[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
                  FOLLOW-UP ON THE U.S. DEPARTMENT OF 
                   VETERANS AFFAIRS SERVICE-DISABLED 
           VETERAN-OWNED SMALL BUSINESS CERTIFICATION PROCESS 

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

                                HEARING

                               before the

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                  AND

                  SUBCOMMITTEE ON ECONOMIC OPPORTUNITY

                                 of the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 30, 2011

                               __________

                           Serial No. 112-35

                               __________

       Printed for the use of the Committee on Veterans' Affairs


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                     COMMITTEE ON VETERANS' AFFAIRS

                     JEFF MILLER, Florida, Chairman

CLIFF STEARNS, Florida               BOB FILNER, California, Ranking
DOUG LAMBORN, Colorado               CORRINE BROWN, Florida
GUS M. BILIRAKIS, Florida            SILVESTRE REYES, Texas
DAVID P. ROE, Tennessee              MICHAEL H. MICHAUD, Maine
MARLIN A. STUTZMAN, Indiana          LINDA T. SANCHEZ, California
BILL FLORES, Texas                   BRUCE L. BRALEY, Iowa
BILL JOHNSON, Ohio                   JERRY McNERNEY, California
JEFF DENHAM, California              JOE DONNELLY, Indiana
JON RUNYAN, New Jersey               TIMOTHY J. WALZ, Minnesota
DAN BENISHEK, Michigan               JOHN BARROW, Georgia
ANN MARIE BUERKLE, New York          RUSS CARNAHAN, Missouri
TIM HUELSKAMP, Kansas
MARK E. AMODEI, Nevada
ROBERT L. TURNER, New York

            Helen W. Tolar, Staff Director and Chief Counsel

                                 ______

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                      BILL JOHNSON, Ohio, Chairman

CLIFF STEARNS, Florida               JOE DONNELLY, Indiana, Ranking
DOUG LAMBORN, Colorado               JERRY McNERNEY, California
DAVID P. ROE, Tennessee              JOHN BARROW, Georgia
DAN BENISHEK, Michigan               BOB FILNER, California
BILL FLORES, Texas

                  SUBCOMMITTEE ON ECONOMIC OPPORTUNITY

                 MARLIN A. STUTZMAN, Indiana, Chairman

GUS M. BILIRAKIS, Florida            BRUCE L. BRALEY, Iowa, Ranking
BILL JOHNSON, Ohio                   LINDA T. SANCHEZ, California
TIM HUELSKAMP, Kansas                TIMOTHY J. WALZ, Minnesota
MARK E. AMODEI, Nevada

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
published in electronic form. The printed hearing record remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing record, the process 
of converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.




                            C O N T E N T S

                               __________

                           November 30, 2011

                                                                   Page
Follow-Up on the U.S. Department of Veterans Affairs Service-
  Disabled Veteran-Owned Small Business Certification Process....     1

                           OPENING STATEMENTS

Chairman Bill Johnson, Subcommittee on Oversight and 
  Investigations.................................................     1
    Prepared statement of Chairman Johnson.......................    37
Hon. Joe Donnelly, Ranking Democratic Member, Subcommittee on 
  Oversight and Investigations, prepared statement of............    39
Chairman Marlin A. Stutzman, Subcommittee on Economic Opportunity     3
    Prepared statement of Chairman Stutzman......................    38
Hon. Timothy Walz, Democratic Member, Subcommittee on Economic 
  Opportunity....................................................     3
Hon. Bruce L. Braley, Ranking Democratic Member, Subcommittee on 
  Economic Opportunity, prepared statement of....................    39

                               WITNESSES

Thomas J. Leney, Executive Director, Small and Veteran Business 
  Programs, Office of Small and Disadvantaged Business 
  Utilization, U.S. Department of Veterans Affairs...............     5
    Prepared statement of Mr. Leney..............................    40

    Accompanied By:

      John H. ``Jack'' Thompson, Deputy General Counsel, Office 
          of General Counsel, U.S. Department of Veterans

Gregory D. Kutz, Forensic Audits and Investigative Service, U.S. 
  Government Accountability Office...............................    27
    Prepared statement of Mr. Kutz...............................    42
Ralph O. White, Managing Associate General Counsel for 
  Procurement Law, Office of General Counsel, U.S. Government 
  Accountability Office..........................................    29
    Prepared statement of Mr. White..............................    46

                       SUBMISSIONS FOR THE RECORD

Steve L. Gonzalez, Assistant Director, National Economic 
  Commission, American Legion....................................    50
Robert G. Hesser, Vetrepreneur, LLC, Herndon, VA.................    53


