House panel told of abuses in VA set-aside program

Veterans Affairs Department officials failed to punish the owners who lied to them to get a contract set aside for service-disabled veterans

At a hearing today, several House members were flabbergasted by the lack of enforcement against small-business owners who lied about being service-disabled veterans.

Veterans Affairs Department officials failed to punish the owners who misled the VA to get a contract set aside for service-disabled veterans, Government Accountability Office officials told the House Veterans' Affairs Committee’s Oversight and Investigations Subcommittee.

In 10 case studies, GAO's investigations found that those counterfeit businesses received roughly $100 million in service-disabled, veteran-owned small business sole-source and set-aside contracts, said Gregory Kutz, GAO’s managing director for forensic audits and special investigations.

“These people are stealing.” said Rep. Harry Mitchell (D-Ariz.), the subcommittee's chairman. 

“You were speechless,” Rep. Steve Buyer (R-Ind.) said to another subcommittee member who had been stunned by the news. “My mouth is wide open.”

Buyer urged Mitchell to join in supporting the Department of Veterans Affairs Acquisition Improvement Act (H.R. 4221), which Buyer introduced Dec. 8. Buyer said he wanted to work with Mitchell to add to a provision demanding that the VA debar the fraudulent companies — even though the department already has the authority to do so.

Those companies are squeezing out the real veterans seeking to work with the government, said Buyer, a veteran of Operation Desert Storm. “That’s stolen valor.”

In response to the GAO information, Glenn Haggstrom, VA's acting chief acquisition officer and executive director of its Office of Acquisition, Logistics, and Construction, said he was “not appraised” of any specific instances of fraud until a report by GAO was released.

However, a regulation finalized on Dec. 8 gives the VA secretary new authority to take action against those fraudulent companies.

David Canada, senior procurement analyst at the VA’s Office of Small and Disadvantaged Business Utilization, said he too was unaware of the specific instances but he knew about the problems.

"This is embarrassing," said Rep. David Roe (R-Tenn.), the ranking member of the subcommittee. "This was a shock to me to see how bad this actually is."

Officials agreed that a major problem was self-certification by the small businesses, although the VA is trying to do more certifications. But technical legal issues also kept VA officials at a standstill when faced with punishing a fake company. Maureen Regan, counselor to the inspector general at the VA, said acquisition officials were unclear about whether their debarment authority granted in a 2006 law was different from the authority granted in the Federal Acquisition Regulation. The standards are different, she said.

Congress is once again trying to get the VA to fix its broken acquisition process and is considering legislation to fix it. For instance, Buyer’s bill would tell the department to create a new head of acquisition with a very broad reach inside the VA.

However, Haggstrom said the 2006 law gives the VA enough authority.

Buyer's bill would essentially create the position of assistant secretary for acquisition, construction and asset management — or the VA’s chief acquisition officer. The official would oversee purchases and would be given the job of streamlining the procurement process by centralizing it.

The new official also would have more policy-focused duties, such as setting up strategic purchases and building a stronger acquisition workforce. In addition, the assistant secretary would have to make sure the department has goals for improvement, clear requirements for acquisitions and oversight of performance by contractors, the bill states. Officials say those are the areas in which the VA struggles.

The legislation tries “to respond to the universal complaint throughout the VA that glaciers move faster than its contracting process,” Buyer said.

Mitchell said the VA lacks a centralized acquisition structure and self-policing policies that allow fraud and abuse. He said Congress may be forced to legislate to fix the problems.

Nevertheless, Haggstrom said the VA has already taken steps to improve aspects of its policies and processes. The VA paid $800,000 for a PricewaterhouseCoopers study of its procurement system, which was released in 2008. The study brought about changes in how the department buys things, Haggstrom said. This year the VA set up a new acquisition business model that increases centralized decision-making and decentralizes its execution. As for VA’s workforce, Haggstrom said the VA has the award-winning VA Acquisition Academy, and, in 2010, it will launch the Acquisition Corps Development Program, both help to develop expertise among employees in the acquisition field.

Despite the improvements, Mitchell said, “Right next to making laws is oversight."

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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Reader comments

Wed, Aug 17, 2011 J.S? New Orleans

I just attended to Veteran conference in New Orleans put on by a private company the VA uses. I am a Vetbiz verified veteran business owner. My business has been open over 35 years.The Secretary of the VA and other government officials say large amounts of Government business is set aside for veteran owned business.This is not true.My business is not allowed to submit competitive bids even after we have pointed out the amounts payed are not fair and customary.No one with my Government cares.Shame on all of you.

Thu, Dec 17, 2009 Moe

More laws won't help. Haggstrom is right, on that regard. The problem is one of competence and VA doesn't have it. There are so many people that important things get losed in the mix. The don't have enough people to answer the phones for GI Bill calls. Yet, there are studies and lip service. And, look at how many of the senior folks - career SES'ers are veterans. Hardly any and combat veterans are even more rare. Even the CIO, by all regards a nice guy trying to do the right thing, has not served a minute in the military. And, his complicated schemes to kill programs won't work. It's not the programs, Roger, it's the people who run them. Oh, Glenn, I work at VA, and have never heard of an "award winning acquisition university". Don't even ask how they hire and promote veterans. In OI&T, that doesn't happen. This report shows the the hallmarks of VA: Incompetence, Denial, and Lip-service. Their logo ought to be a turtle. Slow, stupid, and the ability to hide when things get tough.

Thu, Dec 17, 2009

The SBA's inability to manage set-aside programs is far more wide spread than either the GAO report or SBA has discussed. A classic case is the GRS LLC case that SBA has known about for a year. The owner is alleged to have falsified business documents to get a 8a set aside. The matter is now in federal court (www.grslawsuit.com) and yet the SBA still has not admitted there's a problem with the 8a program. Does the GAO need to take over these programs?

Thu, Dec 17, 2009 Johnny M.

VA fails to punish anyone. You can be corrupt and it requires an IG investigation to get disciplined. You can be incompentent or fail to deliver, as Glenn Haggstrom's organization has done, and still survive. And, you can concentrate on minor things, like OI&T has done, and still get rewarded. You should see how VA treats combat veterans. Here is the root of the problem - the people and the culture. It's diseased. They need to clean house starting with career SES's.

Thu, Dec 17, 2009 Fred Matt Tucson, AZ

I am a certified SDVOSB owner and I am mad as hell after reading the GAO report. I was not totally surprised with some of the findings of the investigation. What stunned me the most was the total lack action on the part of contracting officials across the board once they were made aware of the problems? Contracting officials appeared to have taken the stick your head in the sand and hope it will all go away attitude. I guess typical of our federal government bureaucrats. There were numerous things that the contracting officials could have done to those companies’ breaking the law within current regulations. The lack of action just emboldens these types of criminals. These individuals are taking the opportunity away from me to grow my company and more importantly taking food away from me and my employees’ tables plain and simple!

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