[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                    SUBCOMMITTEE ON CONTRACTING AND

                TECHNOLOGY FIELD HEARING IN NORFOLK, VA

                ON VETERAN CONTRACTING: PREVENTING FRAUD

=======================================================================



                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                              MAY 24, 2010

                               __________

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 111-069
Available via the GPO Website: http://www.access.gpo.gov/congress/house




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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman

                          DENNIS MOORE, Kansas

                      HEATH SHULER, North Carolina

                     KATHY DAHLKEMPER, Pennsylvania

                         KURT SCHRADER, Oregon

                        ANN KIRKPATRICK, Arizona

                          GLENN NYE, Virginia

                         MICHAEL MICHAUD, Maine

                         MELISSA BEAN, Illinois

                         DAN LIPINSKI, Illinois

                      JASON ALTMIRE, Pennsylvania

                        YVETTE CLARKE, New York

                        BRAD ELLSWORTH, Indiana

                        JOE SESTAK, Pennsylvania

                         BOBBY BRIGHT, Alabama

                      DEBORAH HALVORSON, Illinois

                  SAM GRAVES, Missouri, Ranking Member

                      ROSCOE G. BARTLETT, Maryland

                         W. TODD AKIN, Missouri

                            STEVE KING, Iowa

                     LYNN A. WESTMORELAND, Georgia

                          LOUIE GOHMERT, Texas

                         MARY FALLIN, Oklahoma

                         VERN BUCHANAN, Florida

                      BLAINE LUETKEMEYER, Missouri

                         AARON SCHOCK, Illinois

                      GLENN THOMPSON, Pennsylvania

                         MIKE COFFMAN, Colorado

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

                  Karen Haas, Minority Staff Director

        .........................................................

                                  (ii)



               SUBCOMMITTEE ON CONTRACTING AND TECHNOLOGY

                                 ______



                     GLENN NYE, Virginia, Chairman


YVETTE CLARKE, New York              AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana              ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon                TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois          MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois               GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania

                                 (iii)






                           C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page

Nye, Hon. Glenn..................................................     1

                               WITNESSES

Kutz, Mr. Gregory, Managing Director, Forensics Audits and 
  special Investigations, U.S. Government Accountability Office..     4
Cavolt, Ms. Janice., Owner, JBC Corp, Virginia Beach, Virginia, 
  On behalf of The American Legion...............................     6
Walters, Ms. Cindy M., Director, Hampton Roads Procurement 
  Assistance Center, Old Dominion University Business Gateway, 
  Norfolk, VA....................................................     8
Roller, Mr. Elton, Greenland Enterprises, Inc., Hampton, VA......    10
Armbruster, Mr. George, Co-Owner, Fleet Services and 
  Installation, LLC, Portsmouth, VA..............................    12

                                APPENDIX


Prepared Statements:
Kutz, Mr. Gregory, Managing Director, Forensics Audits and 
  special Investigations, U.S. Government Accountability Office..    31
Cavolt, Ms. Janice., Owner, JBC Corp, Virginia Beach, Virginia, 
  On behalf of The American Legion...............................    46
Walters, Ms. Cindy M., Director, Hampton Roads Procurement 
  Assistance Center, Old Dominion University Business Gateway, 
  Norfolk, VA....................................................    49
Roller, Mr. Elton, Greenland Enterprises, Inc., Hampton, VA......    52
Armbruster, Mr. George, Co-Owner, Fleet Services and 
  Installation, LLC, Portsmouth, VA..............................    54

                                  (v)




                    SUBCOMMITTEE ON CONTRACTING AND


                      TECHNOLOGY FIELD HEARING IN


                  NORFOLK, VA ON VETERAN CONTRACTING:


                            PREVENTING FRAUD

                              ----------                              


                          Monday, May 24, 2010

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 9:30 a.m., at 
Ted Constant Convocation Center, 4320 Hampton Boulevard, 
Norfolk, Virginia, Hon. Glenn Nye [chairman of the 
Subcommittee] presiding.
    Present: Representative Nye.
    Chairman Nye. I will now call this hearing to order. First 
of all, thank you all for joining us this morning. I appreciate 
you making your time available to us to talk about this 
important issue and sharing your insights and thoughts with us.
    This is a field hearing of the House Small Business 
Committee Subcommittee on Contracting and Technology. I want to 
make a special thanks to the Small Business Committee staff 
also for traveling to be with us today to address this 
important issue, protecting service-disabled veteran business 
owners from fraud.
    First and foremost, I view my role as Chairman of the 
Contracting Subcommittee as one that supports the economic 
security of our returning service members. As more of our men 
and women return home from conflicts in Iraq and Afghanistan 
Congress must adopt policies that offer them a chance to 
succeed as business owners. As we do so there is no better 
place to look for guidance than right here on Hampton Roads.
    I have the honor to represent Virginia's 2nd District which 
is home to the largest concentration of veterans, military 
personnel, and military families anywhere in the country. In 
fact, more than 100,000 veterans reside here in Hampton Roads. 
We know firsthand that out community is stronger because of the 
service of our military personnel and the contributions of our 
veteran community.
    The same drive and dedication that leads brave men and 
women from Hampton Roads to serve our country in uniform also 
leads many of them to take on the challenges of 
entrepreneurship. Like small businesses all across the country 
veteran-owned small businesses are a crucial part of our 
economy helping to create jobs and spur economic development. 
It is no secret why they are successful.
    Their skills and training that our veterans learn in the 
military are incredibly valuable in the private sector.
    However, even our most successful entrepreneurs are 
hindered from success when fraud and abuse prohibit their 
businesses from contracting with the world's largest consumer, 
the U.S. government.
    The government buys everything from paper clips to computer 
systems so if a small firm sells it, the government likely buys 
it. For many entrepreneurs working with the federal government 
as a prime or a subcontractor has been a valuable business 
experience and has helped them launch countless successful 
ventures.
    In fact, while much of the economy struggled over the past 
year the federal market place grew by nine percent. Last fiscal 
year alone $3 billion in federal contracts flowed to our region 
and $93 million of that went to service-disabled veteran-owned 
businesses last year.
    It is more important than ever that veteran-owned 
businesses are able to access this expanding market place. 
Veteran-owned businesses are particularly well equipped to 
compete for these contracts. Having spent time in the military 
these business owners are often acquainted with the procurement 
process. Sometimes they have specialized skill sets that serve 
particular government needs. Veteran security clearances make 
them candidates for defense-related work and other sensitive 
projects. For all these reasons I have made veteran small 
business issues a priority.
    Earlier this year the House of Representatives passed 
legislation I authored, the Veterans Business Center Act, which 
will offer enhanced training and technical assistance to 
veterans interested in launching new businesses. Despite their 
valuable experiences in the military, many veterans retire 
without the resources to translate their skills to the 
challenges of starting and running a business.
    The creation of a nationwide network of veteran business 
centers will provide counseling and business training, assist 
veterans in accessing capital and securing loans and credit, 
and will help veterans navigate the procurement process to 
compete more effectively in the federal market place.
    But removing barriers and creating opportunities for 
veterans only works when these programs are run properly. Our 
outdated and under-resourced contracting policies have led to a 
great amount of fraud and outright abuse of this system.
    As many of you are aware, this past November the GAO 
uncovered nearly $100 million of fraud in the SDVOSB 
contracting program. It is disgraceful that unscrupulous 
businesses have been allowed to profit from taxpayer dollars 
intended for our veteran business owners.
    The GAO identified cases of large multi-national companies 
gaming the system to cheat veteran-owned businesses out of 
federal contracts. In other instances firms subcontracted all 
of their work out to large companies that are not veteran-owned 
and do not have veteran employees. I believe two problems have 
led us to this situation.
    One, there has been limited to no accountability in the 
system. The GAO report revealed that if someone had taken the 
time to look into these contracts, it would have been quickly 
realized these contracts were fraudulent. Two, there is no 
recourse and no penalties in place to disincentivize these 
abuses. If red flags are waived or complaints are filed, there 
are no consequences. The contracts and money remain in the 
hands of the fraudulent business owners. We need better 
policing in the contracting system.
    Rightly so Congress created a set-aside program to repay 
veterans by providing them an avenue to gain economic security 
when they return home from the battlefield. The businesses 
responsible for defrauding the Service-Disabled Veteran 
Contracting Program are not only defrauding the U.S. Government 
and the taxpayer. They are defrauding our veterans. They are 
profiting at the expense of those who are willing to sacrifice 
everything for our country's prosperity.
    If we are truly sincere about our commitment to our 
veterans, then the Service-Disabled Veteran Contracting Program 
must be more than an empty promise. The goals must be clear. 
The rules must be enforced and there must be consequences for 
those who would defraud our nation's veterans.
    I am committed to the goal of eradicating fraud in the 
federal contracting system and I have taken the first steps to 
fix this problem. I recently introduced the Service-Disabled 
Veteran-Owned Small Business Procurement Reform Act. This act 
will finally put in place punitive consequences for those who 
attempt to circumvent the law at the expense of our veterans.I 
intend to continue to put strong measures in place to ensure 
that the agencies which contract to veteran businesses are held 
accountable and that all federal veteran business programs are 
properly resources.
    There is another reason why this is important. In light of 
the fraud recently uncovered in the Service-Disabled Veteran 
Program it is difficult to talk about contracting goals being 
met because the data may be flawed. Even when disregarding the 
existence of fraud and abuse in the system the federal agencies 
have not had a favorable history of meeting their contracting 
goals. Agencies' perpetual struggle to meet their contracting 
goals often results in shortfalls as experienced in the 
Service-Disabled Veterans Small Business Program.
    In 2008 service-disabled veteran businesses received only 
1.5 percent of government contracts when they are required to 
receive at least 3 percent. Moreover, the total number of 
veteran owned businesses only received 3.2 percent of 
government contracts. Add to these dismal numbers the GAO 
report on fraud and the Service-Disabled Veteran Small Business 
Program it is clear that we must focus our efforts to fix 
unnecessary barriers in the contracting process.
    In the coming weeks the Small Business Committee will be 
developing legislation to overall all of the SBA's federal 
contracting initiatives. The Contracting and Technology 
Subcommittee will take the lead in formulating that legislation 
and I intend to ensure veteran's needs are considered 
throughout that process.
    Ultimately honoring our commitment to our veterans takes 
more than just saying the right words or even passing the right 
laws. It requires enforcing those laws and ensuring real 
accountability. That is what this hearing is about and that is 
my commitment to our returning service members as they make the 
transition from defending our national security abroad to 
building our nation's economy here at home.
    Now I would like to turn to our witnesses and hear their 
testimony today. We are going to be operating on the five-
minute clock. You will see some lights in front of you on the 
table. It will start out green, it will turn yellow when there 
is a minute left, and then it will turn red when your time is 
up. We can be a little bit lenient with the time so if you have 
a few more things to say and it turns red, don't panic. I will 
give you a little bit of extra time if you need it so don't 
worry too much about that. We just want to make sure everybody 
has an opportunity to be heard.
    I am going to start by introducing our first witness, Mr. 
Kutz, the Managing Director of Forensics Audits & Special 
Investigations at the GAO. The FSI unit investigates waste, 
fraud, and abuse related to government programs. The FSI has 
investigated abuses of Hurricane Katrina relief dollars, border 
security, and federal contracting programs. Mr. Kutz testified 
before the full Small Business Committee recently and has some 
updates to share with us today.
    Mr. Kutz, thank you for joining us.

