took the action.
    Number five, provide veteran applicants an opportunity to 
take corrective action before issuing a denial letter.
    Number six, at the recent veteran business conference in 
Detroit, Secretary Shinseki announced a Committee to review and 
determine how the verification rules could be improved. We 
would like to see veteran business owners and stakeholders as 
part of that process.
    We think that it would be important for VA to establish a 
business advisory Committee to review processes, procedures, 
rules, policies and their implementation as it relates to the 
Veterans First Program.
    And, number eight, and probably most important, institute a 
grace period whereby firms who have been previously verified as 
veteran-owned or service-disabled veteran-owned remain verified 
until such time as CVE has an opportunity to perform the new 
in-depth review when the contractors are pending contract 
opportunities which they will lose if CVE pulls their CVE 
verification.
    With that, as Rick did, I went over my time. I apologize, 
and be happy to answer any questions.

    [The prepared statement of Scott Denniston appears in the 
Appendix]

    Mr. Johnson. Thank you, gentlemen, for your testimony.
    We will now begin with questions.
    For both of you, either of you, how effective, and if you 
could answer quickly so we can get to everyone here, how 
effective do you think the Verification Assistance Partnering 
Program is in the VA?
    Mr. Denniston. I think it is too early to tell. I think it 
has the foundations to be effective because we are bringing in 
people being trained by VA who understand the process and then 
can go out and help train veterans. And I think that will go a 
long way to some of the issues that we faced in the past.
    Mr. Johnson. Okay. Mr. Weidman.
    Mr. Weidman. We need to simplify the process first and then 
I think it can help a great deal. It is simplification and 
clarification in the process so that we can understand it so 
that we can help veterans understand it and put together self-
help guides that are clear as a bell about what you need to do 
in order to get VA certification.
    And the litmus test of that simplification should be what 
do you need in order to make sure that you do not have fraud 
here. And some of the dancing on the head of a pin definitions 
that go into that decision now really make no sense 
operationally. It does not accomplish the purpose. And we keep 
pointing out that 59 people caught versus thousands literally 
rejected who are legitimate makes no sense at all. We need to 
clean up this process.
    Mr. Johnson. Okay. How is the self-assessment tool being 
used by verification assistance counselors and how has it been 
received by the partners and individual vets?
    Mr. Denniston. Quite frankly, we are not using it because 
we do not believe it is effective. We think that we can have 
better success working with a veteran one on one because the 
self-assessment tool was written from a VA perspective, not 
from a business owner's perspective.
    Mr. Johnson. Okay.
    Mr. Weidman. What Scott said before about consulting with 
the stakeholders and business owners before you produce 
curricula, that is a sea change that really has to happen 
throughout VA and it certainly has to happen in this instance 
of sitting down with us before you put together things like 
that self-assessment tool so we can offer input which, in fact, 
may be helpful to make it a better product.
    Mr. Johnson. I thank you for your answers.
    Mr. McNerney.
    Mr. McNerney. Thank you, Mr. Chairman.
    Both the witnesses mentioned that you have specific 
recommendations to improve the process.
    Has the VA been receptive to your ideas and do you feel 
like any of these will be implemented in the regulatory 
development?
    Mr. Denniston. One of the primary reasons that we agreed 
the coalition to become a partner with VA was, number one and 
foremost, to help veterans through this very onerous process.
    But the second was because we do have the commitment from 
VA that as we go down the line, we will have an opportunity to 
discuss where the rules are onerous, how we can improve and be 
more effective in the process.
    So in answer to your question, that was the basic reason 
that we agreed to be a partner.
    Mr. Weidman. The same is true of VET-Force and I think of 
the other organizations who are participating in that. As it 
becomes more clear, I think that what the process is and that 
the process make sense, I think you are going to have more 
people step forward and agree to essentially act as mentors for 
people who want to apply.
    Mr. McNerney. Would you like to enumerate your suggestions, 
Mr. Weidman?
    Mr. Weidman. Well, one suggestion is that we have or 
recommendation really is to move the CVE and to create a 
separate verification unit.
    CVE three years ago was a place where you went for help. It 
was a good place. Now business owners consider it the enemy. 
And people do not get their e-mails returned or answered. They 
do not get their phone calls returned, et cetera.
    What we are suggesting is to remember that this is a 
veteran's benefit. It is based on the notion of the 19th 
century notion of bounty legally and the same as veterans' 
preference is to give preference in doing selling goods and 
services to the Federal Government. And that is its core.
    So, therefore, we are suggesting that you move it to and 
take the steps necessary to create that fourth division of VA 
which focuses on helping veterans become more independent and 
self-sustaining.
    And that would entail the Veterans' Employment and Training 
Service, bring it over from Labor. It would include the 
Education Service. It would include the Voc Rehab and it would 
include CVE which then would have to cooperate closely with SBA 
so that it magnified the services, and to have the verification 
unit there as well.
    Secretary Shinseki and the Under Secretary in Veterans 
Benefits have adjudicators for the first time doing something 
that veterans cannot believe, that when they are adjudicating 
the claim and they are looking over the claim, they pick up the 
phone and call the veteran.
    And veterans are astonished and say, look, what we need in 
order to do this, did you mean X, Y, and Z. And the veteran 
says, no, I meant A, B, and C. And he says, okay, well, we need 
to change that and you need this supportive document, do you 
understand what I am talk--to actually communicate with the 
veteran.
    And in the end, it saves money because it stops the churn 
within the system. This is a brand new system and we have a 
churn that does not quit. We need to get it right the first 
time and the way to get it right the first time is for the 
legitimate businesses, which is 99 percent of all of them who 
apply, to help them get it right to get it through so we can 
get on with it.
    And so that is the primary suggestion that we have, sir.
    Mr. McNerney. That is a big one.
    You know, when you send a package out in FedEx or UPS or 
even USPS, you know, you can go online and you can see that it 
has gone to Memphis and it has gone to Oakland and it is going 
to come to you.
    Maybe something like that would be reasonable within the VA 
when you make an application not only for this but also for 
disability benefits to know where your application is and maybe 
have sort of a scheduled time when you can expect a call from 
the VA to discuss questions.
    Mr. Weidman. Assuming you can believe the IT folks, we are 
less than a year away from having that kind of a dashboard in 
the Compensation and Pension Program where you can track where 
your claim is in the system. And once it works in that, there 
is no reason why that same software can't be used by the 
verification folks.
    And we believe that there is software already existing. It 
is just they need to give Tom Leney the ability to purchase it.
    This is one of the things that troubles us also, by the 
way, and I won't get into a long discussion of the supply fund 
which we are very much against because of accountability 
issues.
    But I will say this is that the function of small business 
verification, because it is a veteran's benefit, should be a 
line item. It should be in Title 38 and it should be subject to 
the normal appropriations process.
    Mr. McNerney. Thank you.
    Mr. Chairman, I am going to yield back.
    Mr. Johnson. I thank the gentleman for yielding.
    We have spent a lot of time here today.
    I have got one clarification for you, Mr. Weidman. Could 
you clarify your suggestion that sounded a little bit to me to 
sound as though you were suggesting self-certification?
    Mr. Weidman. No. What we are suggesting is self-
certification for people who do not intend to do business with 
the VA. And so it would be a slightly less rigorous step until 
they catch up. I mean, they tightened up so far, and some of it 
is not needed in our view, but you need to catch up with this 
process.
    I have talked to folks who are doing on both the RNC and 
the DNC within the past week and when they go out and do town 
meetings, every place they go the anger explodes about this 
issue of verification process. And it cuts right across every 
other issue because as it is viewed from the outside, it is the 
apotheosis of bureaucracy running amuck.
    I want to say just something personally and on behalf of 
VVA and of VET-Force is, we are not demonizing Tom Leney or his 
staff. We believe they are taking orders from above because the 
emphasis has been on the relatively few frauds instead of how 
many people are verified and doing business.
    And we will continue. I have already invited Mr. O'Neill 
and Mr. Hillman to join us August 21st at the next VET-Force 
meeting so we can get their perspective and we can tell them 
what we think is important about what they should be looking at 
in order to improve the overall process.
    So it is that kind of communication that has been lacking, 
sir. And, frankly, the chief of staff, Tom Leney is doing 
exactly what the chief of staff told him to do. And so that is 
where if there is any problem or mind shift that needs--mind 
set that needs shifting, that is where it is.
    Mr. Johnson. Okay. Thank you, Mr. Weidman.
    Well, the CVE has now been notified by both the judicial 
branch and the legislative branch that its processes need to be 
improved. This combined with the GAO's most recent report and 
the firsthand stories this Committee hears from veteran-owned 
small businesses tells us that all is not as well as the VA's 
testimony claims.
    We urge you, Mr. Leney, to thoroughly appraise your 
operation and work with this Committee to overcome the CVE's 
inadequacies.
    This Committee will remain vigilant in monitoring the CVE's 
progress. Investigative elements of our Committee will continue 
to conduct oversight, pursue bad actors, and refer them for 
investigation and potentially criminal prosecution.
    With that, I ask unanimous consent that all Members have 
five legislative days to revise and extend their remarks and 
include extraneous material. Without objection, so ordered.
    I want to thank all Members and witnesses for their 
participation in today's hearing.
    This hearing is now adjourned.

    [The prepared statement of James F. McDonnell appears in 
the Appendix]

    [Whereupon, at 12:51 p.m., the Subcommittees were 
adjourned.]

                            A P P E N D I X

                              ----------                              

  Prepared Statement of Hon. Bill Johnson, Chairman, Subcommittee on 
                      Oversight and Investigations

    Good morning. This hearing will come to order.
    I want to welcome everyone to today's joint hearing on the Center 
for Veterans Enterprise. I thank the Members of the Subcommittee on 
Economic Opportunity for their participation today and their efforts in 
improving the process for veteran-owned and service-disabled veteran-
owned small businesses to conduct business with the VA.
    The two Subcommittees have worked throughout this Congress to 
improve the certification process for veteran-owned and service-
disabled veteran-owned small businesses, or VOSBs and SDVOSBs. We have 
patiently waited for signs of progress following the installation of a 
new Executive Director of Small and Veteran Business Programs at the 
VA. While some improvements have been made, unfortunately the goals 
established nearly a year ago, have yet to be achieved.
    This Committee has an oversight responsibility to the American 
people to ensure that tax dollars administered by the VA are going to 
legitimate, qualified, veteran owned businesses. I am hopeful that 
today's hearing will encourage and assist the VA in reaching their 
goals of improving the CVE once and for all.
    As this Committee's own investigations and multiple Government 
Accountability Office investigations have shown, the ad hoc processes 
implemented by the CVE to verify and re-verify businesses are not 
working. The recommendations made by GAO and the VA's Inspector General 
go unheeded. Regardless of the reasons, the time has come for the CVE 
to take a hard look in the mirror, dig down to the root of the problem, 
and fix it.
    With the attention this issue has received, the findings of the 
recent GAO study ``Service-Disabled Veteran-Owned Small Business 
Program: Vulnerability to Fraud and Abuse Remains'' are troubling. One 
of the many flaws in the system substantiated by GAO includes the VA's 
providing GAO with seven different counts of how many SDVOSBs were 
verified by the CVE under the Veterans Benefits, Health Care, and 
Information Technology Act of 2006 and the Veterans Small Business 
Verification Act of 2010. Given the amount of resources we have urged 
the VA to commit to the CVE, it is safe to say we expected better than 
this.
    Over the past several months, this Committee provided the 
Department with feedback and input regarding the CVE's re-verification 
problem. With this in mind, we welcome the Secretary's recent 
announcement that the VA will move from annual re-verification to a bi-
annual re-verification, something this Committee had been strongly 
urging the VA to do for a long time. While this move is commended, the 
problems plaguing the CVE go beyond re-verification.
    For instance, the VA's decision to ignore the Small Business 
Administration's regulations regarding ownership and control of a 
business has resulted in unnecessary problems. The VA's choice to 
create its own standards for ownership and control has led to the CVE 
applying inconsistent standards to businesses applying for 
verification. In some instances, these arbitrary requests are invasive 
and have needlessly hurt legitimate, veteran owned small businesses.
    It is not only the legislative branch that believes the CVE's 
improvised standards and reasoning is lacking, but also the judicial 
branch. This past March, a Federal District Judge for the District of 
Columbia stated in an opinion that ``several of the grounds cited by 
the CVE as a basis for denying the application for inclusion in the 
VetBiz VIP database are described in such generalized and ambiguous 
terms that the Court is essentially left to guess as to the precise 
basis for the agency's decision.''
    Unfortunately, this characterization describes the experience of 
many businesses who have applied for certification and been denied.
    On July 11, Chairman Stutzman and I sent a letter to Secretary 
Shinseki detailing these and other problems, and we continue to await a 
response. Today's hearing provides an opportunity to candidly discuss 
CVE's failures, and where and how it can improve.
    I want to thank all of our witnesses for their participation today, 
and I look forward to your testimony. I now yield to Chairman Stutzman 
of the Subcommittee on Economic Opportunity for his opening statement.

                                 
    Prepared Statement of Hon. Marlin Stutzman, Chairman, Economic 
                              Opportunity

    Good morning. Everyone here knows about the problems VA has had 
implementing the small business provisions of a series of public laws 
beginning with P.L. 109-461. And we will hear more about it today.
    While addressing those continuing issues is important, especially 
those which may include criminal activity, the past is not my focus. I 
want to know how and equally important, when VA will put in place the 
systems and policies that will shorten the time to be approved, 
decrease the level of effort needed to pass muster and lower the cost, 
and finally, create a community of veteran-owned businesses that is 
reasonably free from unqualified companies.
    This is not just a VA task. There are issues we in Congress need to 
deal with. For example, current law effectively eliminates any company 
funded through investors because of the 100% control requirement. That 
means should we adopt a less stringent definition of control which then 
begs the question of how to prevent rent-a-vet operations from 
flourishing at the expense of fully qualified companies.
    Another issue is what VA describes as negative control where a 
veteran majority owner can potentially be thwarted by a non-veteran 
minority owner. Another is how to best judge the level of control when 
there is a disparity in the resumes of a veteran majority owner and a 
minority owner.
    Finally, there is the issue of recertification. I believe the 
current approach of recertifying every business, whether every year, or 
every two years, or three years or four years, etc. may overwhelm CVE 
resources. Let me explain using an assumed increase of 2,000 approved 
businesses annually. As you can see on the monitors, using the current 
two year recertification process, at the end of the 10th year, CVE will 
be recertifying 18,000 businesses. Even using what Mr. Leney will 
describe as the ``simplified recertification process,'' I do not see 
how that magnitude of workload can be managed without a significant 
increase in resources beyond the current $30 million per year. We need 
another approach, perhaps a risk-based one that recertifies companies 
only when they are identified as a potential contract winner.
    So, Mr. Leney, you have your work cut out for you and I truly want 
you to succeed because that will be good for the veteran business 
community. I yield back.

                                 
                 Prepared Statement of Thomas J. Leney

    Chairman Johnson, Chairman Stutzman, Ranking Member Donnelly, 
Ranking Member Braley, and Members of the Subcommittees, thank you for 
inviting me to testify on the status of VA's Veteran-owned small 
business (VOSB) Verification Program and on VA's response to the 
Government Accountability Office (GAO) report GAO-12-697, ``Service-
Disabled Veteran-Owned Small Business Program: Vulnerability to Fraud 
and Abuse Remains.''
Overview
    VA has made substantial progress in improving the VA VOSB 
Verification Program. These improvements have reduced the potential for 
ineligible firms to take improper advantage of the ``Veterans First'' 
program, while making it easier and faster for legitimate VOSBs and 
service-disabled Veteran-owned small businesses (SDVOSBs) to gain 
greater access to VA procurement opportunities.
    VA has addressed the issues raised in the GAO report, and believes 
the current VOSB verification process provides a high level of 
assurance that only eligible firms are verified. We have improved our 
quality control and become more aggressive in referring firms that we 
suspect are misrepresenting their status. In FY 2011 we referred 25 
firms to the Office of Inspector General (OIG) for investigation as 
possible misrepresentation. So far in FY 2012, we have referred 59 
firms. In FY 2011, all referrals were made to OIG with the expectation 
that if OIG declined to investigate, that the referral would forward on 
to the 8127 Debarment Committee. The Center for Veterans Enterprise 
(CVE) has established a formal process for referring misrepresentation 
to the VA 8127 Debarment Committee that has resulted in improvement, 
going from no referrals in FY2011 to 28 referrals so far this year. The 
8127 Debarment Committee has debarred 8 firms and 7 individuals and 
there are 9 firms and 20 individuals pending a decision from the 
committee.
    At the same time we have taken action to improve the process, in 
order to enable eligible firms to be verified quickly and efficiently. 
By regulation, VA has 90 days from the time it receives a complete 
verification application to make a decision. When I appeared before you 
in July 2011, it took more than 130 days on average to process an 
initial verification application. CVE has now improved upon that time. 
A year ago, only 41 percent of initial applications were approved. In 
the past two months, due to our increased efforts to educate potential 
applicants on how to become compliant with the regulation, more than 70 
percent of initial applications were approved.

    Need to balance efforts addressed by GAO with enabling firms to get 
verified

    The recent GAO report states that the government-wide SDVOSB self-
representation program is still vulnerable to fraud and abuse. While 
acknowledging progress made by the VA VOSB Verification program, the 
report states that our program remains vulnerable due to an 
inconsistent approach to prioritizing the verification of firms and the 
inability of the CVE to accurately track the status of its efforts. VA 
believes this GAO finding is inaccurate, as the CVE knows how many 
firms have been verified, and is able to track its inventory of firms 
that have been verified or are currently in the application process. 
CVE tracks its inventory of firms in VIP using the Verification Master 
Inventory List due to limitations in the capabilities of our 
Verification Case Management System (VCMS). As of July 12, 2012, there 
are 6,079 firms in the Vendor Information Pages (VIP) and all of these 
firms have been verified under the requirements established by Section 
502 of Public Law 109-461 in 2006. Of that total, 2,355 were verified 
prior to the enactment of Section 104 of P.L. 111-275 in 2010 and 3,724 
were verified using the processes implemented after by that 
legislation. No firm appears in VIP as eligible for award unless it has 
been verified as owned and controlled by a Veteran or service-disabled 
Veteran. There are 1,449 firms listed in VIP whose verification has 
expired. These firms are annotated as in ``reverification'' status and 
they are not eligible to receive awards without undergoing 
reverification using the post-2010 Act process. These companies' two-
year eligibility term has expired, but they previously submitted a 
reverification application. This ``reverification'' status allows them 
the opportunity to continue to pursue VA ``Veterans First'' set-aside 
contracts, but ensures that they will not receive an award until 
reverified under the current process.
    VA has utilized a consistent approach to prioritization that is 
based on the regulation, fundamental principles of fairness, and 
availability of resources. Our specific priorities have evolved as 
appropriate in response to situational changes and resources.
    In May 2011, the priorities were as follows:

       (1) Verification of new applications for firms that had 
previously only self-represented in VIP (i.e., firms that had not been 
reviewed under processes created for the 2006 Act or 2010 Act);
       (2) Verification of new firms that had initially applied for 
verification after the 2010 Act;
       (3) Requests for Reconsideration from firms denied verification; 
and
       (4) Reverification of firms initially verified in VIP under the 
process implemented prior to the 2010 Act.

