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In October of 2004, George W. Bush signed an executive order creating a new program within the Small Business Administration that gave preference in government contracting to small businesses owned and operated by veterans with service-related disabilities, even creating set-asides and a sole-source contracting process for such business. Known as the Service-Disabled Veteran-Owned Small Business (SDVOSB) it was, like so many of Bush’s ideas, an opportunity squandered by complete lack of oversight and a farcical self-certification process.

The Government Accounting Office (GAO) released a report today that verifies that as a result of this lack of oversight, the program has been rife with fraud and abuse, and honest companies for whom the program was initially conceived have lost out on contracts that have been granted to companies that committed fraud to get the contracts in the first place. The investigation did not attempt to evaluate the scope of the fraud and abuse. Instead, the GAO conducted case studies of ten firms that received a total of approximately $100 million in sole-source, set-aside contracts with the Department of Veterans Affairs. Of the ten, all had committed egregious acts of fraud and abuse.  The total yearly budget for the program was $6.5 billion in 2008.

In one case, trailer maintenance after Hurricane Katrina was awarded to a firm whose owner was not a service related veteran and in another case a contract employee at MacDill, AFB set up a SDVOSB company in order to obtain and pass on a $900,000 contract for furniture to a company that his wife worked for, which passed on the contract yet again to a manufacturer that actually delivered and installed the furniture. Pass-throughs to large and multi-national corporations were one of the most frequent abuses of the program. The following table shows three more instances of fraud in the SDVOSB program:


The GAO found that the government has no effective fraud prevention protocols for the program, but after uncovering pervasive fraud in the contracting process, the VA has developed protocols for validation of eligibility in their contracts and their guidelines could provide a framework or template for other agencies to follow. Indeed, GAO has recommended the VA’s SDVOSB contractor-verification process be implemented government wide.  

It’s our money, and it is a noble program, worth saving. Maybe a little oversight by Senator McCaskill’s sub-committee on contracting would be just what the doctor ordered to salvage it and make it work as intended.

Crossposted from They Gave Us a Republic