                   STATEMENT OF GREGORY KUTZ

    Mr. Kutz. Mr. Chairman, thank you for the opportunity to 
discuss the Service-Disabled Veteran-Owned Small Business 
Program. Today's testimony highlights the key elements 
necessary to prevent fraud and abuse in this important program.
    As you mentioned, last November I testified before the full 
Committee on details related to 10 firms responsible for $100 
million of fraud and abuse in this program. According to small 
business owners fraud and abuse in this program has been wide 
spread since its inception. This should not be a surprise. 
Multi-billion dollar self-certification programs serve as an 
invitation to fraudsters across the country to take advantage 
of our government.
    Let me start by saying that there is no system of controls 
that can eliminate fraud and abuse in any program. However, the 
monitor, and in your packet, Mr. Chairman, shows the three key 
elements necessary for an effective fraud prevention program. I 
will discuss these elements from left to right starting with 
prevention.
    Our work across the government has shown that prevention is 
the most efficient and effective way to minimize fraud and 
abuse. For this program prevention means an effective 
certification process to validate the eligibility of firms 
before they enter the program. Key components of this include 
ensuring that owners are, in fact, service-disabled veterans 
verifying self-reported contractor data against third-party 
sources and determining who is controlling and operating the 
firm.
    One method that we use that SBA and VA should consider is 
the unannounced site visit. These surprise visits can reveal 
things such as shell companies or who is actually controlling 
and operating the firm on a daily basis. Further, a properly 
managed and staff certification program should not result in a 
large backlog of legitimate firms waiting to be certified.
    Please refer back to the monitor and your slide to the 
second element, detection and monitoring. Here the focus should 
be on risk-based reviews. This should include looking at firms 
that have received sole source and set-aside contracts. One key 
indicator of fraud is firms with a small number of employees 
and a large number of contracts.
    Firms are required to perform 15 to 50 percent of the work 
with their own employees. However, one of the firms that we 
investigated had only five employees, yet they received 33 
service-disabled contracts across the country for over $7 
million.
    Back to the monitor and the final element of an effective 
program is consequences for those that commit fraud and abuse 
in the program. We are encouraged that there has been activity 
related to the 10 cases that we investigated and I testified on 
last November.
    However, history shows that it is unlikely that anyone will 
be prosecuted for this fraud. Why? Because U.S. attorneys and 
agencies believe that there is no loss to the government. I 
happen to disagree with this view. I believe that when a 
fraudulent firm receives a contract that the entire amount of 
that contract is fraud. This fraud also robs legitimate firms 
not only of the opportunity to do the business but also the 
chance to hire veterans.
    Will anybody be suspended or debarred? Will anybody have 
their contract taken away that they received through fraudulent 
schemes? History shows this is highly unlikely. Until the 
government gets serious about making some poster children of 
those that commitment fraud and abuse in this program, then 
widespread fraud will continue.
    In conclusion, Mr. Chairman, we continue to receive 
numerous allegations of fraud and abuse in this program. We owe 
it to legitimate service-disabled veteran entrepreneurs to make 
sure that they get the benefits of this important program. I 
look forward to working with you and this Subcommittee, VA, 
SBA, and veterans across the country to bring integrity to this 
important program.
    I applaud you today, Mr. Chairman, for your support for 
veterans. That ends my statement and I look forward to your 
questions.
    Chairman Nye. Thank you very much and I appreciate your 
work in uncovering this fraud and the follow-up that you've 
done and being with us here today. I look forward to in the 
question and answer session talking to you in a little bit more 
detail about your recommendations for how we can move forward 
to solve this problem so I appreciate you being here.
    Mr. Kutz. Thank you.
    Chairman Nye. I would now like to introduce Ms. Janice 
Cavolt. Ms. Janice Cavolt is a minority owner of JBC Corp. in 
Virginia Beach. She established the business together with her 
husband Brian who is a service-disabled veteran.
    JBC Corp. provides customized medical trauma kits to 
members of the military and others. Ms. Cavolt is testifying on 
behalf of The American Legion as well, the nation's largest 
veteran service organization.
    Thank you for being with us.
    [The statement of Mr. Kutz is included in the appendix.]

                   STATEMENT OF JANICE CAVOLT

    Ms. Cavolt. Thank you, Chairman Nye. I do appreciate the 
opportunity to be here. I am here today as a member of the 
National Small Business Task Force of the American Legion. It 
is an honor to be here under their cover. As everybody knows, 
the American Legion is the loudest voice a veteran can have on 
their side. If you do not belong, I urge you to do that now. 
Join. Thank you again.
    I am grateful for this opportunity to express my opinion on 
preventing veteran contracting fraud and I'm thankful that the 
government has taken notice and is proposing action to remedy 
the issues that impede the success and growth of service-
disabled veteran-owned businesses.
    I am the wife of a 100 percent rated service-disabled 
veteran. My husband Brian Cavolt served as a Navy Seal and 
Corpsman and retired after 29 years active duty service. 
Together we own and operate JBC Corp., a service-disabled 
veteran-owned small business located in Virginia Beach, 
Virginia. JBC Corp. provides customized medical kits for 
members of the military which are carried and used in all parts 
of the world.
    The findings by the GAO investigation of November 2009 were 
discouraging. However, it did not come as a complete surprise 
to many veteran business owners. The tremendous competition for 
few opportunities cause SDVOSBs to work in the trenches where 
we have a peripheral view of what goes on in federal 
procurement. Awards to eligible firms who are not even having 
the opportunity to bid is one part of the problem. The other is 
the government's blind eye that doesn't see how poorly the 
contracting system is working and the need for an overall.
    In my opinion, the federal contracting system as it 
operates now is wasteful, inefficient, and rewards big business 
at the expense of small business, the taxpayer, and the 
government. It is a system riddled with rules and procedures to 
keep SDVOSBs and other small businesses from competing for 
awards often for their own products or within their field of 
expertise.
    Perhaps the dynamic that is most difficult to comprehend is 
that currently misrepresenting yourself when doing business 
with the government carries no penalty. In fact, under the 
federal acquisition regulations a contracting officer may allow 
continuation of performance if a valid contract still exist. In 
other words, obtaining an award under false pretenses does not 
invalidate the contract. It is encouraging to know that 
Congressman Nye is taking action to introduce legislation to 
address this issue and criminalize the behavior.
    During recent testimony to the Veteran's Affairs 
Subcommittee on Economic Opportunity Joseph Sharpe from the 
American Legion offered the Legion's opinion whereby the VA and 
SBA should develop a comprehensive partnership to assist 
veterans who are interested in participating in federal 
procurement with each department utilizing their resources to 
ensure proper implementation.
    Mr. Sharpe points out that the Center for Veteran 
Enterprise, a program of the VA, currently maintains the 
veteran information pages database. The VIP database has 
established itself as a premier database for veterans in the 
country and is the only federal database focusing strictly on 
veteran businesses.
    Under this recommendation the VA, or the CVE, should 
maintain the database and verify accurate veteran and service-
disabled veteran status and the SBA should retain the 
responsibility for validating the business ownership, size, 
standards, and structural integrity of the business.
    Mr. Sharpe's statement is referenced here and I urge 
everyone in this room to read his statement in its entirety.
    I believe the ability of these two agencies to share 
accurate information that is accessible for verification would 
be the greatest step in addressing the problem of fraudulent 
representation. However, I believe that we must go a step 
further by instituting enforcement at the procurement level.
    Contracting officers should be required to verify the 
status and eligibility of every bidder on any set-aside 
solicitation. Proposals from those who do not qualify should be 
immediately removed from consideration. Misrepresentation 
should be reported to the SBA so that appropriate remedial 
action is taken.
    In summary, I believe the approach to the problem needs to 
be two-fold. First, verification and validation in accordance 
with the guidelines recommended by American Legion and, second, 
there must be enforcement at the point of entry; that is, the 
submission of the bid.
    It is important to recognize the two separate parts of this 
problem. To not segregate the two processes would be like 
asking the U.S. Department of State to be accountable for 
someone who is using a fake passport as identification to get 
through security at the airport. The burden should be on the 
party granting access, not the agency granting legal passports.
    In conclusion, the need to protect business opportunities 
for SDVOSBs is critical to ensure the success and growth of 
their businesses. Although establishing a check and balance 
system will cause an extra step to be taken by SDVOSBs it is 
the only way that set-aside solicitations can be protected.
    However, having said that, caution must be exercised when 
implementing the solution. It is important that the process is 
adapted to protect the service-disabled veteran contracting 
opportunities do not become obstacles that get in the way of 
veterans doing business. Instead, let us make it difficult for 
ineligible businesses to compete. Remember, the veterans who go 
through a process of validation are not the ones breaking the 
rules.
    Thank you very much. I appreciate this opportunity.
    Chairman Nye. Thank you for your testimony.
    I would now like to introduce Cindy Walters, the Director 
of the Hampton Roads Procurement Assistance Center at Old 
Dominion University Business Gateway. The center assist local 
businesses in establishing themselves to bid competitively on 
federal, state, and local government contracts.
    Ms. Walters, thank you for being here. We understand how 
challenging sometimes navigating the procurement system can be 
so we know how valuable your advice is to our local business 
community. I appreciate you taking the time to be with us and 
we are looking forward to hearing your testimony.
    [The statement of Ms. Cavolt is included in the appendix.]