                  FOLLOW-UP ON THE U.S. DEPARTMENT OF
                   VETERANS AFFAIRS SERVICE-DISABLED
           VETERAN-OWNED SMALL BUSINESS CERTIFICATION PROCESS

                              ----------                              


                      WEDNESDAY, NOVEMBER 30, 2011

           U.S. House of Representatives,  
                  Committee on Veterans' Affairs,  
         Subcommittee on Oversight and Investigations and  
                      Subcommittee on Economic Opportunity,
                                                    Washington, DC.
    The Subcommittees met, pursuant to notice, at 10:07 a.m., 
in Room 334, Cannon House Office Building, Hon. Bill Johnson 
[chairman of the Subcommittee] presiding.
    Present from Subcommittee on Oversight and Investigations: 
Representatives Johnson, Donnelly, and Barrow.
    Present from Subcommittee on Economic Opportunity: 
Representatives Stutzman, Bilirakis, Amodei, and Walz.

    OPENING STATEMENT OF CHAIRMAN JOHNSON, SUBCOMMITTEE ON 
                  OVERSIGHT AND INVESTIGATIONS

    Mr. Johnson. Well, good morning. This hearing will come to 
order.
    I want to welcome everyone to today's follow-up hearing on 
the VA's service-disabled veteran-owned small business 
certification process.
    I thank the Members of the Subcommittee on Economic 
Opportunity for their participation today and their efforts in 
improving the process for veteran-owned and service-disabled 
veteran-owned small businesses to do business with the VA.
    In July, we held a hearing on this certification process. 
And at that time, Mr. Tom Leney was relatively new to his 
position as the executive director of Small and Veteran 
Business Programs at VA's Office of Small and Disadvantaged 
Business Utilization commonly referred to as the OSDBU.
    At that hearing, we promised a follow-up discussion with 
Mr. Leney to see how his planned improvements for the process 
and certifying veteran-owned small businesses had been 
implemented after several months.
    Today is that follow-up. I look forward to hearing of the 
progress made toward achieving these goals and how much longer 
it will be until the goals are finally realized.
    I also have concerns regarding recent actions taken by the 
VA's senior procurement executive in response to the recent GAO 
Aldevra decision which states that the VA should make efforts 
to contract with veteran-owned small businesses when feasible 
and in accordance with the Veterans First Contracting Program.
    GAO recently upheld a bid protest filed by the Aldevra 
business on a VA contract and recommended that VA rebid that 
contract. Despite clear legislative and committee report 
language outlining the intent of the Veterans First Contracting 
Program, the VA decided that GAO's decision would not apply to 
its contracting operations and that it would continue as it 
pleased, doing away with the preference for VOSBs and SDVOSBs 
in much of its contracting.
    The VA has made it clear in correspondence and meetings 
following the Aldevra decision that it has no intention of 
attempting to clear up its own questions about Veterans First. 
Despite acknowledging the problem, the VA is not trying to 
solve the problem nor did it even ask Congress or this 
committee those questions that needed to be answered years ago.
    Even after the Aldevra decision and the VA's response, 
efforts by these two Subcommittees to help explain parts of the 
new law that the VA had trouble understanding several years 
after its passage were met with a lack of cooperation on the 
VA's part.
    Instead the VA is determined to run this through the court 
system eliminating key opportunities for VOSBs to contract with 
the Federal Government.
    When the VA cannot or chooses not to implement clearly 
written legislation, we have a problem. This is not rocket 
science. The Veterans First Contracting Program exists to help 
the VA set the standard in Federal Government contracting with 
VOSBs and SDVOSBs.
    With Congress and the Administration sharing a goal of 
increasing contracting with VOSBs and SDVOSBs, the Veterans 
First language facilitated the achievement of that goal.
    The law contains clear wording on how the VA can achieve 
that goal while simultaneously helping our veterans do business 
and not hindering the VA in its contracting efforts.
    With straightforward language such as the secretary shall 
give priority to a small business concern owned and controlled 
by veterans, it is difficult to understand the VA's failure to 
correctly interpret this law which also provides reasonable 
accommodations when a VOSB or SDVOSB cannot fill the need.
    We need to get this right. The certification process must 
ensure that VOSBs and SDVOSBs are efficiently processed and 
certified. We then must ensure that these same businesses are 
able to compete for the appropriate contracts. Otherwise, there 
is no point in having these businesses in the system if the VA 
is going to ignore them.
    I look forward to today's testimony on improvements made in 
the certification process since our last hearing and the 
further improvements we can look forward to in the near future. 
I also look forward to discussion on how we can make the actual 
contracting system with VOSBs and SDVOSBs work as it is 
intended.
    I am, however, disappointed that the VA's testimony barely 
touches on the Aldevra topic despite knowing for 30 days that 
it would be a part of this hearing. This is no surprise to 
anyone.
    And since the VA's October meeting with committee staff, we 
have seen no great effort on the VA's part to improve this 
situation.
    I now yield to the acting Ranking Member, Mr. Walz, for an 
opening statement.

