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A federal program to benefit businesses owned and operated by disabled veterans remains vulnerable to fraud and abuse, with millions of dollars going to possibly ineligible small business owners, according to a recent Government Accountability Office investigation.

Since it first found evidence of fraud and abuse in the Department of Veterans Affairs’ Service-Disabled Veteran-Owned Small Business program in 2009, the GAO has continued to review the program. While there have been improvements in eligibility verification procedures, more needs to be done, the GAO wrote in the report, released Wednesday.

As of April, more than 60 percent of the nearly 6,200 businesses listed as eligible in the VA’s database, VetBiz, had not been verified under new, more stringent requirements passed by Congress in 2010, the GAO found. Of those 3,717 unverified businesses, 134 received $90 million in contract obligations over a four-month period, raising questions about whether federal funding earmarked for service-disabled entrepreneurs is being used properly.

The VA characterized some of the GAO’s findings as misleading and inaccurate. No business is deemed eligible “unless it is verified as owned and controlled by a veteran or service-disabled veteran,” wrote John Gingrich, the VA’s chief of staff, in a response to the GAO’s report.

Lawmakers and veterans have complained in recent months that the verification process is too strict, with thousands of veteran-owned businesses unable to receive benefits because of erroneous rejections.

The Service-Disabled Veteran-Owned Small Business program allows companies majority-owned by at least one service-disabled veteran who oversees daily business operations to apply for federal contracts. Federal agencies awarded $10.8 billion to businesses participating in the program in 2010, according to the Small Business Administration, which administers the program.

But some veterans have abused the program by claiming to run a company and then turning it over to a non-veteran business partner, according to GAO auditors.

The VA must “take a hard look in the mirror, dig down to the root of the problem and fix it,” Rep. Bill Johnson, R-Ohio, chairman of the Veteran Affairs Committee’s subcommittee on oversight, said at a Thursday hearing on the program.

The GAO report focuses largely on the VA vetting process. The report says other federal agencies have done less to prevent fraud within the veteran-owned business program.

The Small Business Administration, for example, does not verify applicants’ eligibility or require supporting documentation, the report found. As a result, some businesses deemed ineligible by the VA continued to self-certify as qualified and receive contracts from the Department of Interior, General Services Administration, Department of Defense and other federal agencies.

“Relying almost solely on firms’ self-certification, the program continues to lack controls to prevent fraud and abuse,” the GAO report concluded.

In the past, the GAO has recommended that all businesses claiming veteran-owned status be verified by the VA. But in its report this week, GAO said the VA needs to first demonstrate success in preventing fraud and abuse within its own program.

Prior to 2010, the VA’s verification process largely consisted of ensuring each applicant was a service-disabled veteran. Under the Veterans Small Business Verification Act of 2010, the VA implemented a more thorough process that included unannounced visits to participating businesses and reviewing company documents.

Under the beefed up certification process, thousands of businesses have been deemed ineligible, drawing the ire of some veterans who want to open businesses after returning from Iraq and Afghanistan.

Virginia Sen. Jim Webb, a Democratic member of the Senate Veterans Affairs Committee, wrote a letter to VA Secretary Eric Shinseki last month saying the verification process had become too onerous.

“In recent months, my office has received a significant number of letters from Virginia constituents expressing the problems they encounter during the re-verification process,” Webb wrote. “Specifically, individuals are experiencing lengthy processing times, concerns with the maintenance of supporting documents, including lost paperwork, and erroneous decisions.”

More than 60 percent of all applicants were rejected in 2011, VA spokeswoman Jo Schuda wrote in an email. Many were deemed ineligible because of some misunderstanding, which prompted the VA to add further instructions to its website, Schuda said. The hours of the VA’s customer help desk were also expanded to assist applicants.

Twitter: @cristymsilva

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