                 STATEMENT OF CINDY M. WALTERS

    Ms. Walters. First, let me thank you, Congressman Nye, and 
the Committee for doing these investigations, having these 
hearings and doing things to assist our service-disabled 
veteran and veteran-owned small business community. We very 
much appreciate that.
    What the GAO report uncovered most importantly in its 
findings was the unacceptable and criminal behavior of those 
who would opportunistically take advantage of service-disabled 
veterans and programs legislated specifically to assist them in 
achieving procurement opportunities with the federal government 
and also in defrauding the taxpayer.
    As long as there are procurement set-aside programs whether 
they be small business, minority, 8(a), veteran, SDVOSB, 
HubZone, or woman-owned business programs with money to be 
gained, there will always be those who are determined to game 
the system.
    Even in the most heavily certified and managed business 
development procurement program, the SBA 8(a) program, there 
are still cases of fraud. We should continue to brace ourselves 
for interest by criminally minded persons and creating 
companies to gather money to them as each federal agency tries 
to increase its goals by billions of dollars to turn those red 
blocks to green blocks on the score card.
    I've been associated with these programs for the majority 
of my career in some form assisting businesses and the 
government to create compliant, successful, federal contracting 
industry partners. I work directly on an almost daily basis 
with veteran and service-disabled veteran-owned small business 
owners.
    Their questions about government procurement, and 
specifically their ability to access acquisitions set aside for 
them are many and varied and illustrate some of the 
complexities that when misused by non-veterans and those 
unscrupulous people make the veteran and service-disabled 
veteran-owned small business very vulnerable.
    Eligibility issues come up frequently such as the 
following. ``I have a service connected disability but have no 
letter from the VA.`` ``I have a letter from the VA but do not 
own the majority of my company.'' ``I have another company who 
has the capital or past performance to help me to compete. Can 
I team with them or do a joint venture?''
    These are the scenarios in which a veteran can become 
caught up unintentionally in what may turn out to be a 
fraudulently executed or awarded federal contract. In these 
instances the veteran may also be the victim as well as the 
government. Then, on the other hand, we have the issue where no 
veteran was involved and the entirety of the process was set up 
to defraud.
    I am not a proponent of another large scale certification 
process management and policing program to add to the very full 
basket of SBA. I do, however, suggest that we could have a 
positive impact on the set-aside program for our veterans by 
perhaps implementing some of these changes I'm going to suggest 
either legislatively or culturally.
    First, those persons and firms who are not veterans and 
fraudulently claim to be so when preparing their certifications 
and reps for federal contracting when found to be doing so by 
any notification or source should be debarred and criminally 
prosecuted. Most likely these persons have intentionally gained 
several other government programs such as those set aside for 
women, minorities, and may also be preying on veteran-owned 
businesses as well at the time.
    These persons and firms may not be new to federal 
contracting and may have in many cases fraudulently worked the 
system for years. For those firms where persons that certify 
themselves as service-disabled veteran-owned small businesses 
but, in fact, are just veterans, they may be referred to the 
appropriate agency like the Center for Veteran's Enterprise for 
training, counseling investigation.
    In those instances we don't want to take veterans who may 
have made a mistake and criminalize them.
    Secondly, and most important, is the federal contracting 
work force should always use its authority to request a pre-
award survey be conducted for each service-disabled veteran-
owned small business set-aside award. Currently a federal 
acquisition regulation, FAR Part 19.1403 the only requirement 
is that each of the service-disabled veteran-owned small 
businesses certify themselves through the certs and reps to be 
such. We should require, and I believe it would be where the 
rubber meets the road, if the contracting officer would utilize 
their authority to request a pre-award survey.
    In this process they should use DCAA and DCMA as needed to 
conduct reviews of control and management documentation. That 
includes eligibility letters, organizing documents, stock 
ledgers, etc., to ensure before the award is made that the firm 
is owned and controlled by that member.
    Thirdly, recognize and respect the skills that the veteran 
business community has in terms of policing their own. Quite 
often times the service-disabled veteran-owned small business 
community will know if another company has reached out or is 
proposing on a contract and know that they are not veteran-
owned or service-disabled veteran-owned.
    If we simply have a way like a form up on the SBA site 
where a veteran can go and report what they believe that they 
are seeing happening, or a resource partner like the PTAC or 
the SBDC can go and report that, then we have a database or a 
place where we are listening to our veteran community and 
letting them and recognizing their skill and policing their 
own.
    And then fourth, and last but not least, we need to 
continue to utilize our network of federal and federally funded 
resources to include the acquisition workforce to continue to 
educate the veteran community on the program, the nuances of 
the program and the requirements of the program.
    As we bring more and more visibility to these programs by 
these types of hearings and by educating the community, the 
more visibility the less cases of fraud that I believe we will 
have. We can't eradicate fraud but we can reduce the amount of 
instances.
    In my conclusion, thank you again for having these hearings 
and thank you for allowing me to testify.
    Chairman Nye. I appreciate you being with us and look 
forward to following up on some more detail with you after we 
hear all the testimony.
    I would now like to introduce Mr. Elton Roller of Greenland 
Enterprises, Inc. based in Hampton, Virginia. Mr. Roller is a 
decorated veteran who served in the U.S. Air Force for nearly 
10 years. In 2008 he founded Greenland Enterprises which 
specializes in design-built mechanical and general construction 
projects.
    Mr. Roller, thanks again for your time this morning and we 
are looking forward to hearing your testimony.
    [The statement of Ms. Walters is included in the appendix.]

                   STATEMENT OF ELTON ROLLER

    Mr. Roller. Thank you, Chairman Nye. Chairman Nye and 
distinguished members of this Committee, it is an honor to 
speak on behalf of veteran business owners about ways we can 
work together to strengthen the SDVOSB procurement program and 
ways of preventing fraud.
    As a small business owner and nine-year veteran of the U.S. 
Air Force I am proud that our federal government has found ways 
to keep veterans serving through entrepreneurial opportunities. 
It is no secret that veteran business owners share a fierce 
allegiance to fellow veterans and often extend employment 
opportunities ahead of their needs.
    In some cases positions are created and extended to 
candidates requiring significant investments and training and 
time. Veteran business owners view this as an inherent duty to 
those who have served. Simply said, veterans hire veterans.
    Procurement strategies like the SDVOSB set-asides 
effectively ensure that veteran entrepreneurs continue this 
culture of offering opportunities, hiring, training, and 
growing the next group of veteran business owners. Recently 
tough economic times and the promise of winning government 
contracts has taken those opportunities from veterans and 
placed them in the hands of fraudulent businesses.
    As most of you know, a recent GAO report sampled 10 SDVOSBs 
and found all 10 lacking the requirements to be eligible to 
participate in the program. This ignorance of the law and 
worse-case example of fraudulent activity can only be 
attributed to several factors including the lack of private 
sector opportunity, oversight of the program by any one agency 
and, most importantly, an absence of significant financial or 
criminal penalties.
    A little bit of background. After serving my country and 
working for two large HVAC manufacturers my entrepreneurial 
passion could only be satisfied by going out on my own. With 
the unwavering support of my family my partner and I 
established Greenland Enterprises in February of 2008. Our 
business became a CVE, Center for Veteran Enterprises, verified 
SDVOSB in July of 2008.
    From the onset we knew that any business venture comes with 
inherent risk but coupled with the worst economic decline since 
the great depression, an uncertain economic future, dwindling 
equity and personal assets, and a banking industry on hold we 
were specially anxious.
    Fortunately for us luck, prayers, and experience prevailed 
as we were awarded several private projects in our first 
federal SDVOSB set-aside contract at the Richmond VA Medical 
Center in September of 2008.
    Some of the challenges we've experienced since then: From 
those anxious moments in 2008 Greenland Enterprises has 
experienced steady growth fueled primarily through federal 
procurements under the SDVOSB program. These opportunities have 
allowed us to establish deep roots in the local and regional 
market place. They have also allowed us to hire veterans both 
as employees and subcontractors and they have enabled us to 
give back to the veteran community.
    The same SDVOSB program that allows a well-managed small 
disabled veteran owned business with good core values to become 
a success story also serves as a haven for fraudulent 
businesses with poor decision making. We experienced this first 
hand in 2009 when a number of commercial contracting firms 
flooded the SDVOSB program with shell companies masquerading as 
small SDVO owned and controlled businesses.
    In our particular instance evidence presented to a 
contracting officer at the time of award clearly established 
affiliation between the awarded SDV and a large business both 
having common ownership.
    Our complaint was summarily dismissed by the contracting 
officer and we were referred to the area SBA representative for 
determination of the alleged offender. The SBA agreed with our 
position but referred the matter back to the awarding 
contracting officer.
    We were advised that we had an opportunity to protest the 
award and ultimately take on a large business to prove what was 
already established is a clear and blatant affiliation between 
parties. With consideration of our financial position, 
uncertainty in getting the award and the backlash that might 
ensue we reluctantly declined.
    After observing other awards made to the same contractor on 
other SDV set-asides I took up the matter with the GAO and they 
referred me to the Inspector General's Office of the 
departmental agency. To date I have not received an update on 
my complaint but did find satisfaction that the Director of 
Government Contracting with the SBA on their own accord found 
that same contractor to be other than small in a protest on an 
unrelated award.
    Justice was eventually served but many verified SDVs were 
denied opportunity through the action of this fraudulent 
company. With the lack of opportunity in the private sector 
more firms will continue to migrate to the federal sector and 
with that the potential for fraud will increase. Until the 
price for noncompliance outweighs the price of compliance, the 
SBA, the GAO, and lawmakers will continue to hear examples like 
this.
    We believe the tool to prevent such actions has already 
been established with the Center for Veteran Enterprises 
verification process and that the timeline for implementation, 
currently 2011, is not soon enough. With the verification 
process in place contracting officers can quickly confirm the 
legitimacy of SDV firms thus making the process of awards more 
efficient.
    Protest of such awards will be reduced and the stigma of 
the GAO report and fraud in the SDV program will diminish.
    Chairman, thank you for the opportunity to share the 
experiences of Greenland Enterprises. I would like to 
personally thank you and this Committee for your commitment to 
veterans and small business. I would also like to take the 
opportunity to remind your colleagues in Congress that small 
business is the lifeline of this country and capitalism. We 
must continue to foster opportunities, have an open dialogue 
such as this with law makers, and take the necessary action to 
put veterans and Americans back to work. Thank you for your 
time and dedicated service to our country.
    Chairman Nye. Thank you, Mr. Roller, and I appreciate your 
comments and appreciate you sharing your personal business 
story with us today.
    I would now like to introduce Mr. George Armbruster and Mr. 
Duke Ingraham, our final witnesses, co-owners of Fleet Services 
and Installation, LLC based in Portsmouth, Virginia. Mr. 
Ingraham graduated from the U.S. Naval Academy and is a 
disabled veteran who served the U.S. Navy for five years. The 
company specializes in the procurement and the installation of 
building materials.
    Mr. Armbruster graduated from the Virginia Military 
Institute. Both started the firm in 2008.
    I'll recognize you each in the order that you're sitting 
here but I recognize you may have individual comments to make. 
We'll start with Mr. Ingraham if you would like.
    Mr. Ingraham. He's going to start.
    Chairman Nye. Okay. Mr. Armbruster will start.
    [The statement of Mr. Roller is included in the appendix.]