OPENING STATEMENT OF HON. WALZ, DEMOCRATIC MEMBER, SUBCOMMITTEE 
                    ON ECONOMIC OPPORTUNITY

    Mr. Walz. Well, thank you, Mr. Chairman, and to our 
witnesses for coming today, for holding this joint hearing. I 
believe this follow-up hearing deserves this Committee's full 
attention.
    And because small business concerns do overlap into the 
jurisdiction of Oversight and Investigation, we are certainly 
happy to work with the Economic Opportunity Subcommittee to 
ensure proper oversight.
    The tough economic times that we are in make it as 
important as ever to properly address transparency, 
programmatic policy concerns, and thoroughly review the 
service-disabled veteran-owned small business or SDVOSB 
certification process. Providing contracting opportunities to 
our deserving veterans through this process is important.
    But when you have a successful program such as the VA's 
Small Business Contracting Program and you are awarding 
millions of dollars, it potentially attracts unqualified 
businesses whose intentions are unfortunately to commit fraud. 
This is why it is as important as ever for the VA to implement 
and enforce fraud prevention measures.
    During this joint hearing, I look forward to look at the 
following things: An overview of the VA's preventative measures 
and monitoring controls to minimize vulnerability or fraud; 
VA's disbarment procedures; staff training to identify and 
monitor potential fraud; VA's verification process such as how 
they verify SDVOSBs; and the process of conducting announced 
site visits.
    These are just some of the items I have on today's agenda. 
I believe that unless we remedy these concerns, the same 
problems that have haunted this really important program and 
the problems with verification will remain.
    I want to thank you, Mr. Chairman, for your leadership and 
I yield back.
    Mr. Johnson. I thank the gentleman for yielding back.
    I now yield to the chairman of the Subcommittee on Economic 
Opportunity, Chairman Stutzman, for his opening comment.