    ``Unverified'' firms were listed in VIP as ``pending'' but were not 
eligible for award of contracts. They were eligible to submit proposals 
and those that were pending award received top priority for 
verification as part of ``fast track'' program. VA committed to 
eliminating all unverified firms in VIP no later than December 31, 
2011. By September 4, 2011, CVE completed that mission and since that 
time only those firms who have gone through the verification process 
are listed in VIP. CVE reinstituted the ``fast track'' program in May 
2012 for those companies identified as being in ``reverification'' who 
are identified by the VA Contracting Officer as the apparently 
successful offeror for a VA Veterans First set-aside contract.
    Today, the priorities are as follows:

       (1) Fast Track verification of firms in ``Reverification'' 
status that are pending award;
       (2) Simplified reverification of firms verified using post-P.L. 
111-275 procedures;
       (3) Verification of new firms using the post- P.L. 111-275 
procedures;
       (4) Requests for Reconsideration from firms denied verification; 
and
       (5) Reverification of applications for expired firms initially 
verified in VIP under pre-P.L. 111-275 procedures.

    CVE primarily initiates reverification of firms verified prior to 
P.L. 111-275 when their eligibility expires. This is in accordance with 
38 CFR Sec.  74.15 (c) that otherwise only authorizes CVE to initiate a 
verification examination ``whenever it receives credible information 
calling into question a participant's eligibility as a VOSB.''
    To ensure that it verifies only eligible firms, CVE has made a 
number of improvements, to include:

      Established a Quality Control (QC) Review Program to 
address potential errors. An integral feature of the QC Program is a 
legal review of CVE's work product performed by staff attorneys within 
the Office of General Counsel (OGC) when requested by CVE;
      Improved records management/document control;
      Strengthened review of Requests for Reconsideration by 
adding OGC review of all Requests for Reconsideration;
      Established risk management program;
      Established formal OIG referral process; and
      Established a Standard Operating Procedure process for 
referral of cases to the 8127 Debarment Committee in compliance with 
P.L. 109-461 requirement

    While we believe that these improvements significantly reduce the 
risk of ineligible firms being verified, we continue to refine and 
improve the system. At last month's National Veterans Small Business 
Conference in Detroit, Secretary Shinseki announced an interim final 
rule change that modified the eligibility term from one year to two 
years. This change had an immediate effect on 2,424 businesses whose 
eligibility would have expired, but retained their eligibility for 
another year. CVE will reverify these firms using the more robust 
verification process established post-P.L. 111-275, when their 
eligibility expires.
    As stated at the National Veterans Small Business Conference in 
Detroit, VA is fully prepared to adjust the standards based on the 
lessons learned from the implementation of the verification regulation. 
To this end, the OSDBU is in the process of seeking input from 
stakeholders in order to draft a significant change to 38 Code of 
Federal Regulations (CFR) Part 74. We will be using this feedback to 
draft proposed rule changes governing VA VOSB Verification. The 
rulemaking process is not quick. VA intends to be thorough in 
identifying and analyzing proposed changes to the regulation that will 
streamline the process without compromising the integrity of the 
examination.
    The Committee has asked VA to address how often a business should 
be recertified. SBA's HUBZone program is a three year recertification, 
while their 8(a) business development program requires annual 
recertification. We believe that the recent extension of the 
verification eligibility from one to two years is on balance the right 
decision. VA welcomes the Committee's input on any possible regulation 
changes.
Small Business Administration Comparison
    In close collaboration with the SBA, we compared the regulation 
that governs VA verification, 38 CFR Part 74, and the regulation that 
covers the government-wide SDVOSB program, 13 CFR Part 125 as well as 
13 CFR Part 124 that governs the SBA 8(a) business development program. 
We have worked closely with cognizant SBA staff to examine the 
regulations and the existing case law on SDVOSB status eligibility. 
While we found that 38 CFR Part 74 is more detailed in its explicit 
requirements for ownership and control, there are very few substantive 
differences between the three regulations. Indeed, the VA requirements 
for ownership and control are nearly ``word for word'' the same as 
SBA's requirements for their 8(a) business development program. The 
regulation that covers the SBA SDVOSB program, 13 CFR 125, is mostly 
silent in terms of ownership and control, and was written specifically 
for a self-representation program. VA and SBA have recently completed 
an informal crosswalk of the regulations for the VA VOSB Verification 
program (38 CFR Part 74), the SBA SDVOSB program (13 CFR Part 125) and 
the 8(a) business development program (13 CFR Part 124) in order to 
determine if there are material discrepancies between the regulations. 
With respect to the government-wide SDVOSB program, SBA case law 
indicates that the places where 13 CFR Part 125 is silent, SBA follows 
the 8(a) regulation. This is borne out by case law from the SBA Office 
of Hearings and Appeals (OHA) as early as 2005 in SBA No. VET-102.
    Apart from the obvious difference that VA's program also addresses 
Veteran-owned small businesses in addition to service-disabled Veteran-
owned small business, VA and SBA determined that there was only one 
main discrepancy between the SBA regulations and interpretations and 
the VA regulation. This is due to the provision of P.L. 109-461 for a 
surviving spouse exception that is unique to VA. Both VA and SBA will 
be posting a comparison document to their Web sites to illustrate the 
consistency between the regulations.
    We also examined the document requirements for each regulation and 
again did not find substantial differences. Based on this review we do 
not believe that there is a need to modify the document requirements in 
order to avoid major discrepancies between programs. The documents 
required by each program are listed in the table below.

----------------------------------------------------------------------------------------------------------------
                VA Document Requirements                                SBA Document Requirements
----------------------------------------------------------------------------------------------------------------
                                               GENERAL
----------------------------------------------------------------------------------------------------------------
Business and/or personal professional, industry, and/or     Copies of licenses and agreements required for the
             other licenses, permits or accreditations   operation of the business (e.g. franchise, license, and
                                                         or similar contractual agreements with other concerns)
----------------------------------------------------------------------------------------------------------------
 Resumes of all owners, directors, partners, officers           Names, addresses and resumes for all officers,
                               and other key personnel    directors, managing partners, and/or managers of the
                                                         firm (the resumes should include the names of current
                                                                 and former employers and dates of employment)
----------------------------------------------------------------------------------------------------------------
       Approval letters for businesses with Sensitive      Date and state in which the firm was established or
  Compartmented Information Facility (SCIF) or ``Vault                                            incorporated
----------------------------------------------------------------------------------------------------------------
                                                                Name and address of the firm's owners, general
                                                                partners, members, and principal shareholders/
                                                                                                  stockholders
----------------------------------------------------------------------------------------------------------------
                                             FINANCIAL
----------------------------------------------------------------------------------------------------------------
IRS Federal tax form 1040 and the attached Schedule C         Copies of the business concern's two most recent
                              for the past three years                                     Federal tax returns
----------------------------------------------------------------------------------------------------------------
  IRS Federal Tax Form 1065 and corresponding K-1 for    Unemployment tax filings for the two quarters prior to
                                     past three years.                                                   offer
----------------------------------------------------------------------------------------------------------------
     Appropriate IRS tax form filed; If filed as Sole         Unemployment tax filings for the current quarter
 Proprietorship (Schedule C), partnership (Federal tax
  form 1065 and K-1); or S Corporation (1120S and K-1)
                             for the past three years.
----------------------------------------------------------------------------------------------------------------
 Federal tax form 1120S and corresponding K-1 for the                                                         List of the firm's current financial obligations to
                                      past three years     other individuals or entities (e.g. loans, security
                                                               agreements, guarantees, indemnifications, etc.)
----------------------------------------------------------------------------------------------------------------
   For Joint Ventures, applicable Federal tax returns    Breakdown of the firm's sources of revenue indicating
 based on business type (see above) for the last three   total percentage of revenues attributable to individual
                            years for each participant                                                  source
----------------------------------------------------------------------------------------------------------------
Signature cards authenticated by financial institutions                                                       List of individuals who have signed or are expected to
                            (Banks/Credit Unions/etc.)         sign documents to facilitate the ability of the
                                                         business concern to receive indemnifications or credit
                                                          guarantees, who are NOT owners, officers, directors,
                                                         employees, partners, or principal stockholders of the
                                                                                             business concern.
----------------------------------------------------------------------------------------------------------------
Copies of approximately 20 negotiated company checks.
----------------------------------------------------------------------------------------------------------------
                               MANAGEMENT INFORMATION
----------------------------------------------------------------------------------------------------------------
                                                     Lease, Management and Services agrCopy of lease agreement
                                   supporting payments
----------------------------------------------------------------------------------------------------------------
         Operating Agreement including all amendments
----------------------------------------------------------------------------------------------------------------
                                                     LEGAL STRUCTURE
----------------------------------------------------------------------------------------------------------------
 Ownership Agreements or Partnership Agreements (i.e.                                      Buy/sell agreements
                  proxies and voting trust agreements)
----------------------------------------------------------------------------------------------------------------
      Partnership Agreement, including all amendments       Percentage of voting stock in the firm or business
                                                                                                 owned by SDVs
----------------------------------------------------------------------------------------------------------------
     Shareholders Agreement, including all amendments                                   Shareholder agreements
----------------------------------------------------------------------------------------------------------------
Equity participation or equity plans, restricted stock                                                        List of any stock options outstanding and name of
        or ownership interests or options for stock or                person holding option; include agreement
                           ownership interest or plans
----------------------------------------------------------------------------------------------------------------
      Official Certificate of Formation and Operating          Copies of promissory notes and proof of payment
                         Agreement with any amendments
----------------------------------------------------------------------------------------------------------------
Minutes of first and most recent stockholder and Board              Copy of the last corporate meeting minutes
          of Directors meetings (Evaluator may request
          additional minutes, and applicant may supply
   additional minutes to explain any changes since the
             establishment of the Operating Agreement)
----------------------------------------------------------------------------------------------------------------
              All corporate bylaws and all amendments      Copy of corporate bylaws, partnership agreement, or
                                                                                           operating agreement
----------------------------------------------------------------------------------------------------------------
                        Articles of Organization for LLC'Copies of stock certificates (front and back) for all
                                            amendments                                        classes of stock
----------------------------------------------------------------------------------------------------------------
 Articles/certificate of incorporation filed with the                                Articles of Incorporation
           Secretary of State including all amendments
----------------------------------------------------------------------------------------------------------------
   Joint Venture Agreement and current opportunity on    Percentage and description of work under this contract
                        which joint venture is bidding                    that will be performed by affiliates
----------------------------------------------------------------------------------------------------------------
Stock registers for Applicant or stock ledgers showing    Stock ledger certified by the corporate secretary or
                       listing all shares of issuance.                                               president
----------------------------------------------------------------------------------------------------------------
                                                                                                              List of stock held by a lender or other party as
                                                                 pledged collateral; include copy of agreement
----------------------------------------------------------------------------------------------------------------
                                                                                                              List of stock voted under a proxy agreement, a trust
                                                                                  and a copy of such agreement
----------------------------------------------------------------------------------------------------------------
                                                                                              Trust agreements
----------------------------------------------------------------------------------------------------------------
                                                         Copy of any and all contracts or agreements between the
                                                              firm and any affiliates (including joint venture
                                                                                                     partners)
----------------------------------------------------------------------------------------------------------------
                                                OTHER
----------------------------------------------------------------------------------------------------------------
                                                              Evidence that the firm's majority owner has been
                                                         recognized by VA or DoD as service-disabled - written
                                                                                                 determination
----------------------------------------------------------------------------------------------------------------
                                                                                     Complete copy of proposal
----------------------------------------------------------------------------------------------------------------
                                                                                                              List of the firm's affiliates (domestic and foreign)
----------------------------------------------------------------------------------------------------------------
                                                                                                              List of all owners, partners, directors, officers or
                                                               principal shareholders/stockholders that hold a
                                                                     position (paid or unpaid) in another firm
----------------------------------------------------------------------------------------------------------------
                                                                                                              List of all owners, officers, directors, supervisors
                                                           and/or employees that have ever been employed by or
                                                                  performed work for any affiliate of the firm
----------------------------------------------------------------------------------------------------------------
                                                                                                              List of all facilities, equipment, and or personnel
                                                         shared with other firms at the time of the bid opening
----------------------------------------------------------------------------------------------------------------

New Process Improvements
    In addition to the actions we have taken to strengthen the 
verification process, we have also made improvements in the process 
aimed at reducing the time it takes to receive an eligibility 
determination. CVE has made a number of process improvements, to 
include:

      Online application system;
      Streamlined review process;
      Standardized review procedures;
      On-demand application status check;
      Customer service help desk with expanded hours; and
      Determination letters posted online for on-demand 
retrieval.

    The impact of improvements has been limited by the high rejection 
rate of applications. In 2011 more than 60 percent of applications were 
rejected. Our analysis of this result revealed that most rejections 
occurred as a result of a lack of understanding of the requirements, 
not fraudulent applications. In order to address this problem, we have 
taken action to help Veterans better understand the requirements. We 
developed Verification Assistance Briefs posted on VetBiz that 
clarified the requirements and explained in plain language what was 
needed. We have provided briefings to Veteran businesses on how to meet 
the standards. We have developed an on-line Verification Self 
Assessment Tool that takes a prospective applicant through a detailed 
review of their business model and its fit to the regulation. It covers 
all of the documentation required for their business type and enables 
them to assess if there is anything in their business model that would 
increase their risk of denial.
    For those that need more assistance, we have established 
partnerships with the Procurement Technical Assistance Centers and 
several Veteran Support Organizations to provide counseling and answer 
questions for applicants. The verification counselors are trained with 
the same materials that are used to train our examiners. We rolled out 
the counseling program at the National Veterans Conference in Detroit, 
where it was extremely well-received.
Conclusion
    VA has made significant progress in its VOSB verification program. 
We have overcome many of the challenges and vulnerabilities that were 
raised by the GAO and OIG reports but we seek continuous improvement. 
Mr. Chairmen and Members of the Subcommittees, this concludes my 
statement. I am pleased to answer any questions you may have.

                                 
                 Prepared Statement Richard J. Hillman

SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESS PROGRAM
Vulnerability to Fraud and Abuse Remains
    Chairmen Stutzman and Johnson, Ranking Members Braley and Donnelly, 
and Members of the Subcommittees:

    I am pleased to be here as you examine the Service-Disabled 
Veteran-Owned Small Business (SDVOSB) Program's vulnerabilities to 
fraud and abuse. My remarks today are based on our report, Service-
Disabled Veteran-Owned Small Business Program: Vulnerability to Fraud 
and Abuse Remains, recently issued. \1\ In fiscal year 2010, federal 
agencies awarded $10.8 billion in small-business obligations to firms 
participating in the SDVOSB program, according to the Small Business 
Administration (SBA). The program is intended to honor business-owning 
veterans who incurred or aggravated disabilities in the line of duty by 
providing their firms with sole-source and set-aside contracting 
opportunities. Firms must meet several requirements to be eligible to 
participate in the program, such as being majority-owned by one or more 
service-disabled veterans who manage and control daily business 
operations.
---------------------------------------------------------------------------
    \1\ GAO-12-697 (Washington, D.C.: Aug. 1, 2012).
---------------------------------------------------------------------------
    SBA administers the government-wide SDVOSB program but does not 
verify firms' eligibility, stating that its only statutory obligation 
is to report other agencies' success in meeting contracting goals. In 
addition to SBA's statutory authority over the government-wide program, 
the Department of Veterans Affairs (VA) has separate authority over 
issues related to its own SDVOSB program. VA awarded $3.2 billion in 
SDVOSB contracts in fiscal year 2010--about 30 percent of government-
wide SDVOSB awards. Unlike SBA, VA is bound by the Veterans Benefits, 
Health Care, and Information Technology Act of 2006 (2006 Act) to 
verify firms' eligibility. Since 2009, we have issued 10 reports and 
testimonies detailing how the government-wide and VA SDVOSB programs 
are vulnerable to fraud and abuse, making numerous recommendations to 
strengthen fraud-prevention controls. \2\ In October 2010, Congress 
also passed the Veterans Small Business Verification Act (2010 Act), 
part of the Veterans' Benefits Act of 2010, to require VA among other 
things to more-thoroughly validate firms' eligibility before listing 
them in VetBiz, VA's database of eligible firms. In July 2011, we 
reported that both SBA and VA had taken positive steps in response to 
our findings and recommendations, but that vulnerabilities remained.
---------------------------------------------------------------------------
    \2\ See ``Related GAO Products'' in GAO-12-697.
---------------------------------------------------------------------------
    You requested that we again update our prior work and report the 
status of our recommendations. Our report assesses (1) VA's progress in 
addressing remaining vulnerabilities to fraud and abuse in its SDVOSB 
program and (2) actions taken by SBA or other federal agencies since 
our previous reports to improve government-wide SDVOSB fraud-prevention 
controls. To do so, we reviewed agency documentation and interviewed 
agency officials. We investigated new allegations from informants 
regarding firms that received SDVOSB contracts through fraudulent or 
abusive eligibility misrepresentation and highlighted 5 examples. Our 
examples cannot be projected to the overall population of SDVOSB firms. 
We also reviewed the status of 10 case studies from our prior work. We 
did not project the extent of fraud and abuse in the program. We 
conducted this performance audit from January 2011 to July 2012 in 
accordance with generally accepted government auditing standards. \3\ 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. We performed our 
investigative work from January 2011 to July 2012 in accordance with 
the standards prescribed by the Council of the Inspectors General on 
Integrity and Efficiency.
---------------------------------------------------------------------------
    \3\ Some of the work in this report is based on prior GAO products 
issued in 2012, 2011, and 2009. GAO, Service-Disabled Veteran-Owned 
Small Business Program: Governmentwide Fraud Prevention Control 
Weaknesses Leave Program Vulnerable to Fraud and Abuse, but VA Has Made 
Progress in Improving Its Verification Process, GAO-12-443T 
(Washington, D.C.: Feb. 7, 2012); Service-Disabled Veteran-Owned Small 
Business Program: Additional Improvements to Fraud Prevention Controls 
Are Needed, GAO-12-205T (Washington, D.C.: Nov. 30, 2011); Service-
Disabled Veteran-Owned Small Business Program: Preliminary Information 
on Actions Taken by Agencies to Address Fraud and Abuse and Remaining 
Vulnerabilities, GAO-11-589T (Washington, D.C.: July 28, 2011); and 
Service-Disabled Veteran-Owned Small Business Program: Case Studies 
Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of 
Dollars in Contracts, GAO-10-108 (Washington, D.C.: Oct. 23, 2009).
---------------------------------------------------------------------------
    In summary, VA's SDVOSB program remains vulnerable to fraud and 
abuse. VA has made inconsistent statements about its progress in 
verifying firms listed in VetBiz using the new, more-thorough process 
the agency implemented in response to the 2010 Act. In one 
communication, VA stated that as of February 2011, all new 
verifications would use the 2010 Act process going forward. According 
to the most-recent information provided by VA, there are 6,079 SDVOSBs 
and veteran-owned small businesses (VOSB) listed in VetBiz. Of these, 
3,724 were verified under the more-through process implemented under 
the 2010 Act, and 2,355--over 38 percent--were verified under the less-
rigorous 2006 Act process. The presence of firms that have only been 
subjected to the less-stringent process that VA previously used 
represents a continuing vulnerability. \4\ In 2011, VA's Office of 
Inspector General (OIG) issued a report finding that VA's document 
review process under the 2006 Act ``in many cases was insufficient to 
establish control and ownership . . . [and] in effect allowed 
businesses to self-certify as a veteran-owned or service-disabled 
veteran-owned small business with little supporting documentation.''
---------------------------------------------------------------------------
    \4\ On June 27, 2012, VA implemented an interim rule that extends 
the eligibility of verified firms to 2 years. VA told us it interprets 
``verified'' to include any firms that have been verified under either 
the 2006 Act or 2010 Act processes. Consequently, implementation of 
this rule means that thousands of firms will continue to be eligible 
for contracts even though they have not undergone the more-thorough 
2010 Act process.
---------------------------------------------------------------------------
    VA has taken some positive action to enhance its fraud-prevention 
efforts. VA generally concurred with recommendations we issued in 
October 2011 and has established processes in response to 6 of the 13 
recommendations (fig. 1). VA has also begun action on some remaining 
recommendations, such as providing fraud-awareness training and 
removing contracts from ineligible firms, though these procedures need 
to be finalized.
Figure 1: Status of GAO's Previous Recommendations