                 STATEMENT OF GEORGE ARMBRUSTER

    Mr. Armbruster.Congressman Nye, thank you for allowing me 
to speak on behalf of owners and members of service-disabled 
veteran-owned small businesses throughout the United States. 
This testimony will describe to the Committee the challenges 
service-disabled veteran-owned small businesses are facing due 
to the lack of an enforceable plan and accountability for the 
Executive Order 13360.
    We started Fleet Imports in 2008 and in 2009 we started 
bidding work as a subcontractor to large general contractors 
working on federal construction projects. We bid over 100 
projects to larger GCs but to this date we have only received 
three subcontracts. We know that Executive Order 13360 a 3 
percent goal is in place for prime contracts and subcontracts 
for all SDVOSBs.
    The whole process begins when a large construction project 
is solicited. Very large general contractors are interested in 
pursuing a project. They develop a small business plan that 
they feel will win favor of the contracting officer. These 
large businesses reach out to the small business community 
through Small Business Outreach fairs and take our information.
    Next these general contractors ask us for a price on 
certain scopes of work. They submit their proposals to the 
contracting officers. During the evaluation period a 
contracting officer looks over the proposal and also checks to 
see if a proper small business plan was developed and a general 
contractor is then selected.
    At this point the general contractor finishes up their 
design drawings, the final step in buying out scopes of work or 
subcontracting is the next phase. This is where the problems 
occur. The general contractor will look for the absolute lowest 
price when buying out scopes with little to no regard to 
SDVOSBs.
    Once the project is completed the general contractor will 
have to explain to the contracting officer why they did not 
meet their goals. Time and time again they tell contracting 
officers that they gave it their best effort to find SDVOSBs to 
participate. All these practices are allowed because there is 
no oversight, no accountability, no penalties, and no program.
    We have found that if our price is not the absolute lowest 
bid we will not receive a subcontract to work on government 
projects. For example, last year we bid on a ceramic tile 
subcontract for a large federal hospital near Washington, D.C. 
We were recommended by the GC to the Army Corps of Engineers. 
The Army Corps of Engineers decided that our price was not the 
absolute lowest for the ceramic tile and gave the contract to 
the lowest bidder. We later found out that our subcontract 
price was only 1 percent higher than the lowest bidder, a large 
business.
    The SDVOSB set-aside appears to be totally irrelevant to 
contracting officers and larger general contractors working on 
federal construction projects. This is because there is 
absolutely no oversight or accountability. As the system stands 
now the SDVOSB set-aside program in relation to subcontracting 
is an honor program which very few honor.
    Another frustrating experience was when we tried to work 
for general contractors on foreign embassies for the U.S. State 
Department overseas building operations. We traveled out to 
Alabama to meet with the two largest general contractors 
priming the largest percentage of the foreign embassy projects. 
We were interested in natural stone cladding scopes of work on 
these projects.
    We were told by these GCs that they purchased natural stone 
materials from overseas suppliers and that they used overseas 
labor for installation of cladding. They follow these practices 
because of low foreign labor costs as compared to using 
qualified United States labor. Companies here in the U.S. have 
to follow the Davis Bacon Wage Scale on projects here in the 
United States. They don't have to follow these same labor rules 
while working on foreign embassies.
    One of the general contractors working on a foreign embassy 
project told me that we would have to significantly beat their 
current supplier and labor cost to gain their business. After 
the meeting I spoke with the U.S. State Department over seas 
building operations representative and asked if they were 
required to meet any SDVOSB goals. The representative informed 
me that since the projects were overseas, general contractors 
have no goal requirements for using SDVOSBs as subcontractors.
    This is maddening when you consider that we have 25 percent 
unemployment in the United States construction field. Tax 
dollars are being used on these projects without SDVOSB 
participation. Foreigners are being used to install natural 
stone building cladding on United States embassies.
    Senator John Kerry introduced legislation to advance U.S. 
embassies and consulate design on April 16, 2010. Senator 
Kerry's legislation stated, ``The legislation recognizes United 
States embassies are an important reflection of American values 
of openness, ingenuity, innovation and should reflect the best 
of the U.S. design, architecture, sustainability and technology 
while maintaining security as a top priority. Why are we 
denying our veteran-owned small business the opportunity to 
participate in the construction and security of our 
embassies?''
    To combat the multitude of problems described herein other 
service-disabled veteran firms that have been in the commercial 
business for several years have advised us to give up bidding 
on subcontracts. They claim we should focus on priming jobs 
directly to the federal government.
    Our problem with this advice is that we are emerging into 
the commercial market with valuable experience but still need 
to hone our skills, build a financial base and develop bonding 
capacity prior to taking on a prime contract. There are many 
veterans and service-disabled veterans that will be entering 
the job market in the near future. If any of these individuals 
decides to pursue a career as a entrepreneur in the 
construction field, they will need to gain financial backing, 
bonding, and experience before priming a federal job on their 
own.
    Subcontracting to larger general contractors on federal 
projects will give these veteran business owners opportunities 
to develop into prime contractors. Oversight and accountability 
is critical in any program. Congress needs to end the facade 
and support service-disabled veteran-owned entrepreneurs 
growing small businesses. Congress needs to require all SDVOSB 
firms to become certified through a program instead of self-
certification to avoid fraud.
    Congress needs to require general contractors working on 
federal construction projects to provide the names of qualified 
SDVOSBs that they will be using up front. The responsible 
contracting officer should ensure that stated goals will be met 
before awarding any contract. Additionally, substantial 
penalties should be given on all awarded contracts for 
companies that do not meet these required goals.
    Congressman Nye, we greatly appreciate what you are doing 
for service-disabled veteran-owned business owners and members 
of these companies.
    [The statement of Mr. Armbruster is included in the 
appendix.]
    Chairman Nye. Thank you for your testimony. Actually, if 
you don't mind, I'm going to start with you, Mr. Armbruster on 
the questions because you've raised some interesting topics and 
I wanted to follow up immediately with you on a couple of these 
things.
    It's very clear to me that this is a multi-level problem 
that goes from the point of application or certification all 
the way through the contracting process with various issues 
with the contracting process. There is the fraud element which 
we've got to route out and attack. There is also just the 
question of how contracting officers are approaching these 
contracts.
    What I wanted to ask you was specifically about your 
question about overseas contracting. Can you talk us through a 
little bit? There are some suggestions, I think, we hear that 
smaller firms just aren't able to produce the work and get 
involved in the overseas contracting. Can you help us dispel 
some of the mythology there and just talk us through what the 
capabilities are for small firms who do that kind of work?
    Mr. Armbruster. Sure. Two years ago when we formed the 
company, Duke and I, we import granite and marble and from 
overseas currently. We approached the two largest general 
contractors in Alabama and wanted to see if we could 
subcontract on these foreign embassies. These guys were blatant 
and right in front of us said, ``We use foreign companies 
because of the labor cost and the supply cost.''
    I pursued it again two years later to try and get in front 
of these guys. I don't want to name names. I don't know if you 
want me to name names of these two companies but we submitted 
bids as a subcontract for the cladding of these embassies and 
couldn't get any response back from them. I finally got hold of 
the guys and one of the companies told me that they partnered 
with another company in Turkey.
    If we wanted our bid to even be looked at, that I needed to 
touch base with this company called Inca out of Turkey. I was 
just astounded at the fact that they are not using U.S. labor. 
They are not even interested in talking to us. We spent money 
and effort in putting these proposals together and we're 
getting kicked under the bus so a Turkish company can be 
utilized not only to purchase the materials but also install 
the materials.
    I feel like we have a capable team to get in there and not 
only improve the quality of what's getting done, but also 
improve probably the safety of it and security. We are a 
service-disabled veteran-owned company and we are going to 
approach it the proper way as far as getting the building put 
up, the exterior of the building. I feel like I have faced a 
brick wall with this one.
    Chairman Nye. Okay. You mentioned in your testimony you 
feel like the set-asides for service-disabled small businesses 
is essentially an honor program that very few honor. Tell me 
how do you feel about your reception when you talked to the 
primes or to the actual contracting officer about the rules 
they are supposed to be following.
    Mr. Ingraham. It's frustrating. I mean, the majority of the 
companies that are service disabled the people that are doing 
it right are at a disadvantage. They have to do either 15 or 50 
percent of the labor themselves. These shell companies make it 
very difficult for us to compete with that. It is on the honor 
system and it needs to be verified.
    Chairman Nye. What steps could be take, do you think, that 
would be the most effective in providing you the opportunity to 
compete most fairly for these contract dollars?
    Mr. Armbruster. I mean, I feel like that a system of 
verification not only for the prime contracts that GAO did that 
study on it and found out that there was 10 of them on the 
prime contracts that were fraudulent. But you figure if they 
are even trying to hit on the subcontractor it is supposed to 
be 3 percent service-disabled vet goals, one, you need to find 
out the ones that are being awarded the contract or are they 
just a shell company, are they just asked for, ``Hey, give me 3 
percent of the contract value and you can use my name.''
    Are we competing against that? That would help. I think 
setting out specific goals for the contracting officers to say, 
``Hey, you have to set aside 3 percent of the work and verify 