 OPENING STATEMENT OF HON. STUTZMAN, CHAIRMAN, SUBCOMMITTEE ON 
                      ECONOMIC OPPORTUNITY

    Mr. Stutzman. Thank you, Chairman Johnson.
    First, let me express my appreciation for offering to join 
forces on enabling service-disabled veteran-owned small 
businesses to compete for contracts with the Department of 
Veterans Affairs.
    Let me begin by adding some context to why we are here 
today. In 1999, the President signed legislation that became 
Public Law 106-50 which established a government-wide goal for 
all Federal agencies to award 3 percent of their contract 
dollars to small businesses owned and controlled by service-
disabled veterans.
    Until that time, there was no goal for service-disabled 
veteran-owned small businesses or SDVOSBs. Since then, there 
have been several laws and an executive order that made it 
clear that Federal agencies are to make every effort to award 
at least 3 percent of their acquisition dollars to service-
disabled veteran-owned small businesses.
    This legislative effort has continued with the passage of 
two laws that established and reinforced Section 8127 of Title 
38 to provide VA with special tools and priorities to meet and 
hopefully exceed the 3 percent goal.
    By most indicators, the intent of Section 8127 has been 
met. But meeting the 3 percent goal is not the sole intent of 
Section 8127. Another goal is to establish a database of 
validated veteran and service-disabled veteran-owned small 
businesses that any government agency can access as part of 
their efforts to meet the 3 percent goal. And that is why there 
are still significant problems.
    Today, VA data shows contract awards exceeding 20 percent 
and I congratulate them for that effort. However, the process 
in achieving those numbers has been painful at best. Until 
recently, implementation of the database of validated veteran 
and service-disabled veteran-owned small businesses required by 
Public Law 109-461 has been less than professional to put it 
kindly.
    The VA is still recovering from its initial reluctance to 
implement the law. Its policy of allowing self-certification of 
ownership and control status instead of actively performing the 
validation function prescribed in the law was frankly a 
disaster.
    As a result, as we will hear today, millions of contract 
dollars went to businesses that did not meet the veteran or 
disabled veteran-owned and controlled status.
    I also find VA's recent decision to ignore GAO's finding in 
favor of a protest by Aldevra, a service-disabled veteran-owned 
small business, as evidence of a continuing reluctance to fully 
embrace the clear requirements of Section 8127.
    The law does not require VA to set aside all contracts for 
SDVOSBs or award all contracts to SDVOSBs. More importantly, 
nowhere in Section 8127 is there a provision exempting 
acquisitions using the Federal supply schedule.
    If nothing else, setting aside contracts using the FSS will 
provide VA contracting officers additional flexibility in 
meeting the SDVOSB goals.
    Let's assume for the moment that those who believe the 
provisions of Section 8127 go too far and that they give too 
much advantage to SDVOSBs are correct. To those, I would point 
out the literally dozens of Federal agencies who continue to 
fail miserably to meet even the 3 percent goal.
    For example, DoD, the largest department in the Federal 
Government, awarded only 1.82 percent to SDVOSBs in fiscal year 
2010. I suspect DoD could do better if they limited janitorial 
awards to those SDVOSBs in that business. So if VA is picking 
up part of the slack for the rest of the Federal Government, so 
be it.
    Finally, my staff and I have been hearing with increasing 
frequency that many legitimate SDVOSBs are having an extremely 
difficult time being validated and several have even had to 
close down as a result.
    While I understand that verification rules must be enforced 
to ensure non-SDVOSBs are kept out, there must be a balance. I 
am interested to hear from Mr. Leney about how he can better 
strike this balance and expedite reconsideration for many of 
these small businesses.
    I am also concerned about what happens to the very dubious 
arbitrary decisions to deny status to businesses by contractors 
hired to validate the ownership and control status. And I 
suggest that may be as a result of a lack of clear regulations 
on things like survivorship and conflicts with state laws.
    Thank you, Mr. Chairman, and I will yield back.
    Mr. Johnson. Thank you, Mr. Chairman, for being here.
    I thought we were going to have a statement from your 
Ranking Member from your Subcommittee, but I think he is not--
--
    Mr. Johnson. Yeah.
    Mr. Johnson. Okay. Well, thank you both, for both 
Subcommittees' participation.
    And I now invite the first panel to the witness table. On 
this panel, we will hear today from Mr. Tom Leney, the 
executive director of Small and Veteran Business Programs at 
VA's Office of Small and Disadvantaged Business Utilization.
    Mr. Leney, your complete written statement will be made a 
part of the hearing record and you are now recognized for five 
minutes.

  STATEMENT OF THOMAS J. LENEY, EXECUTIVE DIRECTOR, SMALL AND 
 VETERAN BUSINESS PROGRAMS, OFFICE OF SMALL AND DISADVANTAGED 
   BUSINESS UTILIZATION, U.S. DEPARTMENT OF VETERANS AFFAIRS 
   ACCOMPANIED BY JOHN H. ``JACK'' THOMPSON, DEPUTY GENERAL 
COUNSEL, OFFICE OF GENERAL COUNSEL, U.S. DEPARTMENT OF VETERANS 
                            AFFAIRS