----------------------------------------------------------------------------------------------------------------
   Fraud-prevention controls                   GAO recommendations                    Status as of June 2012
----------------------------------------------------------------------------------------------------------------
                   Preventive       Provide regular fraud-awareness training to                               I
                                            CVE(a) and VA contracting personnel
----------------------------------------------------------------------------------------------------------------
                                 Provide additional guidance and training to the                              =
                                     VA contracting personnel on the use of the
                                    VetBiz website so that SDVOSB contracts are
                                                  only awared to verified firms
----------------------------------------------------------------------------------------------------------------
                                    Establish formal procedures for VA staff to                               =
                                   refer suspicious applications to the OIG and
                                 provide guidance on what type of cases to refer
                                                                     to the OIG
----------------------------------------------------------------------------------------------------------------
                                          Explore the feasibility of validating                               =
                                 applicants' information with third parties, for
                                        example, requesting consent from SDVOSB
                                 applicants to validate tax information with the
                                  IRS to assess the accuracy of the information
                                                                       provided
----------------------------------------------------------------------------------------------------------------
                                 Formalize a process for conducting unannounced                               =
                                   site visits to firms identified as high risk
                                                during the verification process
----------------------------------------------------------------------------------------------------------------
     Detection and Monitoring    Develop and implement procedures for conducting                              I
                                 unannounced site visits to contract performance
                                      locations and interviews with contracting
                                    officials to better assess whether verified
                                      companies comply with program rules after
                                                                   verification
----------------------------------------------------------------------------------------------------------------
                                 Develop and implement a process for unannounced                              =
                                  site visits to verified companies' offices to
                                 obtain greater effectiveness and consistency in
                                                       the verification program
----------------------------------------------------------------------------------------------------------------
                                     Develop procedures for risk-based periodic                               I
                                  reviews of verified firms receiving contracts
                                        to assess compliance with NAICS(b) size
                                             standards and SDVOSB program rules
----------------------------------------------------------------------------------------------------------------
Investigations and Prosecutions    Develop and implement specific processes and                               I
                                     criteria for the Debarment Committee(c) on
                                 compliance with the requirement in the 2006 Act
                                     to debar, for a reasonable period of time,
                                    firms and related parties that misrepresent
                                                            their SDVOSB status
----------------------------------------------------------------------------------------------------------------
                                  Develop and implement specific procedures and                               =
                                   criteria for staff to make referrals to VA's
                                 Debarment Committee and VA's OIG as a result of
                                   misrepresentations identified during initial
                                              verification and periodic reviews
----------------------------------------------------------------------------------------------------------------
                                      Develop specific guidelines outlining the                               I
                                 Debarment Committee's decision process to debar
                                    firms that misrepresent their SDVOSB status
----------------------------------------------------------------------------------------------------------------
                                 Develop procedures on removing SDVOSB contracts                              I
                                                          from ineligible forms
----------------------------------------------------------------------------------------------------------------
                                   Formalize procedures to advertise debarments                               I
                                                               and prosecutions
----------------------------------------------------------------------------------------------------------------

    = Process established
    I Process not established
    Source: GAO and analysis of VA data.
    (a) VA's Center for Veterans Enterprise (CVE) is responsible for 
maintaining VetBiz and implementing VA's verification program.
    (b) The North American Industry Classification System (NAICS) is 
the standard used by federal statistical agencies in classifying 
business establishments for the purpose of collecting, analyzing, and 
publishing statistical data related to the U.S. business economy.
    (c) VA's Debarment Committee was instituted in September 2010 
specifically to debar firms that had violated SDVOSB regulations.

    Regarding the government-wide SDVOSB program, no action has been 
taken by agencies to improve fraud-prevention controls. Relying almost 
solely on firms' self-certification, the program continues to lack 
controls to prevent fraud and abuse. For example, the Department of 
Defense (DOD) OIG reported in 2012 that DOD provided $340 million to 
firms that potentially misstated their SDVOSB status. SBA does not 
verify firms' eligibility status, nor does it require that they submit 
supporting documentation. While SBA is under no statutory obligation to 
create a verification process, five new cases of potentially ineligible 
firms highlight the danger of taking no action. These firms, discussed 
below, received approximately $190 million in SDVOSB set-aside and 
sole-source contract obligations.

      Non-SDVOSB joint venture. An SDVOSB entered a joint 
venture with a non-SDVOSB firm and received about $16 million in 
government-wide SDVOSB set-aside contract obligations. However, the 
owner, a service-disabled veteran, admitted to our investigators that 
his SDVOSB firm did not manage the joint venture.
      VA-denied firm. Though VA denied this firm SDVOSB status 
in 2010 because the firm was not controlled by a service-disabled 
veteran owner, it continued to self-certify in the Central Contractor 
Registration (CCR). \5\ The firm had received $21 million in SDVOSB 
set-aside and sole-source contracts from multiple agencies, and was 
awarded about $860,000 by the General Services Administration and the 
Department of the Interior (DOI) after it was denied by VA.
---------------------------------------------------------------------------
    \5\ CCR is the primary registrant database for the U.S. federal 
government. CCR collects, validates, stores, and disseminates data in 
support of agency acquisition missions, including federal agency 
contract and assistance awards.
---------------------------------------------------------------------------
      Multiple firms not veteran-controlled. Two firms and a 
joint venture firm received over $91 million in SDVOSB set-aside and 
sole-source contract obligations from VA and the Department of Health 
and Human Services. However, VA determined they were ineligible because 
they were not controlled by the service-disabled veteran who owned one 
of the firms. The firms have not been removed from the government-wide 
SDVOSB list.
      Not service-disabled veteran-controlled. This firm was 
ineligible for the SDVOSB program because the veteran did not control 
daily operations--he lived 500 miles away and received only a $12,000 
salary. This firm received about $37 million in SDVOSB set-aside 
contract obligations from DOD and DOI. SBA has since debarred the firm 
from the program.
      Service-disabled veteran otherwise employed. The firm may 
be ineligible because the service-disabled veteran owner worked as an 
attorney at a legal services organization Monday through Friday about 
40 hours a week. This raises questions about his ability to also manage 
the day-to-day proceedings of the SDVOSB firm, which received about $25 
million in SDVOSB set-aside and sole-source contract obligations from 
VA and the Department of Transportation.

    The firms in our previous 10 case studies that we reported in 
October 2009 have been or are under investigation by the SBA OIG. The 
SBA OIG has joined forces with other agency OIGs to pursue several 
cases. For example, enforcement actions have been taken against 3 of 
the 10 cases. Specifically, two individuals related to our cases have 
been charged with wire fraud in relation to their misrepresentation as 
an SDVOSB and another firm pled guilty to wire fraud in relation to 
another small-business program.
    To address vulnerabilities in the government-wide program, we 
previously suggested that Congress consider providing VA with the 
authority necessary to expand its SDVOSB eligibility-verification 
process government-wide. Such an action is supported by the fact that 
VA maintains the database identifying which individuals are service-
disabled veterans and is consistent with VA's mission of service to 
veterans. However, as shown by our current work, VA's program remains 
vulnerable to fraud and abuse because the agency has been unable to 
accurately track the status of its efforts and because potentially 
ineligible firms remain listed in VetBiz. Consequently, VA's ability to 
show that its process is successful in reducing the SDVOSB program's 
vulnerability to fraud and abuse remains an important factor in any 
consideration about the potential expansion of VA's eligibility 
verification process government-wide.
    To minimize potential fraud and abuse in VA's SDVOSB program and 
provide reasonable assurance that legitimate SDVOSB firms obtain the 
benefits of this program, we recommend in our newly issued report that 
the Secretary of Veterans Affairs ensure that all firms within VetBiz 
have undergone the 2010 Act verification process. Specifically, this 
should include consideration of the following three actions: (1) 
inventory firms listed in VetBiz to establish a reliable beginning 
point for the verification status of each firm; (2) establish 
procedures to maintain the accuracy of the status of all firms listed 
in VetBiz, including which verification process they have undergone; 
and (3) expeditiously verify all current VetBiz firms and new 
applicants under the more-thorough 2010 Act verification procedures.
    VA generally concurred with our recommendations but expressed 
concern about how specific report language characterized its program. 
GAO made some changes to the report as appropriate but continues to 
believe that the program remains vulnerable to fraud and abuse. In 
written comments, SBA stated that it is committed to eliminating fraud, 
waste, and abuse in all of its programs including the government-wide 
SDVOSB program.
    Mr. Chairmen, Ranking Minority Members, and Members of the 
Subcommittees, this concludes my prepared remarks. I would be happy to 
answer any questions that you or other members of the subcommittees may 
have.
    For additional information about this testimony, please contact 
Richard J. Hillman at (202) 512-6722 or [email protected]. Contact 
points for our Offices of Congressional Relations and Public Affairs 
may be found on the last page of this statement. Other key contributors 
to this statement include Jennifer Costello, Assistant Director; Arturo 
Cornejo; Gloria Proa; Abby Volk; and Timothy Walker.

    This is a work of the U.S. government and is not subject to 
copyright protection in the United States. The published product may be 
reproduced and distributed in its entirety without further permission 
from GAO. However, because this work may contain copyrighted images or 
other material, permission from the copyright holder may be necessary 
if you wish to reproduce this material separately.

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To Report Fraud, Waste, and Abuse                                                                   Contact:
             in Federal Programs                                  Website: www.gao.gov/fraudnet/fraudnet.htm
                                                                                    E-mail: [email protected]
                                                Automated answering system: (800) 424-5454 or (202) 512-7470
----------------------------------------------------------------------------------------------------------------
        Congressional Relations      Katherine Siggerud, Managing Director, [email protected], (202) 512-4400,
                                          U.S. Government Accountability Office, 441 G Street NW, Room 7125,
                                                                                        Washington, DC 20548
----------------------------------------------------------------------------------------------------------------
                 Public Affairs         Chuck Young, Managing Director, [email protected], (202) 512-4800 U.S.
                                     Government Accountability Office, 441 G Street NW, Room 7149 Washington, DC
                                                                                                       20548
----------------------------------------------------------------------------------------------------------------

                                 
                 Prepared Statement of James J. O'Neill

    Chairman Johnson and Chairman Stutzman, Members of the 
Subcommittees, thank you for the opportunity to discuss the Office of 
Inspector General's investigative work in the Service Disabled Veterans 
Owned Small Business (SDVOSB) program. The OIG investigates allegations 
that companies and individuals have fraudulently obtained Government 
noncompetitive set-aside contracts by misrepresenting their SDVOSB 
status or eligibility, which would deprive legitimate, eligible 
veterans from obtaining these economic opportunities earned through 
their honorable military service.

BACKGROUND
    The OIG has full law enforcement authority to investigate 
allegations of criminal activity involving VA programs and operations. 
The OIG's Office of Investigations has committed significant resources 
to investigating fraud in SDVOSB operations. As of June 2012, OIG has 
worked a total of 144 cases involving SDVOSB fraud. Currently, we have 
96 open criminal investigations, including 37 joint cases with the 
Small Business Administration (SBA) OIG, 16 with the General Services 
Administration (GSA) OIG, 14 with the various Department of Defense 
criminal investigative agencies \1\, and 13 with the Federal Bureau of 
Investigation.
---------------------------------------------------------------------------
    \1\ Including the Defense Criminal investigative Service (DCIS), 
Army Criminal Investigations Division (CID), and Air Force Office of 
Special Investigations.
---------------------------------------------------------------------------
    We have closed 48 cases since fiscal year (FY) 2009: 35 were 
unsubstantiated, 8 lacked interest by the United States Attorney's 
Office for prosecution, and 5 involved administrative remedies.
    Of the cases currently open, 56 are ``pass-through'' schemes, in 
which a purported SDVOSB obtains the Government contract award and 
passes it on to a non-SDVOSB business to perform the work; 28 cases 
involve ``rent-a-vet'' schemes, in which an otherwise ineligible 
concern uses a genuine service-disabled veteran as a front to try to 
establish SDVOSB eligibility; 6 cases involving veterans who are not 
service-disabled or, in some cases, people who are not even veterans 
but who attempt to obtain SDVOSB status; 1 case involving a veteran who 
is marketing his status to concerns to try to provide them SDVOSB 
status; and 5 are cases combining one or more or other types of 
schemes.
    In the 144 SDVOSB investigations, 419 subpoenas have been issued; 
26 search warrants have been executed; and 24 consensual monitorings 
have been conducted. We have effected 12 arrests, 16 indictments, and 6 
convictions. The contract value of the open cases is $908.2 million, 
including $158.8 million in American Recovery and Reinvestment Act 
(ARRA) funds.
    We have completed our investigation in 20 of the 96 open cases. 
Another 29 cases have earned prosecutive interest by Assistant United 
States Attorneys (AUSA) but still require more investigation. Of the 96 
open SDVOSB cases, 77 involve construction contracts. Eleven cases 
involve a service-disabled veteran who is a former employee of a large 
company. Three cases involve allegations of bribery of Government 
employees.
    The OIG has developed a good working relationship with the Center 
for Veterans Enterprises (CVE) involving potential fraud matters. Since 
February 2011, CVE has made 84 referrals to the OIG of which we 
accepted 34, declined 46, and already had open cases in 4 instances.
    We have also worked with the Government Accountability Office (GAO) 
in this area. We have met with GAO to discuss cases cited in their 
previous reports. Several of our cases arose from GAO referrals, and we 
anticipate continuing to work with GAO in this area.

OIG INVESTIGATIONS
    Following is a discussion of several cases in which there has been 
prosecutive action that has been made public. We cannot discuss 
nonpublic information on pending cases as that might compromise the 
ongoing criminal prosecutions.

Mitsubishi Construction (New York, New York)
    In January 2010, a confidential source contacted the OIG with 
allegations that Mitsubishi Construction (Mitsubishi) is not owned and 
operated by a service-disabled veteran but claims it is an SDVOSB. 
Mitsubishi received approximately $16 million in SDVOSB and Veteran 
Owned Small Business (VOSB) contracts from June 2007 through June 2010. 
The OIG investigated this case jointly with the SBA OIG. The 
investigation established from incriminating statements from Mitsubishi 
President and Chief Executive Officer John Raymond Anthony White that a 
service-disabled veteran was not involved in running the company. White 
claimed to be a service-disabled veteran to obtain Government 
construction contracts and later made incriminating statements to a 
Federal agent that another individual was the service-disabled veteran 
who actually was the majority owner of the company. In April 2011, 
White was found guilty of major fraud against the United States, mail 
fraud, obstruction of justice, and making false statements by a jury in 
the U.S. District Court for the Southern District of New York. White 
faces a maximum sentence of 75 years in prison and maximum fine of 
$3.75 million. Prior to the verdict, both Mitsubishi and White had been 
suspended and debarred \2\ by VA. Mitsubishi had self-certified its 
SDVOSB status under the earlier regulations.
---------------------------------------------------------------------------
    \2\ Debarment is an administrative remedy to bar individuals and 
companies from obtaining Federal contracts for a specific period of 
time.
---------------------------------------------------------------------------
B&J Multi Service Corporation (Leominster, Massachusetts)
    In November 2009, we received an allegation from a confidential 
source that B&J Multi Service Corporation (B&J) did not meet 
eligibility requirements for the SDVOSB program. We also received 
information from GAO in December 2009 about this company. Our joint 
investigation with the SBA OIG, the GSA OIG, Army CID, and the U.S. 
Department of Labor OIG substantiated the allegation.
    On June 22, 2012, a criminal information was filed in the U.S. 
District Court for the District of Massachusetts charging Tyrone Jones, 
who is not a service-disabled veteran, with one count of conspiracy to 
commit wire fraud. Jones faces up to 5 years in prison, followed by 3 
years of supervised release, and a fine of $250,000 or twice the gross 
gain or loss from the crime, whichever is greater. B&J had self-
certified its SDVOSB status under the earlier regulations. B&J has been 
referred to the VA Suspension and Debarment Committee.

GMT Mechanical (Grantville, Georgia)
    The OIG initiated a joint investigation with the SBA OIG after 
receiving a referral from GAO alleging that GMT Mechanical (GMT), an 
SDVOSB, was a shell company. Our investigation revealed that Arthur 
Wayne Singleton, the owner of Singleton Enterprises, which is not an 
SDVOSB, approached a bedridden Vietnam War veteran and proposed the 
idea of starting a joint venture, GMT, using the veteran's service-
disabled veteran status. The veteran performed no work for either 
company, did not have an ownership stake in GMT, and GMT was merely a 
pass-through for Singleton Enterprises. In November 2011, a Federal 
grand jury in the U.S. District Court for the Northern District of 
Georgia indicted Singleton and Singleton Enterprises on charges of wire 
fraud and major fraud against the United States. The wire fraud counts 
carry a maximum sentence of 20 years in prison and up to $250,000 in 
fines, and the major fraud count carries a maximum sentence of 10 years 
in prison and a fine of $1,000,000. GMT had self-certified its SDVOSB 
status under the earlier regulations. Both Singleton and Singleton 
Enterprises have been debarred from doing business with the Federal 
government.