after the contract has been done is the general contractor 
going to use service-disabled veteran companies.'' Out of the 
119 jobs that we bid last year, we have gotten three. We are 
constantly told that we are not the absolute lowest bidder. I 
have a letter here today from a company that says, ``You have 
to be the lowest bidder.''
    It's just not fair. We can't compete with large business. I 
just lost a job two weeks ago to the Naval Academy to two large 
businesses and we were the lowest small business in there with 
a price but, ``You weren't the ultimate lowest bidder.'' I 
think a plan needs to be developed for the contracting officers 
and an enforceable plan at that. If there's no penalties, these 
guys are going to continue doing the same old things in the 
construction field and we're going to die on the vine bottom 
line.
    Chairman Nye. Okay. I appreciate that.
    Mr. Roller, I want to follow up with you on a couple of 
things you mentioned in your testimony. I'm particularly 
interested to hear in a little bit more detail about your 
interactions with the contracting officer who you were 
essentially routed back to who had made the decision about the 
original award. Can you talk to us about how effective or not 
effective it is to have that be the route of your complaint and 
what can we do to fix that?
    Mr. Roller. I think it comes down to individual contracting 
officers. In this particular case we actually sent evidence 
directly to the contracting officers. It was basically two 
websites that had the two firms who have common ownership. One 
was $100 million plus company. The other one was an SDV small 
business.
    On their websites they actually bragged about the 
affiliation between the two parties. This is a branch of this 
business and our sister company is the $100 million business. 
We sent that directly to the contracting officer which, in my 
opinion, was clear evidence that we have a direct affiliation. 
The word affiliation was even used on the website pages which 
is an absolute no-no. In our opinion that should have dismissed 
that bid right away. I mean, it was clear, it was blatant. It's 
right there in black and white.
    The contracting officer went back to this company and said, 
``Hey, here is what's on the table. Produce evidence to the 
contrary.'' What essentially happened was two days later both 
websites were changed for both companies and the contracting 
officer came back to us and said, ``They appear to me to be an 
SDV business. If you would like to protest, you may certainly 
do so or you can take this up with the area SBA for size 
determination of this SDV,'' which is what we did.
    Chairman Nye. Okay. And where did that go?
    Mr. Roller. After looking at the two websites the SBA said, 
``Absolutely this is a problem.'' It took them several days. In 
the meantime the website was changed. Both of them were 
changed. I even sent another email back to the SBA to say, 
``Both websites have been changed. If that is not another 
indictment of what is going on, I am not sure what else I can 
do here.''
    The SBA came back and said, ``Although it looks legitimate 
that they are not a small business, we are going to refer this 
back to the contracting officer and you need to start there.''
    Chairman Nye. You mean they suggested they would refer it 
back to the contracting officer in the hopes that there would 
be some kind of different outcome this time?
    Mr. Roller. I think in the hopes that we would protest. At 
that point we could have protested but it was actually five 
days after the award. You have five days to protest it. At that 
point we have an SDV that is clearly affiliated with a large 
business that is $100 million plus. We are a small business 
doing, you know, $2 or $3 million a year. Financially our 
resources I just didn't have it to pursue a contract in which 
we were third in place anyway.
    The alleged SDV that was a large business was No. 1. There 
was a second company and then there was us. The second company 
clearly did not want to get involved in protesting. I had a 
direct conversation with the president of that company because 
he did not want to create waves with that particular agency 
since he had already received a number of contracts from them.
    Chairman Nye. Okay. I just want to make sure we highlight 
what options you feel like were available to you to resolve 
this problem in terms of your being a small business. Can you 
describe what kind of a burden does that place on you to have 
to be the one to go after them?
    Mr. Roller. The cliche is you always hear, ``For the price 
of a stamp you can protest this.'' Sure, you can but then there 
are other steps to go through after that. Like most legitimate 
SDVs we've gone through a lot of financial processes here with 
our attorneys and with accountants to make sure we are 
legitimate and then we are by the book.
    Likewise, if I am going to protest something, I would reach 
out to my attorney and say, ``I am getting ready to protest 
this thing. I want to make sure the language is right and I 
want to make sure I'm not doing anything wrong.'' There is a 
cost associated with that. Those are really our options.
    Chairman Nye. Do you believe that the SBA took your 
complaint seriously and that the mechanism just doesn't exist 
for follow-up or where was the breakdown?
    Mr. Roller. In my opinion, and I highlighted this in my 
testimony, the lack of oversight by any one agency, the SBA 
says it is the VA's problem. The VA says it is the SBA's 
problem. The GAO says, ``Both of you have a problem.'' Somebody 
has got to own it and somebody has got to say, ``We verify SDVs 
and the rest of you can use it throughout the federal 
procurement community.''
    The buck has got to stop with somebody be it the VA or the 
SBA, one of the two. Our options in my opinion were to protest, 
go through a lengthy process. Some large businesses, as an 
example, will not protest contractor awards because they do not 
want to reflect badly with the contracting officer. They figure 
other opportunities will come up somewhere down the road with 
this contracting officer.
    In looking at that as a small business when you are out 
there trying to develop relationships, you know, your first 
impression with a contracting officer you don't want to make it 
as protesting an award. That is usually not a good start. In 
this case we felt like what we sent the contracting officer was 
really helping them out to legitimize who they are getting 
ready to make an award to.
    Chairman Nye. And they didn't take advantage of that 
information.
    Mr. Roller. And they did not take advantage.
    Chairman Nye. Okay. Well, I can certainly sympathize with 
the challenges you face. I think you said quite well in your 
testimony that what has to happen is that the price for 
noncompliance has to outweigh the benefit for noncompliance and 
we found in many cases that is not what is happening right now.
    That is a good segue. I want to actually transition over to 
Mr. Kutz. I want to talk to you a little bit about some of the 
things we have learned since your report came out in November 
which highlighted a large degree of fraud within the service-
disabled veteran program and just to reestablish the baseline 
here. Can you talk to us about how you collected the pool, how 
you narrowed it down of the original complaints and then what 
percentage and what do we think that means for the broader 
universe of potential fraud in the system.
    Mr. Kutz. The pool at that time was over a hundred 
allegations we had received through our hotline and others out 
there who are in the industry. We only had time really to do 
10. These are comprehensive investigations. We did surprise 
field visits and other collaboration and corroboration of 
information.
    At the time I testified before the full Committee back in 
November it was 100 plus so we did the 10. Since then we have 
received dozens and perhaps even 100 more from various veterans 
and others who see the same types of things happening because 
there still really is no mechanism to protect legitimate 
veteran firms who are trying to be honest and do the right 
thing in this program.
    That 10 is not a statistical sample. It's not something you 
can project but still I think it is fairly representative of 
the types of things that are going on in this program as we 
speak.
    Chairman Nye. Whether it is statistically valid or not 
accurate, for measuring purposes it's still a hundred percent 
of the ones that you chose to pursue of the complaints 
presented revealed that there was fraud of some kind. Is that 
correct?
    Mr. Kutz. That's correct.
    Chairman Nye. Okay. I want to talk a little bit about the 
slide that you presented to us and I think that is an 
interesting presentation about the various levels of protection 
against fraud including a consequence level to try to help us 
prevent this in the future. Can you just talk to us a little 
bit about where we are currently as opposed to where we ought 
to be on this chart. How big is the gap between those things?
    Mr. Kutz. Well, if this were a marathon we would be in the 
first several miles quite frankly. I think the only place we 
have seen any progress is at the Department of Veterans Affairs 
where you have the certification program that is still in its 
infancy, if you will. They have certified several thousand 
firms. Of course, two of the 10 fraud cases had been certified 
through that process so that is not encouraging necessarily.
    Hopefully they have learned from what we have shown them 
about those firms and have taken that into account. SBA is 
really no where at this point. There has been a lot of talk. 
They still have the bid protest process but in the bid protest 
process eight of the 10 companies that we identified as fraud 
are still in the central contract registry as being self-
certified as service-disabled veteran-owned small businesses.
    When you go outside of the Veterans Affairs Department 
where they are competing for contracts they still appear to the 
contracting officers to be legitimate firms. Like I said, I 
think we are in the first several miles of a marathon and this 
is going to require years of Congressional oversight to make 
this important program right and to make sure the legitimate 
firms are the ones that are getting the work.
    Chairman Nye. What do you think the holdups are on the SBA 
system? Why is it that firms can still be revealing themselves 
in the system if they are under protest without some kind of 
flag? Is that a legal question or is that just a question of 
the execution of the program under the SBA?
    Mr. Kutz. I think one of us mentioned it. The only thing 
SBA has going is their bid protest process. Even when they have 
found firms to be ineligible, they pretty much said to the 
other agencies, ``It is your issue.'' They have not suspended 
or debarred anyone. They don't really kick anybody out of the 
program because, as I mentioned, eight of the 10 that we found 
as fraud are still sitting in CCR as looking like legitimate 
service-disabled firms.
    SBA has got the bid protest thing. Now, they have said with 
bid protest they are now going to tell people they have 30 days 
to get out if they have been found to have an ineligible firm 
and were ruled against or they will be referred to the IG so 
they are trying to put a little bit more teeth in it. For the 
most part SBA is at the starting gate really.
    Chairman Nye. So the SBA essentially refers to the 
