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.

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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!!!

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