CJMS Contracting (St. Louis, Missouri)
    We initiated a joint investigation with the SBA OIG and the GSA OIG 
after receiving allegations that CJMS Contracting, LLC (CJMS) was 
engaging in SDVOSB fraud and that a VA employee was accepting bribes 
and/or gifts from the company. Our investigation revealed that Joseph 
Madlinger, a civil engineer and project manager engaged in commercial 
construction, and Michael Woodling, who was doing business as Gateway 
Contractors, approached a service-disabled veteran about setting up a 
construction company to compete for Government contracts under the 
SDVOSB program. They gave Russell Todd, a now retired VA employee, 
luxury box tickets at sporting events, lunches, and interest-free loans 
to ensure that CJMS continued to receive VA contracts. Todd steered 
$3.4 million in work at VA to Madlinger and Woodling.
    In February 2012, in U.S. District Court for the Eastern District 
of Missouri, Madlinger and Woodling pled guilty to conspiracy involving 
the illegal payment of gratuities. As part of his plea agreement, 
Woodling agreed to forfeit $1.5 million and a 2011 Jaguar Series XKR 
Model XK, which were proceeds of his criminal activity. In May 2012, 
Madlinger was sentenced to serve 2 years in prison followed by 1 year 
of probation and ordered to pay a $50,000 fine. Woodling was sentenced 
to serve 3 years' probation and ordered to pay $1,550,000 in 
restitution and a $60,000 fine. In March 2012, Todd pled guilty to 
accepting an illegal gratuity and was sentenced to 15 months' 
imprisonment and 12 months' probation. CJMS had self-certified its 
SDVOSB status under the earlier regulations and was later verified by 
CVE under the current regulations as eligible based on false 
information. We submitted information to the VA Suspension and 
Debarment Committee on the individuals and the two companies.

Silver Star Construction (Blue Springs, Missouri)
    A joint VA OIG, SBA OIG, GSA OIG, and DCIS investigation determined 
that Silver Star Construction, LLC (Silver Star) acted as a pass-
through company for a larger company and that the owner was not a 
service-disabled veteran. Silver Star received more than $8 million in 
Government contracts from December 2008 through July 2010. Warren 
Parker, owner of Silver Star, had claimed to have been awarded three 
Silver Stars, four Bronze Stars, three Purple Hearts, and other medals 
for valor during service in Vietnam, Cambodia, and Laos. In June 2011, 
Warren Parker, Silver Star Construction, and three other individuals, 
Warren's wife Mary Parker, their son Michael Parker, and Thomas 
Whitehead, the owner of the larger company, were indicted in the U.S. 
District Court for the District of Kansas for conspiracy, major fraud 
against the United States, wire fraud, false statements, and engaging 
in monetary transactions in property derived from specified unlawful 
activity. Silver Star and all four individuals have been suspended. The 
investigation determined that Warren Parker served in the National 
Guard, was not a service-disabled veteran, and never served overseas. 
Silver Star had self-certified its SDVOSB status under the earlier 
regulations.
    On April 9, 2012, Warren Parker pled guilty to conspiracy to commit 
fraud against the United States, major program fraud, wire fraud, money 
laundering, and making a false statement. In addition, he pled guilty 
to the forfeiture counts of the indictment which will result in a $6.8 
million judgment against him. Parker agreed to forfeit personal 
property, including military medals and medallions, veterans' patches, 
various certificates and DD 214 forms, and a notebook he labeled ``Book 
of Death'' which contained a list of Vietnam War ``sniper kills.'' 
Parker faces a potential sentence of up to 30 years in prison.

M.R. Tafoya Construction (Albuquerque, New Mexico)
    In February 2012, Max R. Tafoya and Tyler Cole, his son-in-law, 
were indicted by a Federal grand jury in the U.S. District Court for 
the District of New Mexico for conspiracy, major fraud against the 
United States, and false statements after a proactive VA OIG 
investigation determined that Tafoya and Cole conspired to defraud VA 
by falsely claiming that M.R. Tafoya Construction, Inc., was an SDVOSB. 
Andrew Castillo, a service-disabled veteran who received payment for 
allowing the use of his status, had previously pled guilty to 
conspiracy and major fraud. Tafoya and Cole face a maximum penalty of 5 
years' imprisonment and a $250,000 fine for the conspiracy charge, 10 
years' imprisonment and a $1 million fine on each of the four fraud 
charges, and 5 years' imprisonment and a $250,000 fine for each of the 
false statement charges. Between March 2009 and February 2012, the 
company had been awarded five SDVOSB set-aside contracts totaling $10.9 
million. The company and the three individuals were suspended in March 
2012. Tafoya had self-certified its SDVOSB status under the earlier 
regulations.

McDonald Roofing and Construction (Boise, Idaho)
    After receiving a GAO referral alleging that McDonald Roofing and 
Construction (MRC), an SDVOSB, was a pass-through established for the 
sole purpose of obtaining set-aside contracts, we initiated a joint 
investigation with the SBA OIG, the GSA OIG, the Department of Interior 
OIG, the Department of Agriculture OIG, DCIS, and Army CID. Our 
investigation substantiated the allegation. In March 2012, MRC pled 
guilty to wire fraud charges relating to HUBZone contracts. In July 
2012, MRC was sentenced to 3 years' probation and ordered to pay a 
$5,000 fine. MRC had self-certified its SDVOSB status under the earlier 
regulations.

OTHER ACTION AVAILABLE
    Criminal and civil prosecution, and the suspension and debarment 
actions resulting from prosecution, are not the only actions available 
to the Government in these cases. We have instructed our special agents 
to begin discussions with prosecutors upon conclusion of the covert 
phase of an SDVOSB investigation about pursuing fact-based suspension 
and debarment before prosecution commences. Prosecutors will have to 
determine what evidence can be made available to VA to support these 
actions and compromise neither Grand Jury secrecy nor successful 
prosecution.

CONCLUSION
    As our work demonstrates, the VA OIG has devoted significant 
resources to the allegations of fraudulent claims of SDVOSB status for 
the purposes of obtaining noncompetitive set-aside contracts for 
Government work. Our work has produced significant prosecutions as well 
as suspensions and debarments of the wrongdoers. Our pending cases give 
us good reason to expect these successes will continue into the 
foreseeable future. This work will bring to light, and bring to 
justice, criminals who have deprived legitimate service-disabled 
veterans who have earned the SDVOSB eligibility as a result of 
disabilities they sustained during service to our country and will 
increase the economic opportunities for those veterans for whom the 
SDVOSB program was designed.
    Chairman Johnson and Chairman Stutzman, this concludes my 
statement. I welcome any questions that you or other Members of the 
Subcommittees may have about our work in this area.

                                 
                 Prepared Statement of Richard Weidman

INTRO:
    Good morning, Chairman Johnson, Chairman Stuzman and other 
distinguished members of the subcommittees on Oversight and 
Investigation and Economic Opportunity. The Vietnam Veterans of America 
(VVA) is pleased to have the opportunity to appear here today to 
express our views and the views of many veteran business owners who are 
members or affiliates of the Veterans Entrepreneurship Task Force (VET-
Force).
    Both VVA and the VET-Force have been deeply involved with the 
Department of Veterans Affairs' (VA) Veterans Small Business 
Verification process as carried out by its Center for Veteran's 
Enterprise (CVE) since its beginning. As the regulation was being 
crafted, we voiced our concerns about the unintended consequences. As 
companies began to receive denials with no apparent basis, we saw these 
unfold with increasing severity and impact on our veteran businesses. 
For more than 5 years, we have sought to obtain the definitions, 
documentation requirements, standards and criteria that were utilized 
by CVE so that we could understand and communicate to the veteran 
community why companies were being denied for following standard, best 
business practices.
    In just this past May, VA's Small Business Director implemented a 
Partner Education Program to enable Procurement Technical Assistance 
Center (PTAC) and Veteran Service Organization representatives to 
better assist Veteran business owners with understanding CVE's 
requirements, criteria, process and standards. VVA, VET-Force, the 
American Legion, Nabvets, Vets Group, the National Veteran Small 
Business Coalition are some the groups who have been participating. 
While this program has produced 3 rather productive workshops, it has 
also shown that most Veterans are denied due to issues of control and 
that there are many sections of the regulations which are subject to 
the interpretation of the reviewer.

Major Issues Affecting the VA's Veterans Business Verification Process
    There are a number of issues that have surfaced regarding the 
verification process undertaken by CVE to ensure that a business 
concern is a SDVOSB or VOSB; here are just a few:

    I. Verification of Veterans Status, Ownership & Control. CVE is 
either understaffed or lack a sufficient number of experienced staff 
persons qualified to conduct the veteran business verification 
procedures as defined by 38 CFR Part 74. It's CVE's task to collect and 
review the necessary documents from veteran business owners as well as 
to schedule a site visit of the applicant's company.

    Veterans Status. The documents needed are to verify that the 
business owner is a veteran who was discharged under conditions other 
than dishonorable or is a service disabled veteran who possesses either 
a disability rating letter issued by DOD or the VA. Veterans being 
listed in other VA databases is supposedly no longer required.

    Ownership, Control & Management. Additional documents are needed to 
establish if the veteran(s) or service disabled veteran(s), or in the 
case of a veteran with a permanent or severe disability, the spouse or 
permanent caregiver of such veteran, meet the majority ownership 
requirement, and that they control the company by performing the day-
to-day management, which is clearly defined in 38 CFR 74.

    Verifying Ownership. Verifying the status of the veteran seems to 
be the easiest part; particularly since the VA already maintains or has 
access to the records of veteran and service disabled veterans. 
Verifying Ownership is somewhat more challenging because CVE must 
verify if the Ownership is direct and unconditional. It must verify if 
the type of Ownership is that of a Partnership, Limited Liability 
Company, or a Corporation; and if stock is involved, it must verify the 
stock options' effect on the Ownership. There's also the matter of 
determining Ownership interests when an owner resides in any of the 
community property States or territories of the United States.

    Verifying Control. According to 38 CFR 74.4, Control is not the 
same as Ownership, even though both may reside in the same person. 
Control means management and long-term decision making authority. CVE 
must verify that the service disabled veteran or veteran business owner 
has both. But where this gets more involved, is when control is 
sometimes contingent on who has the expertise or licenses to run the 
operation. An owner who is a computer engineer may not be the best CEO. 
But according to CVE's verification requirements, the owner must hold 
the highest officer position in the company.
    Then there is also the somewhat conflicting view that owners need 
not work in the company full-time but must show sustained and 
significant time invested in the business. But there is also the 
requirement that one or more veteran or service disabled veterans who 
manage the company must devote full-time to the business during normal 
working hours. And even though the veteran owner has an unexercised 
right to cause a change in the management quickly or easily, use of a 
non-veteran manager may disqualify the company as being veteran owned.
    In addition, all of these control issues have to be verified in the 
context of the type of company - Partnership, Limited Liability 
Company, or Corporation. And it must be determined to what extent do 
non-veterans have the power to influence or control the company - 
either directly or indirectly via critical financial or bonding 
support, Board actions, etc.
    Some examples: (1) the regulation states that Control of the 
business means that Ownership must be unconditional. So we are having 
51% Service Disabled Veteran Business Owners whose spouse is a 49% 
owner of the business being denied because the ownership documents 
state that the 49% owner has some say in how the company can be 
disposed of. Therefore, the majority owner does not have unconditional 
control.
    And may I point out that in this example, the decision regarding 
disposing of the company has nothing to do with the fact that the 
company is capable and qualified to provide goods or services to the 
VA;
    (2) We are hearing from Veterans who are100% owners of their 
companies but they also have a Board of Directors. So even though the 
owner is President of the company and Chairman of the Board, if each 
board member is allowed one equal vote then the owner is viewed by CVE 
to not have full control and is therefore denied;
    (3) And even more than ever before we are hearing from Veteran 
Business Owners who live in 'Community Property States' where for a 
veteran who is married, most property acquired during the marriage is 
owned jointly by both spouses and is divided upon divorce, annulment or 
death. So even in light of the fact that the business is 51% or more 
owned by the Veteran according to all documents related to the 
ownership of the business, such veteran is likely to be denied by CVE; 
and
    (4) According to the program guidelines used by CVE, based on their 
interpretation of the governing regulations found in 38 CFR 74, a 
Veteran Business Owner must demonstrate that they control both the day-
to-day management and administration of business operations. While CVE 
uses administration and business operations as part of their criteria, 
these are clearly not part of the regulatory requirement (38 CFR 74.4) 
which clearly states:

    Section 74.4 who does CVE consider to control a veteran-owned 
business?

    (a) Control means both the day-to-day management and long-term 
decision making authority for the VOSB. Where, from section 74.1 
definitions ``Day-to-day management means supervising the executive 
team, formulating sound policies and setting strategic direction. 
Therefore, if a Veteran Business Owner cannot convince CVE that they 
are capable of controlling more than one business or controlling their 
business while being employed by another, they will be denied.
    And to further discourage Veteran Business Owners in this 
situation, if the Veteran Business Owner has hired a Business Manager 
with more expertise than them to run the day-to-day operations, then 
that will also be grounds for denial according to CVE. From CVE's own 
definitions and regulation, there is clearly no basis or rational for 
these denials.
    We are frequently receiving complaints regarding decisions like 
these resulting in the Veteran Business Owner being denied and causing 
the loss of millions of dollars and numerous jobs, many in the 
districts of members of these subcommittees.
    The procedures used by CVE are sometimes questionable. We receive 
many complaints from veterans who were told that they needed to submit 
additional documentation without being given a clear explanation of why 
the information is required or what the statutory or regulatory basis 
is for these documents. Our constituents tell us that these requests 
are overly invasive and burdensome.
    We are also concerned about the security of the documentation 
submitted and the quality of the review of documentation. Time after 
time, we have received complaints whereby CVE has reportedly lost the 
documentation submitted with the Veteran's application. And this does 
not always occur during the initial submission. As in the case of Ron 
Washington, who was scheduled for a site visit by a CVE examiner only 
to find that the CVE examiner claimed that he could not locate the 
appropriate documents submitted with the application.
    We understand the necessity for the CVE program of verification 
and/or certification of Veteran and Service Disabled Small Business 
Owners.
    We know that many of you have supported and voted for legislation 
that will benefit Veterans and their families. We realize that through 
the use of various procedures, guidelines, and regulations a program 
can be established for only a selected group. And those applicants that 
don't meet those requirements will not be admitted thus preventing 
fraud and misrepresentation by others who don't qualify.
    We are well aware of that the use of more stringent verification 
requirements were implemented by CVE following a GAO report that 
exposed flaws in the verification process, a report by the Inspector 
General, and the passage of Public Law 111-275. So we know that CVE and 
the VA wants to decrease its chances of error.
    But these veterans represent thousands of capable and qualified 
veterans and service disabled veteran business owners of all races, 
Black, White, Hispanic, Asian, Jewish, they are Male, Female, Old, and 
Young. Their preference is due to service and sacrifices in defense of 
this country and for no other reason.
    And when the requirements of the CVE program are so narrowly viewed 
and overly burdensome that nearly half as many Veteran Business Owners 
are being harmed by the very agency that it is designed to protect, 
support, and honor for their service to our country, then it's time we 
modify, improve or replace the existing program.

    II. Misperception of CVE's `VERIFIED' status. Other ways many 
Veteran Business Owners are being harmed as a result of CVEs 
implementation of the VA Veteran Small Business Verification Program. 
Many if not all federal agency contracting personnel believe that 
SDVOSBs and VOSBs must first be registered in the VA's Veteran Small 
Business Database and produce a document stamped with a ``VERIFIED' 
seal of approval by CVE in order to be recognized as a genuine SDVOSB 
or VOSB. And it's not hard to determine how this misperception came 
about.
    For several years now, CVE, other organizations, including the VET-
Force, have been encouraging veteran business owners to register in the 
Veterans Small Business Database and for federal agencies and Large 
Primes to use the Veterans Small Business Database as the 
`Authoritative Place' to locate capable and qualified veteran business 
owners. However, this was before the actual verification standards and 
procedures had begun.
    According to Public Law 108-183, the Veterans Federal Procurement 
Program, a veteran is only required to SELF-CERTIFY as a SDVOSB, in 
order to do business under this small business preference group. There 
is no formal certification by SBA or any other entity required. 
However, under Public Law 109-461, in order to do business with the VA, 
a veteran or service disabled veteran owned business must successfully 
complete VA's verification process and register in the VIP database 
that's open for use by all federal agencies, Large Primes, and the 
public.
    While these issues listed above may be considered to be some of the 
major ones creating controversy about CVE's management of the VA's 
Veterans Small Business Verification process, there are many other 
issues that will result in a determination of Denial.

Recommendations to Address the Major Issues.
    1.Provide transparency to the OGC opinions and decisions that are 
the basis for CVE standards and adjudication procedures.

    2.For now, separate the verification process into two phases.

    Phase One: Verify Veteran Status Only for all registrants in the 
database. Continue Self-Certification of Ownership as allowed under 
Public Laws 106-50 and PL 108-183 while verifying - whether the 
business owner is a veteran or service disabled veteran.

    Phase Two: Verify Ownership and Control. Review of documents for 
ownership starting with SDVOBs and then VOSBs seeking to perform 
contracts with the VA. It should be noted however, that verification of 
Control should only be to the extent necessary to support the Ownership 
and to ensure that the company is not being used as a `Rent-A-Vet' or a 
pass through company.

    3. Provide a clear definition of the roles and responsibilities 
required to demonstrate control of a company. These must be compliant 
with and limited to the definition provided in section 74.1.

    4. Allow the verification of more than one company owned by the 
same veteran(s). Entrepreneurship should not be stifled for the sake of 
convenience. Each company should be evaluated and verified on its own 
merit. Any agency will always have the right to determine the select 
criteria to satisfy contract requirements.

    5. Change Title 38 definition of ownership and control to match 
Title 13, and hence the regulations to bring VA into sync with a 
government wide definition.