enforcement back to the contracting officer as you heard in the 
case of the businesses that are here today and lets them make 
the decision, the same contracting officer that made the 
original award, and essentially puts the onus back on that 
person to decide what to do.
    Mr. Kutz. That is correct. The only difference now we 
understand is they are referring those that don't take 
themselves out of the system to the Inspector General at SBA 
and that has just happened recently, I believe.
    Chairman Nye. Okay. I did ask the Inspector General at the 
SBA in a recent Committee hearing about what actions they were 
taking and she did testify, I believe, that they were taking 
some to prosecution but couldn't comment at the time on the 
details because of the process but we will be following up to 
find out more about that.
    Let us just go back to the contracting officers then 
because that seems to be where the onus is constantly 
returning. What did you find in your investigations in terms of 
the contracting officer's awareness of the law and the problem 
and what methods were available for them to solve it?
    Mr. Kutz. Well, unfortunately, in the 10 cases they were 
well aware of what was going on. In fact, they helped 
facilitate what was going on in some of these cases. They would 
find a large company they wanted to do the work. They would 
help facilitate the front company in some of these cases so 
they new exactly what was going on so they not only were not 
there to prevent what was going on, they were facilitating it.
    I don't think they were always involved in fraud 
necessarily. They were looking to get those requirements you 
mentioned in your opening statement that are so important to 
them that they get the work out and they can score it as a 
small business. That means that the reports you are getting 
back are saying that a certain amount of small business work is 
being done but really there are large international companies.
    I mentioned the one at the hearing last November. It was a 
company from Copenhagen, Denmark doing the janitorial services 
work at a VA hospital in Palo Alto, California. It was an 
outrageous case and that would have been shown to you members 
of Congress as a successful small business service-disabled 
contract.
    Chairman Nye. Can you see any elements of effective fraud 
prevention that are coming online soon that will be helpful in 
moving us towards the goal that you laid out in your slide?
    Mr. Kutz. Certainly at VA they are moving forward with 
their certification process. There have been several thousand 
firms certified but I understand there are many thousands more 
waiting in the queue so the other unintended consequence here 
of the certification program are potentially legitimate firms 
sitting in the queue waiting to be certified for a year or 
more. Now what we have is a negative consequence of trying to 
do the right thing here with the certification program. It is 
just an under-funded program over at the VA.
    They don't have enough resources into this. They have done 
very few site visits so they are still doing a paper shuffle to 
a large extent and I'm not sure they are getting the right 
results in all cases but that is the only place we've seen 
significant progress. Part of that was because they were 
mandated by law to do it. Otherwise there was nothing there. 
Really the hearing you had last November spurred them to really 
kick-start this into action.
    Chairman Nye. Let me follow up on the question about the 
backlog and how much of an impetus that is for folks that want 
to get involved.
    Ms. Walters, can you comment on your experience dealing 
with disabled-veteran business owners trying to get into the 
process, or generally with the broader small business 
community, the backlog now in terms of certification is that 
creating a significant problem as far as you have seen?
    Ms. Walters. Well, as you had indicated, the only 
certification process now is with the VA. It is very 
backlogged. I think if you look at SBAs basket of management 
and policing activities, historically if you looked at things 
like HubZone now created after we looked at that having to go 
out and do site visits. There just are not enough resources, I 
believe, for SBA to actually pull off by themselves another 
certification program for the VA.
    I believe you are correct somewhere a thousand of these 
certifications have been done. We are starting to see as more 
and more veterans are asking to be certified by VA it is 
becoming more and more backlogged. I mean, we are looking at 
potentially 90 days, 120 days. As you put the onus then on the 
folks who are trying to do the right thing, they are losing 
opportunities.
    Then you add the additional variables and getting back--and 
I kind of want to move back to that a little bit and I'm 
sorry--getting back to the contracting officers and where they 
are looking and the CCR registration. The only requirement that 
they have is that a service-disabled veteran-owned small 
business certify themselves to the contracting officer that 
they are that.
    In effect, if they are going to look at CCR and they are 
looking at the certs and reps and they have done that, the 
contracting officer then by law is only required to accept 
that. I think that one of the areas that we really need to push 
back on is the area where the contracts are being let at the 
contracting officer's point. If we can actually do a better job 
of legislating more requirements for the contracting officer to 
have to do before these things get awarded, we may be able then 
to curtail trying to strategize more policing of these things 
after they happen.
    I think, like you said, the certification process like any 
certification process, the HubZone, the 8(a), it just gets 
further and further and further backlogged and it becomes 
frustrating for veterans to have to go through certifications 
when they are trying to do the right thing.
    Chairman Nye. I want to follow up on something you said 
during your testimony about not favoring too many policing 
functions at the SBA that could tend to slow down the process. 
I just want to make sure I understand what you mean about 
trying to find the right balance between putting more onus on 
the SBA in terms of their enforcement and getting back to the 
contracting officer and force to do the job of ensuring that 
the contract recipients actually quality. How do we strike the 
right balance there?
    Ms. Walters. Well, I think if we look historically on the 
set-aside programs that SBA has in their basket where they are 
trying to do the policing, if you look specifically in the 
small business set-aside program, you will see that I would say 
nine times out of 10 the only time that we have an issue where 
a small business set-aside has been given inadvertently to a 
non-small business is when another business protested. It is 
not when we are looking at trying to police it.
    I don't think that the SBA has enough resources in enough 
places to put boots on the ground to do physical site 
inspections of HubZone certifications of now a potentially 
additional service-disabled veteran and small business 
certification.
    I don't think that is where we need to keep pushing on that 
side of the basket when in my opinion where the contract is let 
at the contracting officer who has a tremendous amount of 
authority and judgment to award a contract. They have at their 
disposal DCAA and DCMA to do some of these surveys before they 
let it go out of the door. I think if we push more down into 
that area, maybe then we can begin to strike a balance and we 
just saw it in this instance.
    I don't think only having the contracting officer look at a 
self-certification and say, ``That is enough for me. I am going 
to award the contract.'' And then when it gets out the door 
somebody else can police it. Somebody else can worry about it. 
Veterans are losing opportunities. Okay. And then all of a 
sudden months later somehow it makes a circle back to the 
contracting officer I don't think is the appropriate balance.
    Chairman Nye. You mentioned that in some cases there is 
unintentional fraud involving a veteran who is making best 
efforts to meet the rules. Can you offer some examples of that 
and how big of an issue is that?
    Ms. Walters. Absolutely. I have actually had clients--well, 
first, I can tell you I have large businesses that call me. 
Some of the things that people will say to you is absolutely 
astounding. I have large businesses that will call me and say, 
``I want to do so and so and so and so but I can't. I need a 
service-disabled vet-owned business. Can you hook me up with 
somebody?''
    I have constantly had clients coming and sitting down in my 
office, service-disabled veteran-owned businesses, two-men and 
five-men size businesses, small shops, who say, ``I have been 
working with another company.'' Or, ``I had this company call 
me, a large small business call me, and they want to do a 
teaming agreement with me so I went ahead and did a teaming 
agreement with them.''
    Or, ``I went ahead and started the process of doing a joint 
venture without a lawyer, without any assistance from anybody 
because they said they can bring onboard and help me with my 
capital. They can help me with past performance. All I have to 
do is go out and find some service-disabled veteran-owned small 
set-asides to get involved in.'' I say, ``Can you bring me the 
documents that you signed? What did you do?''
    When I take a look at this stuff, I realize that they have 
been captured exclusively in some agreements that then allow 
the execution of fraudulent contracts to them that now 85 or 90 
percent of the work is really owned by these other companies. 
That is actually, I think, more frequently happening than 
people realize. I see a lot of people coming in the door after 
they have gotten caught up in something.
    Chairman Nye. So, in that case, the veteran-owned business 
may be unaware of the problem but there is a business involved 
in the transaction that knows what it is doing.
    Ms. Walters. Yes. That is when I talk about these are 
companies that probably have gamed the system along the way. 
They have done this with other companies. They have done it 
with minority-owned companies, women-owned companies, wherever 
they can find the ability to get a piece of the pie that they 
can't get elsewhere.
    Now there really are because we do have a focus on 
increasing the goals for service-disabled veteran-owned 
businesses and getting closer to the goal. There is more and 
more money going there. They are now preying on service-
disabled veteran-owned small businesses.
    Chairman Nye. I see what you mean. Do you have contact 
through the course of your work with contracting officers 
themselves?
    Ms. Walters. Absolutely. I talk to contracting officers 
quite extensively.
    Chairman Nye. And can you describe your feeling about their 
level of knowledge and involvement in the problem areas here?
    Ms. Walters. I think from the ones that I've talked to they 
realize that there is a problem but for a contracting officer 
the Federal Acquisition Regulations are the Bible. They go back 
to the FAR and what the FAR states is a self-certifying 
process. I have had instances where I have advocated to them 
that they utilize a pre-award survey.
    I have advocated to them that they listen to folks like Mr. 
Roller when they come and say, by any means, whether it is a 