    Mr. Leney. Thank you, Chairman Johnson, Chairman Stutzman, 
Ranking Member Walz, and Members of the Subcommittees.
    I want to thank you for inviting me to testify on the VA's 
implementation of veteran-owned small business provisions in 
the Veterans Benefits Health Care Information Technology Act of 
2006 and the Veterans Benefit Act of 2010.
    I would like to briefly summarize my statement for the 
record so we can address your questions and concerns.
    The Vet First Program enables the VA to provide preferences 
to veteran small businesses. VA has used this program to lead 
the Federal Government in contracting with veteran small 
businesses.
    In the last fiscal year, the VA awarded more than $3 
billion to veteran firms. The VA far exceeded the procurement 
goals of 3 percent for SDVOSBs. We also exceeded the higher VA 
goals of 12 percent for veteran small businesses overall, 
providing nearly 22 percent of our total procurement to 
veterans.
    This is real money in the hands of veteran small businesses 
and it establishes the VA as a leader in this arena.
    At the same time, the VA has actively implemented the 
statutory verification provisions that you have given us in 
Public Law 109-461 so that procurement preferences go only to 
legitimate firms.
    I would like to update you on the progress VA has made to 
improve the verification program and our plans to continue 
improving it so that legitimate veteran businesses have greater 
access to VA procurement opportunities.
    As promised, we have completed the removal of all non-
verified firms from the vendor information pages 3 months ahead 
of schedule.
    When I last met with you in July, it took an average of 127 
days to process an initial verification application. We have 
now reduced that to 75 days.
    In April, some applicants had waited months to receive word 
that there was an issue with their veteran or service-disabled, 
service-connected disability status. Veterans now receive their 
status within 48 hours.
    In response to valid complaints regarding lack of 
information on status of initial applications, we have 
established a policy that applicants receive updates at all key 
points in the process and the current standard for the CVE help 
desk to provide a response is one business day.
    In addition, applicants can now receive an update on demand 
via vetbus.gov.
    Along with more frequent correspondence, we have launched 
our Verification Assistance Program to clarify the regulatory 
requirements and to explain the most frequent reasons for 
denial.
    This program enables applicants to eliminate common errors 
up front and helps legitimate firms to receive favorable 
decisions more quickly.
    In July, the GAO followed up its May 2010 evaluation of CVE 
verification and identified some challenges and vulnerabilities 
that the VA has since overcome.
    Among the issues identified were training, use of site 
visits, and debarment of ineligible firms.
    In addition to expanded internal training, CVE has 
initiated a program to train all of its staff members as 
certified fraud examiners.
    We reduced the potential for ineligible firms to become 
verified by creating a Risk Mitigation Program that requires 
high-risk firms to undergo a site visit in addition to a 
document review.
    We have increased the number of site visits nearly ten-fold 
from calendar year 2010 to calendar year 2011.
    We have also increased training of the acquisition staff. 
In the past 6 months, we provided training to more than a 
thousand contracting officers.
    The VA is serious about debarring companies who 
misrepresent their status. VA has developed and formalized 
specific processes and criteria related to debarment. They can 
be found on the VA Debarment Committee Web site.
    It is important to note, however, that most firms that we 
find to be ineligible are not intentionally misrepresenting 
their status and are not committing fraud.
    Those firms that do provide false information or material 
information are referred to the VA's Office of Inspector 
General.
    Mr. Chairman, we were also asked to address the October GAO 
decision upholding a bid protest by an SDVOSB. My statement for 
the record addresses the VA acquisition policy position on the 
Aldevra decision. And Jack Thompson, the VA's deputy general 
counsel, is with me today to answer any questions you may have 
on that issue.
    In conclusion, the VA Verification Program has made 
significant progress in the last 6 months. We have overcome 
many of the challenges and vulnerabilities that were raised by 
the GAO and OIG reports.
    And I am confident that we are protecting the integrity of 
the Verification Program. We are not satisfied and we are not 
done improving the process.
    Mr. Chairman and Members of the Subcommittee, that 
concludes my statement. I am pleased to answer any questions 