    6. Add Center for Veterans Enterprise (CVE) to Title 38, putting 
into Economic Opportunity Administration (currently under the Deputy 
Undersecretary of Veterans Benefits for Economic Opportunity). We 
believe that there needs to be a free standing fourth division of VA 
known as the Veterans Economic Opportunity Administration (VEOA). The 
VEOA would include Vocational Rehabilitation, Veterans Education 
Service, the Center for Veterans Enterprise (restored to its original 
conception of assisting veterans in doing business with the VA), a 
separate Verification Unit for veteran owned businesses and service 
disabled veteran owned businesses, and lastly the Veterans Employment & 
Training Service (currently a ``red headed stepchild at the Department 
of Labor.
    To work properly, there will have to be much better coordination 
and collaboration of the VEOA with the Small Business Administration 
(SBA) and the Office of Personnel Management (OPM). While we also 
believe that much closer cooperation and coordination with the 
Department of Defense is needed, we will save comment on that ``Gordian 
Knot'' for another day.
    All of the above can be accomplished within existing resources, but 
it will take significantly better organization and training of staff, 
as well as increased accountability demanded of managers and 
supervisors. Most importantly, however, it will take a significant and 
vital change in corporate culture of the new division.
    The very best and the most important readjustment program we can 
provide for veterans who are de-mobilized or discharged is to the 
opportunity to obtain and sustain meaningful employment at a living 
wage. This is the watershed event of the entire readjustment process, 
and should be treated as such.
    Messrs. Chairmen, thank you for pursuing this vital issue, for your 
strong leadership in holding this hearing today, and for affording us 
this opportunity to present our views here today. I will be happy to 
answer any questions.

Executive Summary
    Congress passed Public Law (PL) 109-461, the Veterans Benefits, 
Health Care, and Information Technology Act of 2006. While this 
legislation provided a number of benefits for veterans; what's of 
particular importance for the purposes of this hearing today, is that 
Title V, Sections 502 and 503 of this legislation, authorized a unique 
``Veterans First'' approach to VA contracting. This approach has 
changed the priorities for contracting preferences within the 
Department of Veterans Affairs (VA), by placing Service-Disabled 
Veteran Owned Small Businesses (SDVOSBs) and Veteran Owned Small 
Businesses (VOSBs) first and second, respectively, in satisfying VA's 
acquisition goals as set by the Secretary of the VA.
    In so doing, it requires that certain conditions must be met. All 
SDVOSBs and VOSBs, must submit an application to be `VERIFIED' by the 
VA's Center for Veterans Enterprise (CVE), to be eligible for award of 
a contract exclusively within the Department of Veterans Affairs and to 
be registered in the VA's Vendor Information Pages (VIP), aka Veterans 
Small Business Database, available at www.VetBiz.gov.
    Unfortunately, it's this Verification Process established by the VA 
and codified in regulations 38 CFR 74 that is being used to determine a 
Veteran's status, ownership and control of their company that is 
causing
    Literally thousands of veteran and service-disabled veteran 
business owners to be deprived of millions of dollars in contracting 
opportunities that could benefit them, their families, and their 
communities.
    In the last year, CVE's requirements, criteria, process and 
standards have begun to be more transparent. While this visibility has 
been insightful, CVE's own statistics show that nearly 60% of all 
veteran business owners applying for verification are being denied. It 
has become apparent that either the regulations are fundamentally 
flawed, or that the adjudication process is out of control.

                      VIETNAM VETERANS OF AMERICA
                           Funding Statement
                             August 2, 2012

    The national organization Vietnam Veterans of America (VVA) is a 
non-profit veterans' membership organization registered as a 501(c) 
(19) with the Internal Revenue Service. VVA is also appropriately 
registered with the Secretary of the Senate and the Clerk of the House 
of Representatives in compliance with the Lobbying Disclosure Act of 
1995.
    VVA is not currently in receipt of any federal grant or contract, 
other than the routine allocation of office space and associated 
resources in VA Regional Offices for outreach and direct services 
through its Veterans Benefits Program (Service Representatives). This 
is also true of the previous two fiscal years.
    For Further Information, Contact: Executive Director of Policy and 
Government Affairs, Vietnam Veterans of America, (301) 585-4000, 
extension 127.

                                 
                Prepared Statement of Scott F. Denniston

    Chairman Johnson, Chairman Stutzman, Ranking Member Donnelly, 
Ranking Member Braley, Members of the Committee and Staff. Thank you 
for the opportunity to submit this statement for the record and thank 
you for holding this vital hearing on an issue so important to the 
health and welfare of veteran and service disabled veteran owned small 
businesses in the United States.
    My name is Scott Denniston and I am the Executive Director of the 
National Veterans Small Business Coalition (NVSBC). The NVSBC is a 
501(c) (6) not for profit trade association registered in the District 
of Columbia. We are over 100 members strong with 6 corporate sponsors. 
There are three requirements to become a member of the NVSBC: 1) must 
be a veteran 2) must own and control a small business, and 3) the 
Federal market must be your primary market. In operation for two years 
now, we established the Coalition for the purpose of being the ``honest 
broker'' between Federal agencies, large business prime contractors and 
the veteran small business community. Our mission is to transition 
veterans into business owners servicing the federal government. Our 
vision is to ensure that veteran businesses are given first 
consideration for federal prime and subcontracting procurement 
opportunities because these owners continue to serve their country, 
putting the security of the United States above all else.
    As way of background, I had the honor and privilege of serving as 
the VA's Director of Small Business Programs for 20 years retiring in 
January 2009. In January 2001, after the passage of PL 106-50, VA 
formed the Center for Veterans Enterprise (CVE) with 6 incredibly 
dedicated and knowledgeable employees. The CVE office was dedicated to 
assisting veteran owned small businesses break into the Federal market. 
Between the enactment of Public Law (PL) 106-50 in August 1999, whose 
purpose was to expand existing and establish new assistance programs 
for veterans who own and operate small businesses, to enactment of PL 
109-461 in December 2006, which established the provision requiring the 
Secretary of the VA to ``verify'' veteran and service connected 
disabled veteran firms for ownership and control, the Center for 
Veterans Enterprises' mission has changed significantly. Once the go to 
organization within VA for a veteran-owned small business to seek 
support and assistance in obtaining contracts, it has now been 
conflicted with the job of fraud prevention control through the 
establishment of a different mission. As you know, VA's Office of Small 
Business Programs, including the CVE is funded by VA's Supply Fund. 
Prior to my departure a plan was presented and approved to more than 
double the funding for CVE, including contractor support to manage the 
new requirements placed on CVE by PL 109-461. Unfortunately it was more 
than 2 years after my departure before CVE was able to implement the 
plan.
    This hearing is entitled the ``Odyssey of the CVE''. Figuratively, 
an odyssey is any difficult, prolonged journey. The CVE is truly an 
odyssey as evidenced by events which have occurred since the passage of 
PL109-41, six years ago. CVE has had a turnover of leadership 3 times; 
been fraught with fostering too many verification approvals resulting 
in a high percentage of fraud; is now considered to be too restrictive 
where `denials' are their first response; where IT systems have been 
inadequate and unreliable; is now dealing with large volumes of 
backlog; is responding to GAO Audits, Interagency Task Forces 
established through the President's Executive Order 13450, and other 
such directives. All of these challenges inject risk into the success 
of any program and we need to stop, identify risk mitigation strategies 
and then implement them, keeping in mind that none of them should 
detract from the Small Business Program of helping veterans who own and 
operate small businesses do business with the federal government.
    As an organization for which we pride ourselves on being the 
veterans advocate and mediator between small businesses and the 
government, we'd like to start by identifying a few of CVE's successes 
since its inception. CVE continues to solicit for additional resources 
to support the program and have increased their staff (both federal 
employees and contractor support) significantly. The CVE's actions have 
resulted in fewer misrepresented VOSB or SDVOSB firms being awarded 
contracts due to their small business status and those that are found 
have disciplinary action taken up to and including debarment. The CVE 
has verified 6,124 VOSB and SDVOSB firms as of July 29, 2012 according 
to their Vendor Information page.
    Unfortunately, the complaints from the veteran community have now 
shifted from contract awards going to misrepresented firms to the 
onerous and unpredictable verification process itself. We believe this 
is a fundamentally flawed process when half of all veterans are denied 
by an organization whose mission is ``to care for him whom bore the 
battle''. We have seen firsthand the consequences of CVE's actions on 
veteran business owners including the loss of contracts and businesses 
closing their doors as a result of failure to obtain CVE verification.
    In December 2011, the Executive Director of Small Business Programs 
at VA approached the NVSBC to become a ``partner'' in the verification 
process. His vision was to identify not for profit organizations to be 
trained by CVE and then to assist veterans become verified. The Board 
of NVSBC was not fully supportive of this idea due to the lack of 
verification consistency by CVE in the veteran small business 
community. After much deliberation and believing the process to be so 
onerous to veterans and our mission of making veteran small business 
owners successful in the Federal marketplace, we accepted CVE's offer. 
We did however make certain requests which we believed critical to our 
success in helping veterans:

       1. Training of NVSBC representatives and CVE and contractor 
staff involved in the process.
       2. A specific CVE staff member to be available to answer 
questions regarding the process, regulations, interpretations and 
status of applicants we assisted.
       3. Ability to be recognized as a representative for applicants.
       4. Advanced notice of pending denials of applicants we assisted.
       5. Priority processing of applicants we assisted.
       6. Names of all firms rejected in the past year.
       7. Regular meetings with CVE staff to discuss improvements to 
the process.

    NVSBC believes the greatest weakness in the CVE verification 
process is the lack of communications with veteran applicants. When the 
provisions of PL 111-275 were implemented in January 2011 there was no 
communications with the veteran small business community that the 
requirements had changed. Once veterans submit their applications there 
is no communication as to the status or process or whether the 
application is complete. Veterans have no idea whether a VA employee or 
contractor are reviewing their application. The first communication 
from VA in many instances is the letter of denial. Many times the 
reasons for denial could be corrected with a simple email or phone call 
to the veteran giving them an opportunity to correct the issue. If the 
veteran is denied then the process starts anew with the request for 
reconsideration.
    The second area of weakness in the CVE verification process is the 
restrictive rules implemented by VA as a result of PL 111-275. We 
understand the need as identified by GAO and VA's IG to insure only 
eligible veterans receive the benefits of the ``Veterans First'' 
contracting program but we strongly disagree with VA's punishing 
legitimate veteran small business owners. It does not appear to us that 
VA had anyone involved in writing the rules who understands how small 
businesses operate in the digital age. How does one define ``full 
time''? Why must a veteran be physically present 8 hours, 5 days a week 
to ``manage'' a small business? We also disagree with denying a veteran 
for something that may happen in the future such as ``rights of first 
refusal'' and issues in community property states. If ownership changes 
happen the veteran is obligated to notify VA immediately and may no 
longer be eligible.
    The next issue we have is VA's inconsistent interpretation of the 
rules. Many veterans because of their service to their country, lack 
years of business experience and consequently are denied as CVE opines 
they do not have the background to control their business. As we review 
cases we can find no set standard as to what constitutes adequate 
experience to control a business. CVE staff says this is a subjective 
decision.
    Another serious issue is CVE staff not understanding basic business 
principles and what questions to ask or how to ask these questions. In 
the last week we have heard from several veterans who own and control 
corporations with Articles of Incorporation, By-Laws, Stock Ledgers, 
etc. Even though most states do not require operating agreements each 
of the veterans we heard from tell us that CVE requires ``Operating 
Agreements'' in order to be verified and if the operating agreement is 
not provided, the verification process will be halted and the veteran 
will have his/her application withdrawn.
    38CFR 44 defines control as the day-to-day management of the 
company. In the definitions, 38CFR clearly defines day-today management 
as ``Day-to-day management means supervising the executive team, 
formulating sound policies and setting strategic direction''. The 
definition of Day-to-day operations is also clear; ``Day-to-day 
operations means the marketing, production, sales, and administrative 
functions of the firm''. CVE staff does not appear to understand 
functions/duties of officers/directors of small businesses and how they 
relate to issues of control versus issues of operations. Consequently 
CVE many times asks for documentation from veterans that are not 
relevant to the control of the business or that are excessively and/or 
inappropriately intrusive into the veteran's personal life.
    The CVE verification process is not beyond repair and we believe 
vitally necessary to ensure veterans receive the benefits of our 
economic system they fought to defend. We believe the following 
recommendations if implemented, would significantly improve the CVE 
verification process:

       1. In-depth development of standard operating procedures by 
which verification will be conducted by business entity (e.g. S-corp, 
C-corp, LLC., etc.) training of CVE and contractor staffs on basic 
business management principals. It is vital for CVE and contractor 
staff to understand business basics, provide guidance to veterans, and 
understand what's necessary to have a robust verification application 
and program.
       2. Open lines of communications with veteran applicants thru 
emails, phone calls and hands on collaborative philosophy. CVE too 
often treats the veteran as the enemy rather than as a client.
       3. Assign a case worker to every application and inform the 
veteran as to who that person is and their responsibilities.
       4. Establish a ``Management Review Board'' to :

         a. Vet all applications prior to denial and
         b. Review requests for additional documentation to assure 
there is a statutory or regulatory basis for the request, that is 
relevant to determining control or ownership and that it is not 
burdensome to veterans.

       5. Provide veteran applicants an opportunity to take corrective 
action before issuing a denial letter.
       6. At the recent veteran business conference in Detroit 
Secretary Shinseki announced a committee to review and determine how 
the verification rules could be improved. VA should invite veteran 
small business owners and stakeholders to be part of the process.
       7. Establish a VA Veteran Business Advisory Committee to review 
processes, procedures, rules, policies and their implementation as it 
relates to ``Veterans First'' to make recommendations to the Secretary 
for improvements.
       8. Institute a ``Grace Period'' whereby firms who have been 
previously verified as veteran or service disabled veteran owned and 
controlled remain ``verified'' until such time as CVE has an 
opportunity to perform an in-depth review so legitimate veteran or 
service disabled veteran owned are not denied pending contract 
opportunities while in a state of uncertainty.

    Section 101 of Public Law 106-50, the foundation for all we are 
addressing today says: `` the United States has done too little to 
assist veterans, particularly service disabled veterans, in playing a 
greater role in the economy of the United States by forming and 
expanding small business enterprises'' and further states ``The United 
States must provide additional assistance and support to veterans to 
better equip them to form and expand small businesses, thereby enabling 
them to realize the American dream they fought to protect.'' It seems 
VA and particularly CVE have forgotten this charge through restrictive 
and inconsistent rules and interpretations, lack of communications with 
veterans, and disregarding the fact our livelihoods and basic wellbeing 
rest on their decisions.
    In your letter of invitation for this hearing you asked NVSBC to 
include our opinion on whether VA should use the Small Business 
Administration's regulations defining ownership and control of a small 
business, what documents should be required for certification, and how 
often a business should be re-certified. The advantage of SBA's 
regulations is a body of case law and decisions which allow veterans 
and their advocates to understand the basis of decisions. What is more 
important is SBA regulations are consistent and provide a basis for 
clear implementation which is lacking at VA today. A process that 
requires most veteran to seek assistance and pay upwards of $10,000 to 
submit an application is erroneous and burdensome, particularly when 
half of all veterans are denied verification. We suggest a committee, 
including knowledge business experts address the issue of required 
documentation. As VA's regulations require notification anytime a 
change in ownership or control takes place certification/verification 
should be good for at least 3 years. VA has the ability and capacity to 
do spot checks of at risk businesses if necessary.

                                 
                       Submission For The Record
                         Mr. James F. McDonnell

    James F. McDonnell
    Chairman & CEO
    Trinity Applied Strategies Corporation
    301 North Fairfax Street, Suite 206
    Alexandria, Virginia 22314

                                            July 18, 2012

    For the Committee,

    This letter is provided for the record in lieu of testimony for the 
hearing to be held on or about 2 August 2012 to discuss the SDVOSB/VOSB 
certification process.