phone call, a letter, regardless of what time in the process it 
is, whether it is the proposal process or months or years after 
an award is made, if a veteran comes to you and says, ``I have 
a problem and I do not believe that this other company is a 
service-disabled veteran-owned business,'' they should act 
immediately as any of us who are in any type of a federally-
funded type of program. We should take that information and 
really, really investigate it.
    Chairman Nye. Let me ask you generally where on the scale 
of challenges does this kind of thing fall for you and the 
veteran-owned small businesses that you work with and what are 
the greatest challenges that they present to you in terms of 
asking for your assistance?
    Ms. Cavolt, I am going to ask you the same question after 
Ms. Walters answers.
    Ms. Walters. I think their greatest challenge, the most 
questions that I get from them are first off--well, second off, 
how do I access the procurement system and how do I prepare a 
good proposal. First off is, ``How do I make myself a 
legitimate service-disabled veteran-owned small business to do 
federal contracting legitimately?'' ``
    How do I engage with other businesses legitimately to make 
sure that when we go out and we try and garner a set-aside for 
us that we have done it in a legitimate way?''
    Then, thirdly, I get many that come to me after something 
has already happened. ``How do I get out of this joint venture 
or this teaming agreement or this thing that I have done with 
myself and my business that now appears eight months down the 
road that we have done something we shouldn't have done?'' Or, 
``They are mistreating me or not giving me the scope of work 
that they agreed to in a subcontract so that I can meet a 
subcontracting goal for them.'' I think those are the most of 
the challenges.
    Chairman Nye. Okay. Thank you.
    Ms. Cavolt, will you talk about your experience dealing 
with veteran small businesses, what their great challenges are, 
and what is your experience in this area.
    Ms. Cavolt. We have had kind of a dual challenge there. One 
is we are manufacturers. We make very specialized products as 
you are aware. As I had said earlier, we make medical products 
for the military. The military members come to us and they say, 
``This is what we need.'' It is life-saving materials and they 
say, ``This is what we need.'' We say, ``How do you want to 
carry it?''
    We design the bag. It is a very long process. We had one 
that took a couple of years to actually develop. You know, what 
happens, and this is a comment on contracting, but at ECC here 
in Norfolk they want our item. We are in Virginia Beach. We can 
provide it. They actually will ask us for a bid. We give a bid 
and it goes to the contract office. The contract office puts it 
out and goes to a company in Florida. It goes somewhere to a 
business that doesn't even do what we do and we end up going 
through them and it is the only way we can get our products out 
there.
    First of all, it is costing the government anywhere from 30 
to 40 percent on top of what we charge so it is a pretty 
expensive administrative fee. We have asked the contracting 
officers, ``Can you set it aside? Can you do a set-aside?'' 
They will say, ``Well, we don't know if we can get a couple 
service-disabled veterans in this area.''
    Chairman Nye. Is that right?
    Ms. Cavolt. You know, come on. As you know, we are the 
largest concentration of retirees of veterans. Just getting the 
contracting officer to even look at the idea of doing SDVOSBs. 
We do have a company here in town who if a contract comes up 
they have their avenues. They can pull an 8(a). They can pull a 
women-owned business. They can pull SDVs.
    I mean, as an example, I saw some of our products on eMall 
which is a way that the government can purchase products and I 
saw ours. I didn't know who this company was. I also noticed 
that they were marked up about 40 percent but they were over 
the micro-threshold which is the $3,000 limit so they are 
making the sales. The bag is coming from us. It is costing the 
government a lot. We are not getting the past performance so we 
are still back at square one.
    There is a great reluctance of contracting officers. First 
of all, I get the attitude that, ``Yeah, we will do it,'' but 
then the next thing you know it has been awarded to someone 
outside other than a service-disabled veteran-owned small 
business.
    Interestingly I have done a little research in the FARs and 
the requirement is that two businesses, two service-disabled 
veteran-owned small businesses, need to bid on a contract for a 
set-aside. If only one actually returns a bid, they are 
required to award that bid to the one offer. So, you know, it 
gets dismissed all the time.
    You are familiar with some of the experiences that I have 
had just outside of this hearing and I always come back to 
contracting. There is a micro-threshold of $3,000 so they are 
trying to handle everything from $3,000 to $50 million in 
contracting. They are likely to throw a lot of things, you 
know, the fastest way that they can manage it.
    Like you said, they want to hit their scores so they are 
just opening the book, ``Okay, let us pick that one.'' You 
know, as Mr. Roller said, he didn't have the resources. I am 
sure that included time as well. As a small business you are 
working 24/7 it seems and that is just to keep things moving so 
it is difficult.
    Just one other thing I would like to mention is sometimes 
when you do go up against large businesses, you mentioned about 
being concerned about getting blackballed, so to speak, within 
a contract office. We have had these large businesses come 
after us legally and try to sue us for some trumped-up idea and 
we always get it thrown--you know, it doesn't get very far but 
it is intimidation.
    Chairman Nye. Ms. Walters, can you comment on your feelings 
on that? We are in a very heavy military area. We have a lot of 
military contracting officers in this area that are contracting 
out work on a day-to-day basis. Can you talk a little bit about 
your work with those contracting officers and how you feel they 
approach local businesses and their awareness of the service-
disabled business community here.
    Ms. Walters. First let me say that I do believe that the 
Federal Acquisition Work Force is under-resourced. The 
contracting community over the years has gone through several 
different cycles. We went through a time when we had a lot of 
bundling of contracts where a contracting officer may be 
required to spend time on five contracts.
    Then that did not provide enough opportunity for small 
businesses so we went through a cycle of unbundling so that 
small businesses could receive contracts. You could have a 
contracting officer trying to manage 80 to 100 various 
contracts.
    All of the contracting officers that I have spoken with, or 
that I work with, are very well aware of the goals and 
requirements of their Department to meet for service-disabled 
veteran-owned small businesses. There are several different 
councils like the Tidewater Government Industry Council where 
actual contracting officers sit with industry representatives 
and talk about these type of issues regarding in-sourcing, out-
sourcing.
    That is a big issue right now among small businesses. I 
think they are very well aware that service-disabled veteran-
owned small businesses exist. It is always astonishing to me 
when there is a sources sought put out for service-disabled 
veteran-owned small businesses to respond to before a 
contracting officer will set aside something to ensure that 
there are at least two out there.
    I do see a lot of service-disabled veteran-owned small 
businesses responding and then when the procurement comes out 
it is actually not set aside. I have seen that probably more 
often than I would like to see that. Then I never know what 
happens behind the scene whether there is a change in the 
funding or budget to that agency for the programs, whether or 
not they decided that they have met a goal and are now pushing 
away from that particular goal onto another one. I don't know 
what goes on behind the scenes.
    Chairman Nye. Can you just mention--I want to note that the 
SBA recently designated your center as a veterans business 
outreach center. What does that do in terms of your abilities 
and resources for the coming years? What kind of additional 
capabilities will you have?
    Ms. Walters. We actually are looking at four different 
areas that we are going to increase the scope of opportunities. 
The first being, and one that is really important to me, is a 
mentor protege program. Fortunately our partner, the Hampton 
Roads Service-Disabled Veteran-Owned Small Business Council, 
which Mr. Roller is part of, as others are here in the room, 
they are a large council organization of very reputable 
service-disabled veteran-owned small businesses.
    They have come on board with the idea to assist in creating 
a mentor protege program here in the local area where when we 
have folks that come in the door we can then vet them and marry 
their companies up with the appropriate person in their 
industry and their companies will mentor them. I think that is 
something that we would not be capable of doing if we didn't 
have the outreach center. That is a number one priority for us.
    Chairman Nye. Great. I appreciate you mentioning that. I 
wanted to highlight that. I also want to note that I have 
heard, not just today, but a number of local small veteran-
owned businesses that we can put a lot of effort into mentoring 
and providing resources for help with understanding the 
contracting process.
    At the end of the day if the process is broken, there is a 
big problem that we still need to fix. Thank you for continuing 
to do your work on that and for being here to highlight the 
challenges that are beyond what you can do in your day-to-day 
capacity in terms of being an adviser to our small businesses 
and how to approach the system.
    Mr. Kutz, I want to actually just get back to another 
question that you mentioned, that at the end of the day it 
comes down to the consequences side of the equation. If there 
are none, clearly that provides a strong lack of disincentive 
for businesses and business owners to take advantage of the 
system and defraud our veteran-owned small businesses.
    I wanted you to tell us a little bit about some 
consequences that you think would be useful in terms of 
applying here. I want to note also the bill that I mentioned in 
my opening statement that I proposed we provide for criminal 
prosecution for any business owners that knowingly take 
advantage of the system and defraud our veterans but can you 
tell us kind of what the range of consequences looks like and 
give us kind of a guideline that we could follow.
    Mr. Kutz. Right. First of all, the contracts that they get 
through fraudulent means should be taken away. Certainly future 
options from those should be taken away. Companies should be 
decertified or somehow taken out of CCR and any place else that 
would give them any level of credibility as a service-disabled 
veteran-owned small business, and then up the scale to 
suspension meaning that they couldn't get future work, 
debarment which is typically a longer term process but can also 
result in a longer-term denial of future federal work.
    As you mentioned, the prosecution, as I mentioned in my 
opening statement, if you don't have any poster children of 