you may have.
    [The prepared statement of Thomas J. Leney appears on p. 
40.]
    Mr. Johnson. I thank you for your testimony. And we will 
begin questions at this point. And I begin with myself.
    Mr. Leney, you state that VA has consistently interpreted 
the Vet First Program as VOSBs having priority over any other 
class of small businesses when VA is conducting full and open 
competition procurements.
    In 2009 testimony, Jan Frye stated that the Vet First 
provisions are preferences in open-market contracting for 
veteran entrepreneurs.
    Can you outline for us the purchasing priority hierarchy at 
VA and explain where these VOSBs fall in the hierarchy?
    Mr. Leney. Sir, there is hierarchy for procurement within 
the VA and within the Federal Government. Vets have priority 
within all open-market purchases.
    Mr. Johnson. What priority? Where do they fall in the 
hierarchy?
    Mr. Leney. On the open-market purchases, they fall first. 
They are first priority.
    Mr. Johnson. No, open market is like the eighth category in 
the priority. Where do the VOSBs fall in VA's hierarchy? You 
are saying it is all the way down in open market?
    Mr. Leney. Veteran-owned small businesses do not receive 
priority under FAR Part 18 purchases. The acquisition policy 
related to these issues is----
    Mr. Johnson. Let me help you a little bit because I am not 
sure. You are having trouble crafting your answer here.
    On June 19th of 2007 as written in VA's information letter, 
VA expressed that Public Law 109-461 changes the priorities for 
contracting preferences within VA placing SDVOSBs and VOSBs 
first and second respectively in satisfying VA's acquisition 
requirements.
    On August 20th, 2008 in the Federal Register, VA again 
noted that Public Law 109-461 requires the secretary to give 
priority to a small business concern owned and controlled by 
veterans.
    If we go back to the June 20th, 2007 testimony, this 
approach changes the small business hierarchy within VA placing 
service-disabled veteran-owned small businesses and veteran-
owned small businesses first and second respectively in 
satisfying VA's acquisition requirements.
    And the Veterans Benefits Act, if we look at October 26, 
2010, the United States Court of Federal Claims, the ANGELICA 
decision stated that in part the Veterans Benefits Act is a 
specific mandate to the department and only to the department 
to grant first priority to SDVOSBs and VOSBs in the awarding of 
contracts.
    So let me ask you again. Where do VOSBs and SDVOSBs fall in 
your current practice of priority within the Veterans 
Administration for contracting opportunities?
    Mr. Leney. Mr. Chairman, the VA has an obligation to 
balance a number of objectives that you have provided.
    Mr. Johnson. Where Mr. Leney, I want a straightforward 
answer. Where in the priority scheme do VOSBs and SDVOSBs fall?
    You said there is a priority and a hierarchy. Putting them 
in open source which is the eighth category down is not first 
and second as previously identified in VA acknowledgment of the 
Title 38 requirements.
    So straightforward answer. Where do they fall?
    Mr. Leney. Well, I appreciate the opportunity to become 
engaged in acquisition policy issues. I am not the right person 
to answer that question directly.
    Mr. Johnson. Who is the right person?
    Mr. Leney. It would be our chief of acquisition policy. As 
an advocate for small businesses within the VA my focus has 
been on helping small businesses by promoting the verification 
process and----
    Mr. Johnson. Well, you know, we started asking these 
questions 30 days ago. And we were told that the people 
appearing before this Subcommittee today would be able to 
answer those specific questions.
    So, Mr. Thompson, you were the one that was identified as 
being able to answer those specifics.
    Mr. Thompson. Well, I----
    Mr. Johnson. Where do VOSBs and SDVOSBs fall in that 
priority?
    Mr. Thompson. Within department set-asides, service-
disabled veteran-owned small businesses are number one. Other 
veteran-owned----
    Mr. Johnson. That is not what Title 38 says. It does not 
say for VA set-asides. It says in the contracting acquisition 
process, they were to be placed as number one and number two. 
And that has been acknowledged by the VA in the past.
    Mr. Thompson. Sir, I respectfully disagree. VA has always 
been of the opinion that the correct interpretation of those 
Veterans First provisions is that within all set-asides, 
service-disabled veteran-owned businesses stay on top.
    Mr. Johnson. Well, Mr. Thompson, I would submit to you that 
that is contrary to what the GAO says.
    Where are you getting your authorization? Where in the law 
does it say that it is based on set-asides and not the overall 
contracting requirements and provisions? Give me a reference. 
Where is the law? Where in the law does it say that it is set-