    I am writing you as a service-disabled veteran small business owner 
that has been done a disservice by the Department of Veterans Affairs 
(VA). Specifically, the VA's Center for Veteran's Enterprise (CVE) has 
denied my company the right to be registered in the VA Vetbiz Vendor 
Information Pages (VIP) Verification Program. The VA's decision is a 
denial of benefits and there finding is not based on fact, includes 
allegations that are untrue and they provide no mechanism for appeal to 
any higher authority.
    The VA Benefits Web Site includes business assistance as one of the 
benefits offered to veterans. Unfortunately the VA is not managing this 
program as an assistance program; rather they have taken an adversarial 
approach. The VIP Verification Program is a benefit for veterans in 
that it allows for access to preferential contracting for veteran owned 
businesses. The VA should be assisting Veteran's and their companies 
with becoming registered in this program instead of focusing on 
punishing small business by using the weight of their bureaucracy as a 
hammer.
    My company, Trinity Applied Strategies Corporation (TAS-Corp) first 
applied online for the program in February of 2011. We did not receive 
a response until June 1, 2011 and on that date we were asked to submit 
around 300 pages of documents within a seven day time period. The CVE 
gave us until June 7, 2011 to submit these documents or our application 
would be removed from the system. Now, while my company was able to 
gather these documents within this time frame it was not without a 
great cost to the company, three employees were pulled off of other 
projects to gather the documentation for the application. A program 
that is promoted as a ``benefit'' for Veterans should not place such 
unnecessary burdens on the Veteran during the application process. 
Additionally, on its face this 7 day requirement seems to conflict with 
federal law which mandates 60 days be allowed for the submission of 
requested documents.
    TAS-Corp submitted the required paperwork by the June 7, 2011 
deadline. On August 8, 2011 TAS-Corp received an un-signed letter from 
Gail Wegner that was stamped with the date of July 15, 2011; this 
letter denied TAS-Corp from inclusion to the VIP Verification Program. 
The reason for the denial was that the CVE determined that TAS-Corp 
could not prove that the Service-Disabled Veteran, myself, controlled 
and managed the business. We disagreed with this determination and felt 
that it was a misunderstanding of how our by-laws are written. I 
attempted to contact Ms. Wegner and was told that she no longer worked 
for the VA and had left a while ago (Pre-dating the letter we received 
with her name on it). Eventually, I was able to speak with David 
Eckenrode (Acting Deputy Director of the Center for Veterans 
Enterprise) and attempted to request a meeting with the VA to explain 
how our board was organized and demonstrate my control of the company. 
A meeting was never achieved but in my conversations with Mr. Eckenrode 
he seemed to understand that this was simply a junior analyst who 
reviewed our documents not understanding corporate structure and that 
we would easily be able to clear up the issue. I requested a properly 
signed letter be issued to TAS-Corp and Mr. Eckenrode agreed and 
identified that our time to appeal of thirty days would run from the 
date of the new letter.
    I was also able to speak with Tom Leney (Executive Director of 
Small and Veterans Business Programs) and I realized that he has a very 
different view of what his office should be doing. He indicated that 
the role of the office (CVE) is no longer ``assistance'', rather it is 
a regulatory function whose primary mission is to prevent companies 
that cannot prove eligibility from being in their database. I 
understood from our discussion that he, and his staff, would like to be 
in the assistance business but their understanding of their mission is 
to be the regulatory enforcer. Mr. Leney also told me that when you 
seek a second review (i.e. question any of their findings) the CVE goes 
through the entire package again so (as in this case), I questioned 
their finding and they added another one. Instead of seeking to help 
the veteran address the original issue and submit evidence of it being 
corrected, the VA process requires another complete review (of items 
already reviewed and found acceptable). Mr. Leney consistently blamed 
``the regulation'' that VA issued for the problems and felt his hands 
were tied when it comes to improving the process. I reminded him that 
the regulation came from his office and if he knew it was flawed he was 
obligated to fix it, he did not agree with my assessment.
    A new letter from the VA was issued on August 25, 2011 and 
contained their original finding regarding control and management and 
added an additional finding of outside employment that also prevented 
me from ``controlling'' TAS-Corp. The new letter concludes that I am a 
full time employee of my consulting firm (McDonnell Consulting Group), 
however there is no evidence of that . . . in fact the only evidence 
they had from our original filing on June 7, 2011 was TAS-Corp payroll 
records (which show me being paid for full time work) and my personal 
taxes. I am now, and have been, a full time employee of TAS-Corp, their 
allegation to the contrary is false and unsubstantiated.
    In response to their new letter of August 25, 2011 I submitted a 
response letter with over 70 pages of additional documents. In this 
submission we provided new board of director resolutions that 1) 
reduced our board of directors to one individual, myself; 2) prevented 
any officer of the company from enacting any policy that restricts my 
control of TAS-Corp, and 3) a resolution clarifying my title as CEO and 
Chairman of TAS-Corp. In addition to the board resolutions and in order 
to address the outside employment concern of the CVE I submitted time 
accounting records for 2009, 2010, and through the current time period 
in 2011 that showed my full-time employment with TAS-Corp. I also 
included my W-2 showing my full-time salary from TAS-Corp and an 
explanation detailing that the sole source of McDonnell Consulting 
Group's revenue is from my payments as Chairman of the Board of TAS-
Corp. Additionally, another Board Resolution was included which 
requires the CEO to be employed full-time and restricts outside 
activity. This packet was a comprehensive response to every concern 
that the CVE listed in its revised August 25, 2011 letter.
    As of November 2011 we had received no communication from the CVE 
regarding our response, on November 8, 2011 we were told that we would 
receive a response on or about December 7, 2011. On December 21, 2011 I 
received an email from an Amanda Abbey a paralegal contractor for the 
CVE identifying that ``the Examiner expressed a need to obtain the 
original documents that was part of your company's initial verification 
application or 0877 application. Is it possible for you to forward the 
documents to me by e-mail?'' This email was surprising for any number 
of reasons including that it seems they were only just getting around 
to reviewing my submission more than 110 days later. However my main 
concern, and my response to the email, was to ask ``What happened to 
the documents that we originally submitted? Were they lost, misplaced, 
etc.''
    A substantial amount of business sensitive information was included 
in these documents. In my response I asked for clarification as to what 
she was requesting and an explanation for the missing documents. Ms. 
Abbey responded ``The Center for Veterans Enterprise has your tax 
documents. However, CVE does not have additional relevant information 
needed to make a determination on your Request for Reconsideration. The 
CVE Examiner has asked for the following: Bylaws, Articles of 
Incorporation, Resums for the Vet and owners of more than 20% of the 
concern, and Stock Certificates/ledger.'' All of this information was 
sent previously to the CVE, in fact they even cited their review of 
these documents in their letters denying our registration into the 
VetBiz VIP Program. At this time I again tried to engage Mr. Leney and 
Mr. Eckenrode I sent both emails attempting to find out how my 
documents are missing and why. Mr. Leney failed to respond and Mr. 
Eckenrode initially repeated the request that these documents were 
needed until I pointed out to him that their letter actually cites 
reviewing these records. We were never given a reason that the 
documents were asked to be resent and finally on January 18, 2012 we 
received another letter denying TAS-Corp's registration into the VetBiz 
system. In summary, the documents were never missing . . . they were 
not truthful about that and it is my opinion they simply said they were 
missing in order to shift blame for the delay to me.
    In their most recent letter of January 18, 2012 the VA, through 
CVE, agreed that my board resolutions confirm that I am the sole 
director but still found that ``my managerial responsibilities with 
McDonnell Consulting Group (MCG) prevent me from devoting sustained and 
significant amount of time in the concern.'' Nowhere in the CVE's three 
page letter do they address the 70 pages worth of documents that I 
submitted showing my full-time employment with TAS-Corp and identifying 
that the only income my consulting company has is from my chairman of 
the board payments from TAS-Corp. This accusation is a flat out lie, I 
come to work in my TAS-Corp office every day and they have abused their 
position of public trust by in effect accusing me of fraud through 
misrepresenting my employment status.
    Finally, in addition to ignoring the documentation that I submitted 
the CVE issued instructions preventing my company from submitting a new 
application until six months' time had elapsed. Only on May 9, 2012 was 
my company eligible to once again submit to this process. The law gives 
the VA no punitive authority; they have created it for themselves.
    I hope this letter properly describes the substantial time and 
effort that this Service-Disabled Veteran-Owned Small business has put 
into this application for inclusion into a database that is supposed to 
be a benefit for veteran small business owners. As you can see from the 
description above this process is broken. How many other less 
sophisticated or not as financially stable veteran-owned companies are 
being kept out of a database that was created for them and should be an 
aid to developing their business?
    I agree 100% that there should be certain qualifications that any 
business wishing to be listed in the database must satisfy, but the CVE 
shouldn't be flat denying businesses that don't initially meet these 
requirements on paper. Why can't the CVE perform a review and if the 
company is deficient identify the documents that they would need to 
submit to be approved? The VA, and specifically the CVE, should never 
be in the position of acting as a regulator of the veterans that have 
served this country. The VA and CVE should act as a facilitator of the 
success of veterans. The CVE should be assisting veteran owned 
businesses with entry into the VetBiz VIP Program not doing everything 
in their power to keep them out. I hope that you will direct the VA's 
Center for Veteran Enterprise to review not just the application of my 
company but the overall process for veteran-owned businesses in 
general. I am happy to meet with members, staff, the VA, or any 
interested party and explain what my company went through and what I 
think we can do to fix this process.
    I attempted to meet with the Secretary, the Deputy Secretary; the 
Secretary's Director of Client Relations and was rebuffed at every 
turn. I began my discussions with the VA naively thinking this was an 
oversight by senior leadership and that once they understood the issue 
they would immediately fix it. I have been an SES in two agencies and 
looked at this as an issue that was low hanging fruit for improvement. 
That being said, the VA seems to be comfortable having an office that 
is penalizing small businesses, denying benefits without due process 
and empowered to issue official government findings that are incorrect. 
I would like to believe that Secretary Shinseki would do the right 
thing if he were aware of what his staff was doing but he either 
condones this or it is being hidden from him. Since starting this 
effort a year ago I have come to the unfortunate conclusion that he 
must be aware of the issue and has chosen to ignore it.
    It is ironic, that during a period in which other agencies such as 
DHS, DOD, DOS and DOE are expanding their support of veteran owned 
small businesses the one agency that is funded specifically to assist 
veterans is making it difficult to run a business. We have spent 
thousands of dollars in wasted labor, submitted hundreds of pages of 
documents and spent additional money in legal fees to resolve this 
issue and the VA has done nothing to assist. Alternatively, when I had 
a concern at DHS some time back I asked for a meeting with the Chief 
Procurement Officer and he graciously met and then handed me off to the 
head of their office of small business utilization . . . who I've 
called for advice on several occasions and has been open and provided 
guidance and assistance. I have had similar experiences with DOS and 
DOE which demonstrates that this adversarial and harmful role that the 
VA has taken on is not government wide.
    Finally, it seems inconsistent that the head of CVE not be someone 
who has owned a business, the person at the top of this process 
shouldn't be a guy who has never been in my shoes. He's never put all 
his personal wealth into a company, created jobs (30 so far including 
13 veterans), and had to explain to his wife that if the company fails 
our house could be taken. Starting and running a small business is 
stressful enough without having government employees paid to assist me 
feeling free to lie and manipulate a system to make it more difficult 
to do business.
    We have not, and do not intend to submit another package to the 
same people at the VA. They have proven themselves to be untrustworthy, 
willing to ``move the goalpost'', misrepresent facts and create their 
own rules. They have no appeal process and until there is a change I 
feel it is simply a waste of time to deal with them. We submitted a 
FOIA request on March 6th to prepare for legal action but the VA has 
not been forthcoming with documents (probably violating another law 
they are supposed to follow but choose not to).
    I thank you for your time and attention to this matter. I have 
attached a list of potential legislative remedies for your 
consideration.

    Sincerely,

    James F. McDonnell
    Chairman & CEO
    Trinity Applied Strategies Corporation

              LEGISLATIVE INITIAIVES TO ASSIST SDVOSB/VOSB

    1. Clarify that the VIP Database inclusion and preferred 
contracting status is a defined veteran's benefit.

       a. Direct the VA to manage this process as provision of, or 
denial of, a benefit; mandate local VA office assistance for submittal 
and review with approval of the benefit at the local level and any 
denial elevated to HQ; authorize use of United States Court of Appeals 
for Veterans Claims to resolve disputes.

       b. Direct that the VA cannot issue blanket denials, rather that 
they must provide and ``interim approval'' with guidance on how to 
become permanently eligible and provide the veteran assistance in 
submitting paperwork.

         i. All ``interim approvals'' should provide a 90 day window in 
which the business is listed in the VIP database while the veteran 
provides any specific additional information,

         ii. If the veteran requests an appointment to discuss the 
interim decision the VA must meet with the veteran to seek to approve 
the request for benefits. The 90 day period shall begin on the date of 
the face-to-face meeting to prevent the veteran from being penalized 
for VA delays. The VA representative shall, at the time of the meeting 
take one of the following actions:

           1. Approve the benefit

           2. Identify shortfalls and provide guidance to the veteran 
and schedule a follow-on meeting for approval

           3. Advise the veteran that the package will be forwarded to 
HQ for a denial of benefits review if requirements cannot be met within 
90 days.

         iii. If the VA believes a submission was fraudulent the 
package shall be forwarded to the US Attorney for review and 
consideration for civil or criminal penalties.

    2. Direct that the Director and Deputy Director of CVE be Limited 
Term SES Appointments (a position in which new directors rotate in from 
the private sector every 2-3 years) and meet the following 
requirements: (the incumbents would not qualified for this role)

       a. Have owned and controlled as SDVOSB/VOSB for a minimum of 5 
years.

       b. That company must have provided products or services to the 
federal government as a prime contractor.

       c. The company must have had a minimum of 15 full time employees 
for at least 3 of the 5 years.

       d. Shall be a veteran with honorable discharge or retirement.

    3. Direct that only the Director of CVE may recommend a company for 
denial of benefits and that the Deputy Secretary must personally review 
and sign any denial letters. (This action is similar to actions that 
would destroy a military career and should have the same weight as a 
DOD action against a service member).

    4. Direct the VA to forward to the SBA any approved company that is 
owned by a disabled veterans (above 30% disabled) for inclusion in the 
8a program.

       a. Amend 8a statute to include SDVOSB where the owner is >30% 
disabled

                                 
                        Questions For The Record

   Letter and Questions From: Hon. Joe Donnelly, Ranking Democratic 
 Member, Subcommittee on Oversight and Investigations To: Hon: Eric K. 
          Shinseki, Secretary, Department of Veterans Affairs
    August 3, 2012

    The Honorable Eric K. Shinseki
    Secretary
    Department of Veterans Affairs
    810 Vermont Ave., NW
    Washington, DC 20420

    Dear Secretary Shinseki:

    I would like to request your response to the enclosed questions for 
the record I am submitting in reference to our House Committee on 
Veterans' Affairs Subcommittee on Oversight and Investigations and 
Subcommittee on Economic Opportunity joint oversight hearing titled 
Odyssey of the CVE on August 2, 2012. Please answer the enclosed 
hearing questions by no later than Friday, September 14, 2012.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all full 
committee and subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres-Jaen at [email protected], and fax at 
(202) 225-2034. If you have any questions, please call (202) 225-9756.

    Sincerely,

    Joe Donnelly
    Ranking Member
    Subcommittee on Oversight and Investigations

    DMT/ot

    Questions for the Record from the Committee on Veterans' Affairs
    Subcommittee on Oversight and Investigations and
    Subcommittee on Economic Opportunity
    U.S. House of Representatives

    Odyssey of the CVE

    August 2, 2012

    1. Having enough of the right people in place is critical for the 
Department to set up a strong verification program. Although some of 
the challenges VA faces are system related, other challenges relate to 
government and contract staff that oversee and manage the verification 
program at VA.

    a. What is the fiscal year 2012 and 2013 projected budget for the 
entire verification program

    b. Could you break down the number of people supported by your 
budget including how many government and contract employees currently 
work for CVE and are projected for fiscal year 2013?

    c. At our November 2011 hearing you testified that all CVE staff 
will get the training and obtain a Certified Fraud Examiner 
certification. Can you tell us as of the hearing today, how many of the 
CVE staff are Certified Fraud Examiners?

    d. Do you believe you have staff including contractors with the 
necessary experience to recognize fraud and abuse?

    2. What do you believe the primary goal of the CVE should be, 
making it easier for firms to sign up or preventing fraud?

    3. Do you believe that the duties of CVE should be split into two 
operations - one verifying eligibility and one assisting veteran small 
business owners obtain contracts?

    4. Does VA have the legal authority to rescind an awarded contract 
to an ineligible firm? Out of the total number of contracts awarded to 
firms subsequently found to be ineligible, how many have been 
rescinded?

    5. Should VA focus more its efforts on firms that have a contract 
or will be awarded a contract?

    6. Do you have any firms that are listed in the CVE database that 
self-certified?

    7. What did VA do to improve records management and document 
control?

    8. In your testimony you mentioned that ``VA has addressed the 
issues in the GAO report.'' Are you referring to the 13 recommendations 
GAO made in 2011?

    a. According to GAO you have only completed six of the 13 
recommendations. Can you explain why you believe you have addressed all 
the recommendations while GAO believes only six have been completed?

    9. According to a recent meeting with Roger Baker, Assistant 
Secretary for Information and Technology, CVE's Verification Case 
Management System (VCMS) will undergo major enhancements. How will the 
VCMS system change and by when do you expect this to be completed?

    10. What is the projected budget for the Verification Case 
Management System update?

    a. Has funding been allocated for this project?

    b. Where does this funding come from?

    11. With the tools the VA has made available on VetBiz, such as the 
Verification Assistance Briefs, to help veteran owned small businesses 
understand the application process, have you noticed an increased 
number of verified applicants?

    12. What were the policy decisions underlying VA's decision to 
extend the time period before re-verification was necessary to two 
years?

                                 
    Responses From: Hon: Eric K. Shinseki, Secretary, Department of 
  Veterans Affairs To: Hon. Joe Donnelly, Ranking Democratic Member, 
              Subcommittee on Oversight and Investigations
    FINAL PASSBACK
    QUESTIONS FOR THE RECORD
    HVAC SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATION
    AUGUST 2, 2012
    QUESTIONS FROM RANKING MEMBER JOE DONNELLY (D-IN-2)

    Question 1: Having enough of the right people in place is critical 
for the Department to set up a strong verification program. Although 
some of the challenges VA faces are system related, other challenges 
relate to government and contract staff that oversee and manage the 
verification program at VA.

    a. What is the fiscal year 2012 and 2013 projected budget for the 
entire verification program?

    VA Response: The budget for Fiscal Year (FY) 2012 is $24.2 million. 
In June 2012, the Secretary directed that a Senior Executive Task Force 
be stood up to examine the Verification Program and make 
recommendations on various issues to include staffing and 
infrastructure. The estimated budget for FY 2013 has not been 
finalized, pending the results of the Task Force report. The higher 
budget in FY 2012 is due to budgeting for a replacement system to the 
Verification Case Management System (VCMS). As the VCMS dollars will 
not be obligated in FY 2012, this money will be moved to the FY 2013 
budget.

    b. Could you break down the number of people supported by your 
budget including how many government and contract employees currently 
work for CVE and are projected for fiscal year 2013?

    VA Response: In FY 2012, The Center for Veterans Enterprise (CVE) 
has 24 government employees and 152 contract employees. For FY 2013 CVE 
projects that there will be 24 government employees and 191 contract 
employees. The difference in the budgeted amount from one year to the 
next is due to a one-time expenditure on a new case management system. 
That funding is now being moved to FY 2013, as the new system was not 
obligated in FY 2012.

    c. At our November 2011 hearing you testified that all CVE staff 
will get the training and obtain a Certified Fraud Examiner 
certification. Can you tell us as of the hearing today, how many of the 
CVE staff are Certified Fraud Examiners?

    VA Response: Certified Fraud Examiner Training is a one week 
residential course. To date, two federal employees have completed 
Certified Fraud Examiner Training. However, three more employees 
finished certification training in September 2012 and an additional 
three are scheduled in October 2012. All nine eligible employees will 
be certified by March 2013. Training has been delayed due to turnover 
and the number of manual procedures needed to complete the verification 
process. Pulling staff at critical times would have slowed production. 
With the newly re-engineered verification process in place, CVE is now 
able to send more staff to the training. CVE seeks to maintain a full 
complement of certified eligible staff of nine. In the event of staff 
turnover, new employees eligible for CFE training will be scheduled for 
training after arrival.

    d. Do you believe you have staff including contractors with the 
necessary experience to recognize fraud and abuse?

    VA Response: CVE believes that it has the staff to recognize fraud 
and abuse. CVE leadership is cognizant that fraud awareness is an 
important component of the verification process and CVE conducts 
monthly training on this topic for all employees.

    Question 2: What do you believe the primary goal of the CVE should 
be, making it easier for firms to sign up or preventing fraud?

    VA Response: CVE's current mission is an audit function which 
primarily focuses on ensuring a firm's compliance with 38 Code of 
Federal Regulations (CFR) Part 74. There is a balance that needs to be 
reached between making it easier for firms to be verified and 
preventing fraud. To assist with verification, VA's Office of Small and 
Disadvantaged Business Utilization (OSDBU) has developed a Verification 
Assistance Program to help Veterans understand verification policy and 
the verification process through coaching and counseling. The goal of 
the program is to reduce the risk of denial due to lack of 
understanding and misinterpretation of the regulation.

    Question 3: Do you believe that the duties of CVE should be split 
into two operations - one verifying eligibility and one assisting 
veteran small business owners obtain contracts?

