Case Studies Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of Dollars in Contracts

The U.S. Government Accountability Office (GAO) released a report on November 19 finding that contractors falsely claiming to be run by disabled military veterans have defrauded the government of at least $100 million since 2003.  Congress established goals for the distribution of a certain portion of federal contracts to small businesses that are owned and operated by vets injured in the course of active duty.  The Small Business Administration (SBA) administers these contracts, and is tasked with the responsibility of both determining whether the businesses to which they dole out the funds meet eligibility requirements and imposing fines if the firms misrepresent their status.

Responding to the report, however, the SBA contends that the contracting officials at the various federal agencies seeking the contracts bear responsibility for determining eligibility.  Falling through the cracks, of course, is fraud committed in the procurement of enormous federal contracts in which the companies have misrepresented themselves.

The GAO cited numerous abuses by a number of unnamed companies, including the procurement of a contract by a Nevada company to maintain FEMA trailers intended for the victims of Hurricane Katrina.  The firm was discovered to have falsely misrepresented that it was owned and operated by disabled vets.  Nevertheless, it was not required to repay the $7.5 million it had already received under the program, and is not prohibited from soliciting future work from the government.

Another $900,000 contract to provide furniture at an Air Force base in Florida was simply passed on from a disabled veteran to his wife and then on to an unrelated furniture company that did not meet the eligibility requirements.  No fines were levied against anyone involved.

Congress has established a benchmark for the distribution of approximately 3% of federal contracts to disabled veterans, or about $12 billion.  This standard has yet to be met, but, for example, in 2007, $4 billion was administered through this program.  With this much at stake, the field is ripe for abuse.  The GAO has therefore recommended that the SBA develop stiffer penalties for fraud, including levying fines, suspending contracts and prohibiting the award of future contracts.  Further, the GAO has urged that the Veterans Affairs Department’s database of disabled veteran-owned firms be expanded and access provided to other contracting agencies to allow for easier determination of eligibility.  The present process is a self certification that does nothing to detect or avoid fraud.  Whistleblower suits might be another avenue to combat any fraud that is ongoing and that continues to diminish the value and benefit of a program aimed to support our wounded veterans.

For more information, the GAO report can be found at:  http://www.gao.gov/new.items/d10255t.pdf