asides?
    Mr. Thompson. I believe you are referring to the issue in 
the Aldevra decision.
    Mr. Johnson. Partly.
    Mr. Thompson. And the reason VA attorneys, the principal 
reason VA attorneys are not persuaded by GAO's Aldevra decision 
is because it does not contain analysis of all of the words of 
that statute.
    The set-aside law provides that for purposes of meeting the 
secretary's annual goals for contracting with VOSBs and 
SDVOSBs, the department shall set aside contracts for them if 
certain conditions are met.
    I respectfully disagree that Congress said we are to use 
this set-aside authority in all cases, but rather as a tool for 
meeting the secretary's goals.
    GAO's opinion did not discuss this important qualifier that 
Congress placed on this set-aside authority, that is it was to 
be used for purposes of meeting the secretary's contracting 
goals.
    As Mr. Leney noted in his opening statement, VA has more 
than met, it is surpassing the secretary's small business 
contracting goals and, therefore, in our opinion, VA is meeting 
both the letter and the spirit of that Public Law.
    Mr. Johnson. Mr. Thompson, we are not so concerned about 
percentages as we are about process. And the process according 
to the law and according to the GAO opinion is that SDVOSBs and 
VOSBs are not being considered in the right priority. And how 
the VA can simply choose to ignore what the GAO is 
recommending, I would commend to the VA that that deserves much 
more scrutiny.
    We have seen only a few examples in previous 
administrations where GAO findings were ignored or not 
followed. And I can assure you that we have lots of concerns 
about this.
    The clock is now running, gentlemen, so I am not sure how 
long I have got, but I am going to yield to the Ranking Member 
for his questions. We are going to have multiple rounds. I have 
lots of them, so we are going to be coming around again.
    Mr. Donnelly. Mr. Leney, the SDVOSB contract accounting for 
$3.2 billion in government-wide contracts during fiscal year 
2010, we verified the eligibility of 5,000 SDVOSB firms.
    How many firms are in the queue that you are reviewing 
right now to become eligible?
    Mr. Leney. Sir, we now have about 8,000 firms verified----
    Mr. Donnelly. Okay.
    Mr. Leney [continuing]. Within the VIP. And we have 
approximately 1,700 firms in the queue.
    Mr. Donnelly. What has to be done to get those additional 
1,700 firms certified and what is the timeline that you are 
using on those?
    Mr. Leney. Right now the timeline for initial verification 
is on average, we are able to verify firms within 75 days which 
is a considerable reduction in time required. About 95 percent 
of all firms are receiving an initial determination within the 
90 day goal.
    So it is really a case of continuing the process and 
continuing to refine and improve the process. We have applied 
additional resources to the verification process to ensure that 
we can meet those objectives.
    Mr. Donnelly. In fiscal year 2011, the prime contracting 
goal for VOSB was 12 percent. For SDVOSB, it was approximately 
10 percent.
    What is the impediment, if there is any, on bringing those 
numbers higher and to ensuring that our VOSBs have the 
opportunity to become even more a part of our contracting 
processes?
    Mr. Leney. Well, the good news is with regard to those 
goals is we have substantially exceeded them. In 2011, we gave 
more than 19 percent of our procurement dollars to SDVOSBs and 
almost 22 percent to VOSBs. And even in our Federal supply 
schedules, we gave 13 percent of our Federal supply schedule 
dollars to veteran-owned firms.
    So we continue to attempt to identify maximum practical 
opportunities for small businesses, particularly veteran small 
businesses, to do business with the VA.
    Mr. Donnelly. What we would like to see is monthly data on 
the certification statistics and on what percentage is going to 
our VOSBs and SDVOSBs so we can see that the effort, the 
service given by our vets is being recognized and rewarded on 
the contracting portion as well.
    Is that going to cause you any difficulty to make sure that 
we can get those on a monthly basis?
    As just indicated, my numbers were a little behind. I'm 
thrilled to hear we are at 8,000, you know, hoping to push it 
to 9,000 because there are 1,700 in the queue.
    Is that something that you can provide us with, monthly 
numbers on that?
    Mr. Leney. Yes. We can provide reports as required to the 
Committee on the status of verification. In the last month, we 
verified an additional 116 firms.
    One of the challenges that we are presented with is the 
reality that applications do not come in a consistent fashion. 
And as we attempt to be good stewards of resources and apply 
our resources effectively----
    [The VA subsequently provided the following information:]