    VA Response: VA's OSDBU is already split into two operations: the 
CVE and the Center for Small Business Utilization (CSBU). The advocacy 
mission previously held by CVE has been transferred to CSBU. We have 
now developed a Strategic Outreach team to focus on assisting Veteran 
small business owners with obtaining the education to contract with the 
Federal government.

    Question 4: Does VA have the legal authority to rescind an awarded 
contract to an ineligible firm? Out of the total number of contracts 
awarded to firms subsequently found to be ineligible, how many have 
been rescinded?

    VA Response: Yes, VA has the legal authority to rescind an awarded 
contract on a Service-Disabled Veteran-Owned Small Business (SDVOSB)/
Veteran-Owned Small Business (VOSB) set-aside acquisition if the 
awardee is determined to be other than an eligible SDVOSB/VOSB in a 
status protest. A contract may be deemed void ab initio if the 
illegality of the contract is plain and palpable. An award is plain and 
palpably illegal if the award was made contrary to statutory or 
regulatory requirements because of some action by the contractor, not 
the government. In a SDVOSB/VOSB set-aside, the contractor represents 
its status as a SDVOSB/VOSB. If that status is challenged and cannot be 
supported, the contractor, not the government, created that illegality. 
The action is illegal because, pursuant to a SDVOSB/VOSB set-aside, 
offers are only solicited from and award may on be made to a properly 
eligible SDVOSB/VOSB. See J.E.T.S., Inc. v. United States, 838 F.2d 
1196, 1200 (Fed. Cir.), cert. denied, 486 U.S. 1057 (1988) (contractor 
obtained contract by falsely stating that it was a small business and a 
government contract thus tainted from its inception by fraud is void ab 
initio).

    Since December 2009, VA has determined 9 contracts to be void ab 
initio.

    Question 5: Should VA focus more its efforts on firms that have a 
contract or will be awarded a contract?

    VA Response: Currently, CVE has a Class Deviation ``Fast Track'' 
program for VOSBs that were previously verified but require 
recertification. Although these companies may continue to submit 
proposals for VA Veterans First set-aside contracts while in the 
process of reverification, they are not eligible to receive an award 
until their re-verification is complete and the firm is verified. If a 
VA contracting officer identifies a company that is in reverification 
(not reconsideration) that is the apparently successful offeror on a VA 
set-aside contract, that company is ``Fast Tracked'' to a decision 
within 21 business days. Firms that currently have contracts are 
subject to random or risk-based post verification audits in the form of 
unannounced site visits.

    Question 6: Do you have any firms that are listed in the CVE 
database that self-certified?

    VA Response: No.

    Question 7: What did VA do to improve records management and 
document control?

    VA Response: In May 2011, the CVE VCMS added the capability to 
receive and manage all documents submitted by Veteran business owners 
for verification. Documents are submitted via secure internet transfer. 
This improved capability allows CVE to maintain all verification 
related documents in one repository. It is CVE policy that all 
communications and verification actions are documented in VCMS as of 
February 5, 2012.

    Question 8: In your testimony you mentioned that ``VA has addressed 
the issues in the GAO report.'' Are you referring to the 13 
recommendations GAO made in 2011?

    VA Response: The testimony referred to both the 13 recommendations 
of the July 2011 report, ``Service-Disabled Veteran-Owned Small 
Business Program: Preliminary Information on Actions Taken by Agencies 
to Address Fraud and Abuse and Remaining Vulnerabilities'' (GAO-12-
152R), as well as the three recommendations in the July 2012 draft 
report and August 2012 final report, ``Service-Disabled Veteran-Owned 
Small Business Program: Vulnerability to Fraud and Abuse Remains'' 
(GAO-12-697).

    a. According to GAO you have only completed six of the 13 
recommendations. Can you explain why you believe you have addressed all 
the recommendations while GAO believes only six have been completed?

    VA Response: VA has taken steps to complete all 13 of the 
recommendations raised in the July 2011 GAO final report, ``Service-
Disabled Veteran-Owned Small Business Program: Preliminary Information 
on Actions Taken by Agencies to Address Fraud and Abuse and Remaining 
Vulnerabilities'' (GAO-12-152R). In VA's July 19, 2012, response to 
GAO's draft report ``Service-Disabled Veteran-Owned Small Business 
Program: Vulnerability to Fraud and Abuse Remains'' (GAO-12-697; 
Attachment A), VA also provided an update on the seven remaining open 
recommendations (numbers 1, 6, 8, 9, 11, 12, and 13) from the July 2011 
final report. In addition, VA's response to the July 19th report (see 
pp. 14-17, starting with ``Page 18, Bullet one''), included 
documentation on the remaining recommendation, and noted that five of 
the seven actions would [?] be closed (i.e, numbers 1, 9, 11, 12 and 
13). VA continues to negotiate with GAO and take proactive steps to 
resolve and close the remaining two recommendations.
    VA is currently reviewing the August 2012 final report and is 
developing its response to the three recommendations in the report. 
Previously in the draft report, VA concurred with two recommendations 
and concurred in principle with one recommendation (see Attachment A).

    Question 9: According to a recent meeting with Roger Baker, 
Assistant Secretary for Information and Technology, CVE's Verification 
Case Management System (VCMS) will undergo major enhancements. How will 
VCMS system change and by when do you expect this to be completed?

    VA Response: Although VCMS is a substantial step forward from 
previous manual systems, it has proven insufficient to handle the 
current business process or to obtain aggregate reporting to easily 
track program progress. The current system is based on 2008/2009 
business requirements. However, the next generation of VCMS will be a 
product developed with and by the Office of Information and Technology. 
It will automate many current manual processes and integrate 
communications aspects associated with the program. We expect to roll 
out the first phase of the project within the next nine months.

    Question 10: What is the projected budget for the Verification Case 
Management System (VCMS) update?

    VA Response: VA cannot project the entire budget for the VCMS 
update until the analysis of the options that direct the requirements 
is completed. The analysis is expected to be complete by September 30, 
2012, and the dollars will be placed in OSDBU's FY 2013 budget.

    a. Has funding been allocated for this project?

    VA Response: Yes. VA had originally allocated about $5 million in 
the FY 2012 budget for this project. Those funds will be moved to the 
FY 2013 budget when a better estimate is made from the analysis of the 
options.

    b. Where does this funding come from?

    VA Response: Funding for VCMS comes from CVE's budget, which, in 
turn, comes from VA's Supply Fund. The Supply Fund supports VA's 
mission by the operation and maintenance of a supply system, including 
procurement of supplies, equipment, personal services and the repair 
and reclamation of used, spent or excess personal property. The primary 
customer for Supply Fund activities is VA, but the Fund also has 
significant sales to other Federal agencies, including the Department 
of Defense and the Department of Health and Human Services.
    The statutory authority for the Supply Fund is contained in 38 
U.S.C. 8121. Although the Supply Fund has its own authority, there is 
nothing from a financial accounting and reporting perspective that 
distinguishes it from other financial operations. The Supply Fund is an 
integral part of VA's overall financial scheme and is part of the 
annual process for developing the year-end VA consolidated financial 
statements with notes.

    Question 11: With the tools the VA has made available on VetBiz, 
such as the Verification Assistance Briefs, to help Veteran-owned small 
businesses understand the application process, have you noticed an 
increased number of verified applicants?

    VA Response: Because the self assessment tool and the partnership 
program were rolled out so recently, VA does not have sufficient data 
to determine the effectiveness of these tools. Preliminary data would 
support that there has been an increase in the number of verified 
firms.

    Question 12: What were the policy decisions underlying VA's 
decision to extend the time period before reverification was necessary 
to two years?

    VA Response: VA conducted an analysis of the rule and the risk 
associated with the two year eligibility that led to a balance that 
would mitigate any risk of extending the period by increasing 
unannounced spot checks of verified firms. VA feels that the risk is 
acceptable because the majority of those that are denied are deemed 
ineligible due to documentation that is not in compliance with the 
regulation rather than firms attempting to commit fraud. Those that 
have been approved have documentation that has been shown to be in 
compliance with the regulation.

                                 
   Letter and Questions From: Hon. Joe Donnelly, Ranking Democratic 
 Member, Subcommittee on Oversight and Investigations To: Hon: Gene L. 
     Dodaro, Comptroller General of the United States, Government 
                         Accountability Office
    August 3, 2012

    The Honorable Gene L. Dodaro
    Comptroller General of the United States
    Government Accountability Office
    441 G Street NW
    Washington, DC 20548

    Dear Mr. Dodaro:

    I would like to request your response to the enclosed questions for 
the record I am submitting in reference to our House Committee on 
Veterans' Affairs Subcommittee on Oversight and Investigations and 
Subcommittee on Economic Opportunity joint oversight hearing titled 
Odyssey of the CVE on August 2, 2012. Please answer the enclosed 
hearing questions by no later than Friday, September 14, 2012.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all full 
committee and subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres-Jaen at [email protected], and fax at 
(202) 225-2034. If you have any questions, please call (202) 225-9756.

    Sincerely,

    Joe Donnelly
    Ranking Member
    Subcommittee on Oversight and Investigations

    DMT/ot
    Questions for the Record from the Committee on Veterans' Affairs
    Subcommittee on Oversight and Investigations and
    Subcommittee on Economic Opportunity
    U.S. House of Representatives

    Odyssey of the CVE

    August 2, 2012

    1. Since 2009, GAO has issued a number of reports or testimonies on 
the government-wide SDVOSB program, focusing on its vulnerability to 
fraud and abuse, and agencies' actions to prevent contracts from going 
to firms that misrepresent themselves as SDVOSBs. What vulnerabilities 
did you find in the government-wide program?

    2. In a July 2011 testimony GAO suggested that Congress consider 
expanding VA's verification program government-wide to employ more 
effective fraud-prevention controls over the billions of dollars 
awarded to SDVOSBs outside of VA. Given the inventory problems 
identified, is the expansion of the VA's SDVOSB verification program 
government-wide still a valid recommendation?

    3. In your report you recommended VA ensure that all firms within 
VetBiz have undergone its new more thorough verification process. 
Specifically, VA should inventory firms listed in VetBiz to establish a 
reliable beginning point for the verification status of each firm. Can 
you explain the importance of a reliable inventory of SDVOSB firms for 
VA and other agencies that may rely on the VetBiz status of a firm?

    4. Is the process to get listed on the CVE database more difficult 
than it needs to be?

    5. Should VA model its program more on what SBA is doing?

    6. Does the current SDVOSB verification process by VA provide a 
high level of assurance that only eligible firms are verified?

    7. What is more important making easier for firms to be verified or 
preventing fraud?

    8. The VA has only taken action on six of the 13 recommendations 
you issued in October 2011. Has the VA indicated why they have not 
completed the remaining seven recommendations?

    9. Does CVE have the right funding and staff to carry out its 
mission?

    10. In your opinion, does CVE know how many firms have been 
verified under the old and new law?

    11. What prevents CVE from keeping track of the number of verified 
firms?

    12. In your opinion, did the VA establish a two year re-
verification requirement to get rid of the backlog?

    13. In your opinion, how often should SDVOSBs be verified?

                                 
Responses From: Hon: Gene L. Dodaro, Comptroller General of the United 
States, Government Accountability Office To: Hon. Joe Donnelly, Ranking 
    Democratic Member, Subcommittee on Oversight and Investigations
    September 11, 2012

    The Honorable Joe Donnelly
    Ranking Member
    Subcommittee on Oversight and Investigations
    Committee on Veterans' Affairs
    House of Representatives

    Subject: Service-Disabled Veteran-Owned Small Business Program: 
Responses to Questions for the Record

    Dear Mr. Donnelly,

    On August 2, 2012, I testified in the joint hearing before the 
House Veterans' Affairs Committee, Subcommittee on Economic Opportunity 
and Oversight and Investigations on fraud and abuse in the Service-
Disabled Veteran-Owned Small Business (SDVOSB) program. \1\ This letter 
responds to your request that I provide answers to questions for the 
record from the hearing. The responses are generally based on work 
associated with previously issued SDVOSB products. If you have any 
questions about this letter or need additional information, please 
contact me at (202) 512-6722 or [email protected].
---------------------------------------------------------------------------
    \1\ GAO, Service-Disabled Veteran-Owned Small Business Program: 
Vulnerability to Fraud and Abuse Remains, GAO-12-697T (Washington, 
D.C.: August 2, 2012)

---------------------------------------------------------------------------
    Sincerely yours,

    Richard J. Hillman
    Managing Director
    Forensic Audits and Investigative Service

    Enclosures (2)
Enclosure I
    Responses to Questions for the Record
    Richard Hillman, Managing Director
    Forensic Audits and Investigative Service, Government 
Accountability Office

    Questions from Subcommittee Ranking Member Joe Donnelly

    1. Since 2009, GAO has issued a number of reports or testimonies on 
the government-wide SDVOSB program, focusing on its vulnerability to 
fraud and abuse, and agencies' actions to prevent contracts from going 
to firms that misrepresent themselves as SDVOSBs. What vulnerabilities 
did you find in the government-wide program?
    Since 2009 we have continually reported that the SDVOSB program 
lacks effective government-wide fraud-prevention controls and therefore 
remains vulnerable to fraud and abuse. Because federal law does not 
require it, the Small Business Administration (SBA) and agencies 
awarding contracts (other than VA) do not validate firms' eligibility 
for the program. Instead, they rely on firms' self-certifying as 
service-disabled veteran-owned businesses in the Central Contractor 
Registration (CCR) without requiring supporting documentation. The only 
means of detecting fraud in the government-wide SDVSOB program involves 
a formal bid-protest process at SBA, whereby interested parties to a 
contract award could protest another firm's SDVOSB eligibility or 
small-business size. Without basic checks on firms' eligibility claims, 
SBA cannot provide reasonable assurance that only legitimate SDVOSBs 
are receiving government contracts.

    2. In a July 2011 testimony GAO suggested that Congress consider 
expanding VA's verification program government-wide to employ more 
effective fraud-prevention controls over the billions of dollars 
awarded to SDVOSBs outside of VA. Given the inventory problems 
identified, is the expansion of the VA's SDVOSB verification program 
government-wide still a valid recommendation?
    VA's progress toward eliminating the SDVOSB program's vulnerability 
to fraud and abuse should be considered before expanding its 
verification program government-wide. We suggested in 2009 that 
Congress consider providing VA with the authority and resources 
necessary to expand its SDVOSB eligibility verification process to all 
contractors seeking to bid on SDVOSB contracts government-wide. Such an 
action is supported by the fact that VA maintains the database 
identifying which individuals are service-disabled veterans and is 
consistent with VA's mission of service to veterans. However, as shown 
by our current work, VA's program remains vulnerable to fraud and abuse 
because the agency has been unable to accurately track the status of 
its verification efforts and because potentially ineligible firms 
remain listed in VetBiz, VA's database of eligible firms. Consequently, 
VA's ability to show that its process is successful in reducing the 
SDVOSBs program's vulnerability to fraud and abuse remains an important 
factor in any consideration about the potential expansion of VA's 
eligibility verification process government-wide. GAO has ongoing work 
that will, in part, examine some of the key issues that need to be 
addressed if VA's verification program were to be implemented 
government-wide.

    3. In your report you recommended VA ensure that all firms within 
VetBiz have undergone its new more thorough verification process. 
Specifically, VA should inventory firms listed in VetBiz to establish a 
reliable beginning point for the verification status of each firm. Can 
you explain the importance of a reliable inventory of SDVOSB firms for 
VA and other agencies that may rely on the VetBiz status of a firm?
    Without a clear inventory and methods designed to track the 
verification process firms have undergone, VA cannot provide reasonable 
assurance that all firms appearing in VetBiz have been verified under 
VA's more stringent, current verification process as owned and 
controlled by a veteran or service-disabled veteran. Past audits show 
the risk of providing SDVOSB contracts to firms reviewed under the 
less-stringent verification process which VA chose to implement in 
response to the Veterans Benefits, Health Care, and Information 
Technology Act of 2006 (2006 Act). For example, in 2011, VA's OIG 
issued a report that reviewed both SDVOSBs and veteran-owned small 
businesses (VOSBs) listed in VetBiz and found that 10 of 14 SDVOSBs and 
VOSBs verified under VA's 2006 Act process and listed as eligible were 
in fact ineligible for these respective programs. Further, the report 
went on to state that VA's failure to maintain ``accurate and current'' 
information in the VetBiz database also exacerbated problems in the 
verification process. We remain convinced that the verification process 
utilized by VA prior to the Veterans Small Business Verification Act 
(2010 Act) process does not provide reasonable assurance that only 
eligible SDVOSBs participate in the program. The more-stringent 
verification process VA implemented in response to the Veterans Small 
Business Verification Act, part of the Veterans' Benefits Act of 2010, 
is better designed to prevent ineligible firms from being allowed into 
the program. For example, two of our most recently reported cases were 
found ineligible by VA using the 2010 Act verification process. We 
therefore believe that all firms must be expeditiously verified under 
the 2010 Act process. By better managing its inventory of firms, 
maintaining the accuracy of firms' status in VetBiz, and applying the 
verification process VA implemented in response to the 2010 Act to all 
firms, VA can be more confident that the billions of dollars meant to 
provide VA contracting opportunities to our nation's service-disabled 
veteran entrepreneurs make it to the intended beneficiaries.

    4. Is the process to get listed on the CVE database more difficult 
than it needs to be?
    We have not directly tested the difficulty of the process to get 
listed in VetBiz. However, given the specific requirements of the 
SDVOSB program (e.g. determining ownership and control of a firm, and 
meeting certain performance levels on contracts), it is important to 
have a verification program that does more than rely on publicly 
available documentation. We remain convinced that the verification 
process utilized by VA prior to the 2010 Act process does not provide 
reasonable assurance that only eligible SDVOSBs participate in the 
program. Given this ongoing vulnerability to fraud and abuse, we 
continue to believe that VA should expeditiously verify current VetBiz 
firms and new applicants under the 2010 Act verification process.

    5. Should VA model its program more on what SBA is doing?
    Based on our previous and most recent work, we cannot suggest that 
VA model its program on SBA's actions. As stated in our answer to your 
first question, SBA lacks effective fraud-prevention controls, leaving 
the government-wide SDVOSB program vulnerable to fraud and abuse.
    We are aware that there are technical differences between VA and 
SBA regulations for the SDVOSB program, as well as differences in the 
interpretation of program regulation. To avoid confusion and to better 
ensure efficient implementation of the program, it would be important 
to eradicate the differences that exist between VA's and SBA's 
regulations.

