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VA fails to curb fraud on special preference program

DAYTON DAILY NEWS, Ohio — The Department of Veterans Affairs is still failing in its efforts to stamp out fraud in a program that gives special preference in obtaining government contracts to businesses that are owned by disabled veterans, the Government Accountability Office reported Monday.

The GAO, long critical of the VA’s oversight of the program, reported that controls the VA initiated a year ago are still failing to verify “on a timely and consistent basis” that companies purportedly owned by disabled vets are legitimate. The VA verification is designed to prevent non-veteran business owners from using vets as front men to secure lucrative public contracts with little or no competition.

In a letter to Congress dated Monday, the GAO said the VA has “dramatically increased” its contracting with small businesses owned by veterans, including those disabled as part of their military service. Veteran businesses got $3.6 billion in VA contracts in fiscal 2011, up from $616 million in fiscal 2006. That’s because of a 2006 law that allows the VA to make no-bid contract awards to vet-owned companies, and set aside some competitive bidding strictly for vet businesses. The law, meant to increase contracting opportunities for veterans, requires the VA to verify that companies on a database of eligible businesses are owned and controlled by one or more veterans, and to confirm claims of service-related disability.

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Other government agencies, including the Defense Department, also give contracting preference to businesses owned by disabled vets, but these companies are “self-certified” without prior verification that they’re legitimate veteran companies. The GAO estimated that 3,600-16,400 additional veteran-owned businesses could seek verification if the VA’s system was expanded government-wide, but its Monday report said expanding the program would require that the VA first “would need to further reduce its program’s vulnerability to fraud and abuse.”

The GAO and other government watchdogs have found that hundreds of millions of dollars in public contracts have gone to ineligible companies. A Dayton Daily News investigation in April found that federal agencies have awarded tens of millions of dollars in taxpayer-funded contracts to Ohio businesses, only to conclude the companies lied to the government when they said a disabled vet was in charge. Disabled vet Michael Claire of Oakwood and his Chevron Construction Services were among those banned from the program after it was found they had improper ties to Mason businessman Majid Samarghandi, whose Triton Services company is not eligible.

Monday’s GAO report said the VA has made progress, but has a flawed strategic plan that doesn’t measure how well the verification is working and an “inadequate” information technology system with “shortcomings that have hindered VA’s ability to operate, oversee and monitor the program.” The VA continues to have a backlog in verifying companies, the GAO said, and the VA has implemented only six of 13 recommendations the GAO made in 2011 to prevent and detect fraud. The VA generally agreed with the GAO’s findings, and said it is working to improve its plan and replace the data system.

While the GAO said the VA system is still vulnerable to fraud, it noted that veteran groups have complained that the verification process is too stringent and rationales for refusing certification have been inconsistent. Efforts by the VA to make the rules less stringent, the GAO said, require “weighing tradeoffs between reducing the burden of verification on eligible firms and providing reasonable assurance that contracting preferences reach their intended beneficiaries.”

Dennis Demolet of Kettering, a disabled vet who helped shape the national program, said the “enormous amount of scrutiny” is driving honest veterans away from the program.

“The VA needs to let up a little bit,” he said. “The VA has some good programs, but they’re not good at entrepreneurship.”

The Dayton Daily News has been digging into problems with a federal contracting program for service-disabled military veterans for more than a year. An investigation by the newspaper in April found that federal agencies have awarded tens of millions of dollars in contracts to Ohio companies, only to conclude the companies lied when they told the government they were owned and controlled by disabled vets.

 

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