Ineligible businesses getting veteran preferences at VA, says OIG

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The Veterans Affairs Department is likely awarding $540 million annually worth of business to companies that fail to meet eligibility requirements for veteran owned small businesses or service-disabled veteran owned small businesses, says the VA inspector general.

In a report dated July 25, the VA OIG examines a sample of 42 contracts awarded to SDVOSBs or VOSBs, finding that 32 of them together worth $46.5 million were given to ineligible businesses.

The businesses were ineligible either because veteran owned businesses subcontracted more than half of the work to non-veterans, or qualified veterans did not really control or own the business.

Auditors found one firm claiming SDVOSB status--which had received one sole source and two set-aside contracts worth together $343,500--despite the owner's admission that he was in the Marine Corps for only 5 weeks and that his "service disablement" had occurred during a casual football game.  

Extrapolating from the audit results, the report estimates that annual awards to ineligible businesses made under VA contracting programs for veteran owned businesses probably amount to $540 million, and could add up to $2.5 billion over the next 5 years, unless the department strengths its controls.

The report also estimates that when awards to ineligible businesses are factored out, the VA awarded only 12 percent of its procurement dollars to actual VOSBs and 10 percent to SDVOSBs, as opposed to the 23 and 20 percent it said it did during fiscal 2010.

Uniquely among federal agencies, the VA has a verification program for VOSB and SDVOSB businesses; other parts of the government accept SDVOSB self-certification (only SDVOSBs enjoy a federalwide set-aside program, and only the VA has a specific VOSB prime contract goal).

The VA maintains an online database of certified businesses, but the office in charge of examining businesses hasn't  been effectively managed, the report says.

For more:
- download the report, 10-02436-234 (.pdf)

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