people who pay consequences at the end of the day for fraud, 
then people will continue to try to game the system because 
they don't believe there is any chance of getting caught.
    Let me give you an example. One of our cases was the person 
wasn't even a service-disabled veteran. They got $7.5 million 
of FEMA contracts for Katrina and their attorney advised them 
to lie because there was little or no chance of getting caught. 
Even if they got caught, nothing would happen. As it turns out 
so far, that attorney is correct.
    Chairman Nye. Clearly that is something we've got to 
change. Can you talk a little bit about other programs and how 
does the fraud that you uncovered in the service-disabled 
program compare with levels that you might find in 8(a) or 
HubZone programs? I'm trying to establish in relative terms how 
rampant is the fraud in the service-disabled program.
    Mr. Kutz. It is probably more rampant in this than the 
other two just because this is a complete self-certification 
program, although we can't project that. Based on the 
allegations we are getting on our hotline and other indicators 
it would seem to be more prevalent. One common thing that we 
have talked about, and Michael has talked about with me also, 
Michael Day, is this pass-through is common amongst this 
program where you have some sort of a front organization and 
the work is getting passed through to a large business. We have 
seen that happening in the HubZone, 8(a) and service-disabled 
veteran. I think from a prevalence standpoint if I were to 
guess, and that is all I can do is guess because I don't know 
for sure, I expect that the fraud rate is higher in this 
program.
    Chairman Nye. I want to offer to our businesses testifying 
today an opportunity to comment on how they have interacted 
with any of the services through the American Legion or the 
procurement assistance center here. If you have any experience 
with that you would like to share, I would be happy to hear 
that at this setting. Or advice for things that you think would 
be helpful to us to have locally in the future that could help 
businesses like you do better.
    I also want as an open-ended opportunity to offer you a 
chance to comment on anything you have heard from the other 
folks at the table and provide any additional thoughts about 
ways we could improve the accountability in this system.
    I would also offer an opportunity if you want to comment on 
our proposal about prosecution of folks for taking advantage of 
the system. Mr. Roller.
    Mr. Roller. I would like to start out by saying the 
testimony that Ms. Walters gave earlier about legislation at 
the contracting officer level, that comes with a two-edged 
sword. Putting more responsibility on the contracting officers 
is a good step. However, they are already overtaxed with the 
amount of work they are doing.
    Outside of the Department for Veterans Affairs if you place 
more responsibilities, more workload on contracting officers, 
they may in turn set fewer projects aside as SDV set-asides 
because the amount of workload that goes with that and, in 
turn, look at HubZone or 8(a)s which requires a little bit less 
work or even large business that requires even less work. I 
just want to be careful of that.
    As far as locally the Veterans Outreach Center with HRPAC 
is absolutely needed in this area. Again, when I started my 
business we sought counsel with our attorneys to make sure we 
were legitimately putting things together and that we were not 
in violation of any regulations. That comes with a cost and on 
average that is anywhere from $5,000 to $10,000 to $20,000 
depending on what type of business you are getting into.
    It is certainly a resource to start off with to say how 
would you go about putting together an SDV business. Or, ``I am 
an SDV. How can I get my business certified through the program 
and what are some of the legal steps I need to take?'' would 
certainly save you some money with one of these outreach 
programs.
    Also, the discussion of bonding, finances, banking, all 
those things are needed with small SDVs just getting started 
and the resources are limited. A lot of times small SDVs turn 
to large business as mentors in helping them get started or 
even some other small businesses. Sometimes that is how they 
end up with some of these team agreements that don't meet the 
Federal Acquisition Regulation guidelines.
    The small business SDV owner feels he owes it to somebody 
to get some contracts with them because they helped them get 
started in the business. I can certainly see how that can come 
about. The outreach is definitely the first place to start here 
locally.
    Chairman Nye. Okay. Thank you.
    Mr. Ingraham. I would have to agree 100 percent. The 
outreach program and also the Service-Disabled Veteran-Owned 
Small Business Council is a nice avenue that is partnering with 
Ms. Walters also. I think that is a great step forward for 
helping veterans that have an idea that want to take it to the 
next step and how they do it properly.
    Chairman Nye. Thank you for mentioning that. I want to take 
the opportunity also to congratulate the Service-Disabled 
Veteran-Owned Small Business Council locally for all the work 
that they have been doing. I really appreciate that. I note 
that there are some other members of the council here present 
in the audience today with us so thank you for everything you 
have been doing.
    I want to offer the opportunity now for any of the folks at 
the table here to add any comments that they would like that I 
didn't ask about or if there is any follow-up comments anybody 
wants to make sure to add into the record before we close. I 
just want to make sure I didn't miss giving everybody the 
opportunity to say everything they felt like they wanted to 
say.
    Mr. Kutz. Mr. Chairman, I have a couple of things I will 
mention to you.
    Chairman Nye. Yes, Mr. Kutz.
    Mr. Kutz. I think your legislation is a good step with 
respect to prosecution. I think it wouldn't hurt, too, for the 
Committee to work with the Department of Justice to try to make 
it a priority for U.S. Attorneys across the country to take at 
least a few cases a year. We are hopeful that a couple of these 
10 will make it to a U.S. Attorney. We have some hope in Idaho, 
for example, one of our cases may make it to grand jury for 
indictment.
    Just a couple of cases a year even though they may not be 
big priorities for DOJ and the U.S. Attorneys would be helpful 
just to send a message again and you could help publicize those 
cases that this behavior is not something that should be 
tolerated and it will not be accepted.
    Also, I just want to update you. Of these 10 companies 
again subsequent to your hearing in November of last year five 
of them have received another $5 million of new obligations 
related to new service-disabled set-aside and sole-source 
contracts so they are still in there and they are still getting 
more contracts fraudulently.
    They also got another $10 million of 8(a) and other 
contracts subsequent to your hearing. To add insult to injury, 
they have received millions of dollars of Recovery Act 
contracts so you can see the consequences of not being 
suspended or debarred they are going to continue to be out 
there and who knows what other kinds of frauds they have 
perpetrated against our government related to these various 
things.
    The last thing I would say to the Subcommittee and the full 
Committee is to continue your oversight of these small business 
programs because it is important if you are supporters of these 
programs you have to be supporters of the integrity of these 
programs to make sure that the right people are getting the 
business.
    I believe taxpayers for the most part will support these 
programs but not if the integrity issues that keep coming up 
happen. I think they want the business to go to veterans in 
these cases. Certainly your continued oversight of this I think 
is a positive step to keep the pressure because sunshine on 
dark places actually helps.
    Chairman Nye. I appreciate that. Thank you, Mr. Kutz and 
thank you for taking the effort to look into those 10 cases 
that you did. You have revealed to us a level of detail which 
is useful to us in terms of making some changes to help prevent 
this in the future.
    Clearly it is inexcusable that since we brought this to 
light through your report last November five other companies 
found to have perpetrated fraudulent behavior have continued to 
receive contracts. This just underscores the fact that there is 
no enforcement mechanism present that actually works.
    What we want to get to here at the end of the day is an 
accountable system whereby taxpayers can trust that the money 
that they have agreed to set aside for our service-disabled 
veteran-owned small businesses is actually going to legitimate 
service-disabled small businesses for them to be able to do the 
work they do.
    As Mr. Roller mentioned in his testimony, vets hire vets. 
One of the great values of this system is when we make sure 
that a certain level of contract dollars go to veteran-owned 
businesses we know that they will in turn higher other 
veterans. That is a proven benefit to our veteran community, to 
those who have served our country in uniform.
    It is a benefit that I think taxpayers agree with doing but 
we owe it to the taxpayers as members of Congress to make sure 
that those taxpayer dollars are being used for the program as 
intended. I think we owe it to the service-disabled veteran 
community to make sure we do the investigations that shed light 
on whether the numbers the agencies are providing us are 
accurate or not because when they complain to us that there are 
some problems in the system and we go find that the numbers 
aren't right, we realize they are absolutely correct in the 
complaints that they raise with us.
    It is incumbent upon us, of course, to make sure to 
continue to practice that oversight and to make the legislative 
changes that we need to make to solve the conundrum that Mr. 
Roller so aptly described in his testimony today whereby the 
price of consequences is so low in terms of perpetrating fraud 
that there is no disincentive in the system right now to 
prevent unscrupulous business owners from defrauding our 
veterans and that is something we are going to change.
    I appreciate you taking the time to come be with us, Mr. 
Kutz, to the GAO for looking into this.
    And Ms. Cavolt and Ms. Walters for the efforts that you do 
through your organizations to help our veteran community 
approach business issues and help them navigate the often 
complicated world of government procurement. And to our 
business owners for taking the risk and the effort to go out 
there and make things happen in the local economy and do 
business and create jobs and economic growth.
    We appreciate the challenges you face. We are going to do 
what we can to help make this playing field as fair for you as 
possible and as transparent as possible. Again, I want to say 
thanks to the other members of the audience who came to be with 
us today, especially the other members of the small business 
community, the service-disabled veteran community particularly 
for all the work that they do every day to help grow our local 
economy.
    With that I want to thank everyone for their testimony and 
I will go ahead and adjourn this meeting.
    [Whereupon, at 11:11 a.m., the Subcommittee was adjourned.]

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