    6. Does the current SDVOSB verification process by VA provide a 
high level of assurance that only eligible firms are verified?
    Our work was not designed to determine the extent of fraud within 
the SDVOSB program and cannot answer whether the current verification 
process provides a high level of assurance that only eligible firms are 
verified. However, the most effective and most efficient part of a 
fraud-prevention framework involves the institution of rigorous 
preventative controls at the beginning of the process. At a minimum, 
preventive controls for the SDVOSB program should be designed to verify 
that a firm seeking SDVOSB status is eligible for the program. With 
regard to VA's program, the 2010 Act requires that no new small-
business applicant may appear in VA's SDVOSB and VOSB VetBiz database 
unless it has been verified by VA as owned and controlled by a veteran 
or service-disabled veteran. To check veteran status, Center for 
Veterans Enterprise (CVE) relies in part on VA's Beneficiary 
Identification Records Locator Subsystem, which confirms that owners 
are documented as having left military service under conditions other 
than dishonorable and that the disability results from a service-
connected condition. In response to the 2010 Act, VA also implemented a 
verification process that included unannounced and announced site 
visits, and review and analysis of company documentation. Under the 
2010 Act verification process, VA denied two firms that we concluded 
were ineligible in our most recent work.
    Past audits show the risk of providing SDVOSB contracts to firms 
reviewed under VA's 2006 Act process. For example, in 2011, VA's own 
OIG issued a report that reviewed both SDVOSBs and VOSBs listed in 
VetBiz and found that 10 of 14 SDVOSBs and VOSBs verified under VA's 
2006 Act process and listed as eligible were in fact ineligible for 
these respective programs. The report identified several reasons for 
why these firms were ineligible, including improper subcontracting 
practices, lack of control and ownership, and improper use of SDVOSB 
status, among others. Further, the report noted VA's document-review 
process under the 2006 Act ``in many cases was insufficient to 
establish control and ownership . . . [and] in effect allowed 
businesses to self-certify as a veteran-owned or service-disabled 
veteran-owned small business with little supporting documentation.''

    7. What is more important making easier for firms to be verified or 
preventing fraud?
    We have not conducted the work necessary to answer this question. 
However, we believe that both the accessibility of the SDVOSB program 
as well as implementing reasonable fraud-prevention controls are 
important to the program's success. Without effective fraud prevention 
controls, deserving SDVOSBs may miss out on opportunities to access 
federal contracting dollars. When that happens, not only are businesses 
harmed, but their employees, who are frequently other veterans, are as 
well.

    8. The VA has only taken action on six of the 13 recommendations 
you issued in October 2011. Has VA indicated why they have not 
completed the remaining seven recommendations?
    Overall, VA is making good progress in implementing our prior 
recommendations. As stated in the agency comments section of our 
report, VA has indicated that it has begun taking action on some of the 
remaining recommendations issued in October 2011 related to the 
vulnerabilities in the verification process implemented by VA after the 
2010 Act. However, during the course of our work, VA either did not 
demonstrate that it had taken action to implement the open 
recommendations or did not provide the supporting documentation needed 
to show that they were in fact implemented. In our report, we noted any 
progress VA has made with regard to each open recommendation. We will 
continue to work with VA to confirm the status of its efforts to 
address our recommendations and will close them as supporting 
documentation is provided.

    9. Does CVE have the right funding and staff to carry out its 
mission?
    The scope of our work did not assess VA's funding and staffing to 
carry out its mission. However, when inquiring about the budget for 
CVE, we have experienced difficulty getting supporting documentation. 
We are aware that VA's funding has significantly increased in recent 
years and VA has hired more CVE staff and contractors to conduct 
initial file reviews and site visits. Our prior work identified that VA 
has not evaluated the experience of CVE staff to assess whether 
appropriate personnel are available to perform application reviews. To 
be successful, VA needs expert staff dedicated to maintain the 
program's integrity.

    10. In your opinion, does CVE know how many firms have been 
verified under the old and new law?
    VA has demonstrated an inability to accurately track the extent to 
which firms have been verified under both verification processes VA 
chose to implement under the 2006 Act and the 2010 Act. During the 
course of our work, VA made numerous conflicting statements about its 
progress verifying firms listed in VetBiz under the more-thorough 
process the agency implemented in response to the 2010 Act. These 
statements indicate that VA has taken an inconsistent approach to 
prioritizing the verification of firms and has been unable to 
accurately track the status of its efforts. For more detail on the VA 
conflicting statements, see Enclosure II.

    11. What prevents CVE from keeping track of the number of verified 
firms?
    According to VA, CVE has had difficulty providing consistent 
aggregated reporting of the number of verified firms due to limitations 
of its VetBiz Case Management System (VCMS). In addition, VA stated 
that the lack of a comprehensive case-management system has created the 
need for aggregated workarounds and resulted in inconsistent aggregate 
reporting. The limitations of its current case-management system make 
it difficult to track the inventory of firms and as the limitations of 
the case-management system increase over time, the potential of CVE to 
lose track of how many firms have been verified also increases.

    12. In your opinion, did the VA establish a two year re-
verification requirement to get rid of the backlog?
    The law gives VA latitude to modify its regulations as it deems 
necessary. During the course of our work, VA did not mention its 
intentions of extending the verification eligibility from one year to 
two years. On June 27, 2012, VA issued updated regulations extending 
the eligibility period from one year to two years before reverification 
is required. Extending the eligibility period may allow VA to focus its 
efforts on more thoroughly verifying firms that were previously 
verified under its less-stringent 2006 Act process. However, the 
extension allows thousands of firms to continue to be eligible for 
contracts even though they have not undergone the more-thorough 
verification process. We remain convinced that the verification process 
utilized by VA prior to the 2010 Act process does not provide 
reasonable assurance that only eligible SDVOSBs participate in the 
program.

    13. In your opinion, how often should SDVOSBs be verified?
    The scope of our work did not assess how often SDVOSBs should be 
verified. However, any response to this question would depend on the 
quality of the verification process that is used. We believe that from 
a fraud-prevention standpoint, all firms should be verified under the 
more-thorough 2010 Act verification process. This process includes 
unannounced and announced site visits and review and analysis of 
company documentation, such as tax returns and operating agreements. 
After all firms are verified under the 2010 process, VA could then 
consider a somewhat longer timeframe for reverifying firms by 
considering certain risk-based factors such as whether or not a firm 
has actually received a SDVOSB contract to date.
Enclosure II
    Record of VA Conflicting Claims
    During the course of our work, VA made numerous conflicting claims 
regarding its actions related to its transition from the vulnerable 
verification process used under the Veterans Benefits, Health Care, and 
Information Technology Act of 2006 to the more-thorough process 
established under the Veterans Small Business Verification Act, part of 
the Veteran' Benefits Act of 2010. Below, those statements are grouped 
by topic and reproduced as VA provided them to us. We were unable to 
determine which claims are factual and accurate. As stated in our 
report, these statements indicate that the agency has taken an 
inconsistent approach to prioritizing the verification of firms and has 
been unable to accurately track the status of its efforts.

    Timing of VA's transition from the 2006 Act verification process to 
the 2010 Act verification process

      February 16, 2012 (meeting): Firms were verified using 
the 2006 Act verification process between January and May 2011.
      April 23 (meeting): Full document reviews using 2010 Act 
verification process began in February 2011.
      May 12, 2012 (e-mail): No firm was verified under the 
2006 Act process after February 2011. Verification reviews using the 
2006 Act process had been stopped by January 2011. CVE began the 2010 
Act verification process at the end of December 2010.
      May 21, 2012 (e-mail): Several firms in VetBiz were 
verified under the 2006 Act process after February 2011. At least two 
were verified under the 2006 Act process as late as May 2011.

    Firms that received the first eligibility documentation request 
letter sent in December 2010 under 2010 Act verification process

      April 23, 2012 (meeting) and May 2, 2012 (e-mail): In 
April, a number of firms that had not been verified under the 2010 Act 
verification process were removed from VetBiz. While those firms were 
not sent the initial December 2010 document request letter because of 
human data-entry errors, they were removed because they failed to 
respond within 30 days to a later document request.
      May 12, 2012 (email): The above firms were sent the 
December 2010 letter.
      June 20, 2012 (meeting): All firms in VetBiz did not 
receive the initial document request letter sent in December 2010. 
Firms verified under the 2006 Act within the six months before December 
2010 did not receive the letter. As of December 2010, 13,000 firms had 
been sent the document request.

    Number of VOSB and SDVOSB firms removed from VetBiz for failing to 
respond to a document request under the 2010 Act verification process

      April 23, 2012 (meeting): Approximately 3,050 firms were 
removed between late March 2012 and early April 2012.

         1. May 2, 2012 (e-mail verifying April 23 meeting details): 
3,108 firms instead of 3,050.

         2. May 2, 2012 (e-mail attachment): Attached spreadsheet 
showed 3,019 firms were removed as of the April 23 meeting.

      May 8, 2012 (e-mail): 2,984 firms were removed as of 
April 2012.

    Number of expired VOSB and SDVOSB firms verified under the 2006 Act 
process targeted for future removal from VetBiz

      April 23, 2012 (meeting): About 900 firms.
      April 27, 2012 (e-mail): About 3,500 firms.
      May 2, 2012 (e-mail): About 2,660 firms and 2,646 firms 
(in the same e-mail).
      May 3, 2012 (e-mail): 2,584 firms.
      May 12, 2012 (e-mail): 2,581 firms. (The difference 
between this and the May 3 figure may be explained by firms changing 
their status.)

    Firms in VetBiz whose eligibility term, determine under the 2006 
Act process, had expired, that were sent documentation requests in 
order to go through the 2010 Act verification process

      April 23, 2012 (meeting): 900 firms about to be removed 
from VetBiz were sent a request for documentation for 2010 Act 
verification.
      April 27, 2012 (e-mail): The 900 firms were not sent the 
above request.

    Deadline for removing expired firms that failed to provide 
requested documentation for the 2010 Act verification process

      April 23, 2012 (meeting): May 2012.
      April 27, 2012 (email): May 4, 2012.
      May 12, 2012 (e-mail): May 18, 2012.
      May 31 (e-mail): July 5, 2012.

    Explanation for delays in removal from VetBiz of firms whose 
eligibility term, as determined through the 2006 Act verification 
process, had expired

      Software update

      April 23, 2012 (meeting): A software update to a new 
electronic system prevented the 900 firms with expired eligibility 
terms from being identified.
      April 27 (e-mail): The software update did not affect the 
900 firms.

      Congress

      May 12, 2012 and May 21, 2012 (e-mail): Firms removed 
from VetBiz in April had not been removed from VetBiz earlier in the 
year at the suggestion of Congress due to backlog. VA memo sent as 
support for this discussion relates to ``reverification'' under the 
2010 Act process.

      Technical Difficulties

      May 31, 2012 (e-mail): Firms were not removed from VetBiz 
because of technical difficulties.
      June 20, 2012 (meeting): The Verification Case Management 
System (VCMS) allows CVE to manage inventory and automatically notifies 
a firm on behalf of CVE when it is approaching a deadline for 
reverification.
      June 22, 2012 (meeting): VCMS is not accurate, is missing 
data fields, and contains dates differing from those in physical files. 
Firms previously identified as being verified under the 2006 Act 
process as late as May 2011 could be mistaken due to such software 
issues.

    Estimates for verifying all firms in VetBiz under the 2010 Act 
process (before implementation of the interim rule, amending 38 C.F.R. 
Part 74.15(a), which extended firms' eligibility terms)

      July 11, 2011(meeting): May 2012.
      April 23, 2012 (meeting): Mid-August 2012.
      May 12, 2012 (e-mail): September 2012.
      July 10, 2012 (email): As of June 27, 2012, VA amended 38 
C.F.R. 74.15(a) so that all firms verified under either the 2006 Act 
process or the 2010 Act process are eligible for a 24 month period 
instead of the previous 12 month period.

                                 
                   Materials Submitted For The Record
    OCT 1 0 2012

    The Honorable Bill Johnson
    Chairman, Subcommittee on
      Oversight and Investigations
    Committee on Veterans' Affairs
    United States House of Representatives
    Washington, DC 20515

    The Honorable Marlin A. Stutzman
    Chairman, Subcommittee on
      Economic Opportunity .
    Cornmittee on Veterans' Affairs
    United States House of Representatives
    Washington, DC 20515

    Dear Chairman Johnson and Chairman Stutzman:

    At the joint hearing before your Subcommittees on August 2,2012, 
Mr. James O'Neill, Assistant Inspector General for Investigations, 
promised to provide a response for the record regarding a question on 
how many Office of Inspector General (OIG) Service Disabled Veteran-
Owned Small Business (SDVOSB) cases, open or closed, involved companies 
certified under P.L. 111-275, Veterans' Benefits Act of 2010.
    As of August 31,2012, 25 of the OIG's 158 open or closed SDVOSB 
cases were verified by the Center for Veterans Enterprise (CVE) under 
P.L. 111-275. Of those 25 cases, 10 were initiated based on a referral 
from CVE, and 4 were referred to us by CVE after we had received an 
allegation from another source. Further information on CVE's referral 
practices to the OIG should be addressed to the Executive Director, VA 
Office of Small and Disadvantaged Business Utilization.
    If you have need additional information, please do not hesitate to 
contact my office. Thank you for your interest in the Department of 
Veterans Affairs.

    Sincerely,

    GEORGEJ.OPFER

    Copy to: The Honorable Joe Donnelly, The Honorable Bruce L. Braley

                                 
    August 3, 2012

    Mr. Scott Denniston
    Executive Director
    National Veteran Small Business Coalition
    14408 Chantilly Crossing Lane
    #704
    Chantilly, VA 20151

    Dear Mr. Denniston:

    I would like to request your response to the enclosed questions for 
the record I am submitting in reference to our House Committee on 
Veterans' Affairs Subcommittee on Oversight and Investigations and 
Subcommittee on Economic Opportunity joint oversight hearing titled 
Odyssey of the CVE on August 2, 2012. Please answer the enclosed 
hearing questions by no later than Friday, September 14, 2012.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all full 
committee and subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres-Jaen at [email protected], and fax at 
(202) 225-2034. If you have any questions, please call (202) 225-9756.

    Sincerely,

    Joe Donnelly
    Ranking Member
    Subcommittee on Oversight and Investigations

    DMT/ot

    Questions for the Record from the Committee on Veterans' Affairs
    Subcommittee on Oversight and Investigations and
    Subcommittee on Economic Opportunity
    U.S. House of Representatives

    Odyssey of the CVE

    August 2, 2012

    1. What is your overall perception of the VA's SDVOSB process and 
what specific areas need immediate attention?

    NO RESPONSE RECEIVED FROM MR. SCOTT DENNISTON AT THE TIME OF 
PRINTED PUBLICATION

                                 
    August 3, 2012

    Mr. Richard F. Weidman
    Executive Director for Policy & Government Affairs
    Vietnam Veterans of America
    8719 Colesville Road
    Suite 100
    Silver Spring, MD 20910

    Dear Mr. Weidman:

    I would like to request your response to the enclosed questions for 
the record I am submitting in reference to our House Committee on 
Veterans' Affairs Subcommittee on Oversight and Investigations and 
Subcommittee on Economic Opportunity joint oversight hearing titled 
Odyssey of the CVE on August 2, 2012. Please answer the enclosed 
hearing questions by no later than Friday, September 14, 2012.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all full 
committee and subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres-Jaen at [email protected], and fax at 
(202) 225-2034. If you have any questions, please call (202) 225-9756.

    Sincerely,

    Joe Donnelly
    Ranking Member
    Subcommittee on Oversight and Investigations

    DMT/ot

    Questions for the Record from the Committee on Veterans' Affairs
    Subcommittee on Oversight and Investigations and
    Subcommittee on Economic Opportunity
    U.S. House of Representatives

    Odyssey of the CVE

    August 2, 2012

    1. How different are the regulations between SBA, VA and the 8(a) 
program?

    2. You state that many federal agencies believe that veterans must 
first register with VA. If VA has no control over this view what can VA 
do about it?

    3. In your testimony you state that the VA should allow self-
certification while they verify the. In the past the increased number 
of fraud and abuse was due to the VA relying on self certification with 
many ineligible firms being wrongly awarded contracts. Are you 
confident that returning to self-certification will not lead to an 
increase fraud and veterans losing contracts?

    a. By allowing self-certification, would the VA have a major influx 
of veteran and non-veteran businesses applying and seeking to be 
verified, thereby, causing a greater backlog?

    4. What is more important, making it easier for firms to be 
verified or preventing fraud?

    5. According to CVE, one of the main reasons why companies are 
denied verification is because they fail to thoroughly review 
application requirements and fail to submit appropriate documentation. 
The CVE has now included tools in their website to guide companies 
through the application process. In your opinion, what are the top 5 
reasons for denials?

    6. In your testimony you mentioned that ``most veterans are denied 
due to issues of control and that are many sections of the regulations 
which are subject to the interpretation of the reviewer.'' Do you 
prefer that the VA have clear bright line tests of what would be a 
cause to deny verification or have some flexibility?
    NO RESPONSE RECEIVED FROM MR. RICHARD F. WEIDMAN AT THE TIME OF 
PRINTED PUBLICATION

                                 
    August 3, 2012

    Mr. George J. Opfer
    Inspector General
    Department of Veterans Affairs
    801 I Street NW
    Washington, DC 20001

    Dear Mr. Opfer:

    I would like to request your response to the enclosed questions for 
the record I am submitting in reference to our House Committee on 
Veterans' Affairs Subcommittee on Oversight and Investigations and 
Subcommittee on Economic Opportunity joint oversight hearing titled 
Odyssey of the CVE on August 2, 2012. Please answer the enclosed 
hearing questions by no later than Friday, September 14, 2012.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all full 
committee and subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres-Jaen at [email protected], and fax at 
(202) 225-2034. If you have any questions, please call (202) 225-9756.

    Sincerely,

    Joe Donnelly
    Ranking Member
    Subcommittee on Oversight and Investigations

    DMT/ot

    Questions for the Record from the Committee on Veterans' Affairs
    Subcommittee on Oversight and Investigations and
    Subcommittee on Economic Opportunity
    U.S. House of Representatives

    Odyssey of the CVE

    August 2, 2012

    1. Does SBA have tougher standards to be recognized as a veteran 
company?

    2. How many self certified companies remain on CVE's VIP database?

    3. Has it become too difficult for SDVOSBs to be verified and sign 
up in CVE's VIP database and does CVE ask for too much information?

    4. Is CVE properly funded to review applications for the VIP 
database?

    5. Does the current SDVOSB verification process by VA provide a 
high level of assurance that only eligible firms are verified?

    6. Should VA be verifying firms every year?

    7. What is more important, making it easier for firms to be 
verified or preventing fraud?

    8. Has the VA made progress in their verification program to reduce 
the number of fraudulent SDVOSBs?
    NO RESPONSE RECEIVED FROM MR. GEORGE J. OPFER AT THE TIME OF 
PRINTED PUBLICATION

                                 
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