Fake firms rip off SBA set-aside program for $100M

10 fake service-disabled, veteran-owned small businesses received roughly $100 million in Small Business Administration set-aside contracts

At least 10 fake service-disabled veteran-owned small businesses (SDVOSBs) swindled roughly $100 million from the Small Business Administration's set-aside contracts by defrauding and abusing the program, an official of the Government Accountability Office has told the House Small Business Committee.

Overall, SDVOSBs received $6.5 billion in federal contracts in fiscal 2008, up from $4 billion in fiscal 2007, according to a GAO report also released Nov. 19.

In an investigation, GAO found a company subcontracting 100 percent of a contract’s work to a large company in another country. It also found another company defrauding the government because its majority owner was not a service-disabled veteran.

One major problem is that SBA and other contracting departments currently don’t have a database of individuals that are service-disabled veterans, a key eligibility requirement for the program, said Gregory Kutz, managing director for forensic audits and special investigations at GAO.

They don’t require documentation to confirm a company’s eligibility for the program or an application process associated with the SDVOSB program, unlike other small business contracting programs. The only process in place to detect fraud involves a formal bid protest for an awarded contract.

“This lack of controls substantially increases the risk for fraud and abuse in the SDVOSB program,” Kutz testified.

However, the possibility of being caught and punished can help to persuade perpetrators from swindling the government, Kutz said. and , the government has no consequences for companies that abuse the system.

Rep. Nydia Velázquez (D-N.Y.), the committee' chairwoman, said, "This sort of abuse is more than a simple injustice. It is criminal, and it needs to be addressed immediately, not weeks or months down the road,”

SBA Administrator Karen Mills told Velazquez that her agency is working with the Veterans Affairs Department to set up a process to verify the participants in the SDVOSB program. SBA will check whether the company is an actual small business, and the VA will check on whether the firm’s owner is actually a service-disabled veteran, she said.

“We are committed to making sure we hold everyone accountable,” Mills said, adding that SBA will debar companies that do not comply with the program’s rules.

About the Author

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

The Fed 100

Save the date for 28th annual Federal 100 Awards Gala.

Featured

  • computer network

    How Einstein changes the way government does business

    The Department of Commerce is revising its confidentiality agreement for statistical data survey respondents to reflect the fact that the Department of Homeland Security could see some of that data if it is captured by the Einstein system.

  • Defense Secretary Jim Mattis. Army photo by Monica King. Jan. 26, 2017.

    Mattis mulls consolidation in IT, cyber

    In a Feb. 17 memo, Defense Secretary Jim Mattis told senior leadership to establish teams to look for duplication across the armed services in business operations, including in IT and cybersecurity.

  • Image from Shutterstock.com

    DHS vague on rules for election aid, say states

    State election officials had more questions than answers after a Department of Homeland Security presentation on the designation of election systems as critical U.S. infrastructure.

  • Org Chart Stock Art - Shutterstock

    How the hiring freeze targets millennials

    The government desperately needs younger talent to replace an aging workforce, and experts say that a freeze on hiring doesn't help.

  • Shutterstock image: healthcare digital interface.

    VA moves ahead with homegrown scheduling IT

    The Department of Veterans Affairs will test an internally developed scheduling module at primary care sites nationwide to see if it's ready to service the entire agency.

  • Shutterstock images (honglouwawa & 0beron): Bitcoin image overlay replaced with a dollar sign on a hardware circuit.

    MGT Act poised for a comeback

    After missing in the last Congress, drafters of a bill to encourage cloud adoption are looking for a new plan.

Reader comments

Wed, Feb 20, 2013 jose villanueva United States

all in all, does it mean that the "highly touted" DD214 document is not really what it is suppose to be.............

Thu, Jul 22, 2010 John K

Unfounded allegations about corruption or mis-management aside, that's a 1.5 - 2.5% total funding problem -- even the IRS isn't that diligent. No one condones fraud or abuse, but some of these comments are a bit over the top.

Thu, Apr 22, 2010 Luis Springfield Va

Fraud happens because no one a the V.A. or SBA IG takes it seriously. I reported 2 cases and nothing was done so what message does that send? Open season for the crooks. It is sad bona fide companies suffer the consequences. The meager contracts available make me wonder if all the effort is worth it,

Thu, Feb 11, 2010 Robyn Sousa Eatontown, NJ

ALl they need to do is ask for a copy of the DD214 to validate service in the Army Forces.

Tue, Dec 29, 2009 Jane Buyer VA

I am a buyer for the DoD and it makes me sick that people lie and cheat the way they do. I see it all the time. But just try to NOT award to a suspicious company and watch how the SBA comes to their aid. I have seen the SBA stand behind some real crooks (and not because they're on the take, just because their too naive or they need to make their quotas!). I would very much like to support bonafide SDVOSB entities. I truly hope the SBA gets a reliable vetting process up and running soon!!!

Show All Comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

More from 1105 Public Sector Media Group