       VA Veteran-owned small business (VOSB) Verification Report

                        As of November 30, 2011

------------------------------------------------------------------------
                                                              November
                                                                2011
------------------------------------------------------------------------
Total businesses in the Vendor Information Pages (VIP)            8,040
------------------------------------------------------------------------
Businesses approved                                                 162
------------------------------------------------------------------------
Nota Bene: All businesses in VIP are verified. There is no direct
  correlation between the number of businesses approved each month and
  the increase in the number of businesses in VIP. This is due to
  companies being denied on re-verification and companies who had been
  denied subsequently receiving approval in the request for
  reconsideration process.

    Mr. Donnelly. What do you mean they do not come in a 
consistent fashion?
    Mr. Leney. Well, in October, we may get 300 applications. 
In November, we may get 20.
    Mr. Donnelly. Okay. Well, you know, whatever the number is, 
the number is, but that enables us to see that there is 
continual progress on this front.
    Mr. Leney. We can provide reports as required by the 
Committee.
    Mr. Donnelly. Thank you very much.
    I yield back.
    Mr. Johnson. I thank the gentleman for yielding.
    I will go to the chairman, Chairman Stutzman, for his 
questions.
    Mr. Stutzman. Thank you, Mr. Chairman.
    I would like to go down the road a little bit on 
understanding how you certify certain businesses. We have heard 
from veteran-owned small businesses that they were denied 
verification because as required by California State law, they 
had an executive board for their company and it was determined 
that this showed they did not have ownership and control 
despite the fact that the veteran held all of the stock.
    We have also heard other complaints about the denials based 
on the existence of a corporate board.
    Can you explain CVE's reasoning for decisions like this and 
the process that they use in determining who is eligible and 
who is not?
    Mr. Leney. Yes, sir. Our process for determining 
eligibility is based on 38 CFR 74 of the regulation that 
promulgates the standards established in Public Law 109-461.
    There is no prohibition on a firm being eligible for the 
Vet First Program based on the fact that they have a board. 
There is no prohibition based on the fact that a particular 
state requires them to have multiple members on the board.
    As established in the regulation, however, there is a 
prohibition on verifying the eligibility of a firm when the 
veteran does not have full control of the organization.
    You can have a board. If the board has the capacity to out-
vote the veteran, based on the regulation, he is not in control 
of the board. If the board has the ability to make decisions 
for the corporation that are binding and legal, even if the 
owner were to fire the board the next day, because he appointed 
the board, that firm would not be eligible for verification 
because a decision could be made that the owner was not in 
control of. It would be binding on the firm.
    Mr. Stutzman. You are saying it is not a veteran-owned 
business at that point?
    Mr. Leney. It is a veteran-owned business, but the 
regulation requires it to be both veteran owned and controlled. 
A very small number of firms, less than 5 percent, are denied 
verification based on ownership issues. More than 90 percent of 
the denials that occur in the process of verification are a 
function of control.
    Mr. Stutzman. Is that in Federal statute?
    Mr. Leney. Control----
    Mr. Stutzman. The Federal statute requires ownership----
    Mr. Leney. Owner controlled?
    Mr. Stutzman [continuing]. And control?
    Mr. Leney. Yes, sir.
    Mr. Stutzman. Would that be consistent with SBA's policy?
    Mr. Leney. The policy that the CVE is responsible for 
implementing is 38 CFR 74 and that is the regulation that we 
are focused on implementation.
    In my discussions with the SBA, they also require ownership 
and control and they do a status when they do status 
verification.
    Mr. Stutzman. Okay. Thank you.
    Are veterans with DoD disability discharge eligible for 
SDVOSB status if they are not included in the VA's BIRLS 
database that lists veterans with a VA disability rating?
    Mr. Leney. A veteran has to have a disability status to be 
eligible for the SDVOSB Program. We have made a modification 6 
months ago. If a person was not in the BIRLS, the veteran was 
not in the BIRLS database, we rejected their application.
    Currently our policy is if they are not in the BIRLS 
database, we continue to process their application, but we 
require them to be in the BIRLS database before making a final 
verification decision because that is the basis for ensuring 
that veterans are, in fact, service disabled that we utilize in 
the VA.
    Mr. Stutzman. Okay. Thank you, Mr. Chairman. That is all I 
have right now.
    Mr. Johnson. I thank you.
    Mr. Leney, you mentioned that the VA exceeded its 
procurement goals by reaching nearly 20 percent of SDVOSBs and 
nearly 22 percent of VOSBs.
    Are the 20 and 22 percents, are those clean numbers, 
meaning is there a zero overlap between those two numbers?
    Mr. Leney. There is overlap between the two numbers, sir. 
The 22 percent that go to veteran-owned small businesses 
includes the nearly 19 percent that go to service-disabled 
veteran-owned small business.
    So as you look at those numbers, the vast majority of our 
procurements that go to veteran-owned businesses go to service-
disabled veterans.
    Mr. Johnson. My apologies. My peripheral vision blanked out 
on me there. Mr. Walz, no, please, please continue. I 
apologize.
    Mr. Walz. No, no. Thank you, Mr. Chairman.
    Again, thank you for being here, Mr. Leney. Thank you for 
you and for the work you are doing and for your service. And as 
you can see, this committee is committed to getting it right. 
And sitting behind you are numerous folks, small business 
owners, veterans, veterans' advocates, and we all want to get 
there.
    And I always say at these hearings I am certainly the VA's 
staunchest supporter. But at times, I can be the harshest 
critic because this is one of those examples. This is a great 
program. It is an important program. We must get it right.
    And I know the battle that you are in and it is that 
razor's edge on the fraud, waste, and abuse, at the same time 
moving resources to the veterans. It appears like we might be 
in one of those odd cases where the attempt to fight fraud is 
actually becoming waste in itself. And that is a very 
challenging one for me.
    The question I had, and in your testimony, Mr. Leney, you 
said you are serious about disbarment. You stood up the 
Committee in September of 2010 and by October of 2011, we have 
disbarred one business.
    According to the GAO's report is what we are getting, when 
they spot check, they estimated that there were at least ten 
businesses that they could verify that were not veteran-owned 
small businesses in that hundred million. At the pace we are 
going, we will have those ten disbarred by 2022.
    Now, the question sitting behind us is, that is a problem. 
And what we are asking for is, is only thing we want to see on 
this committee, and I know it is the only thing you want to see 
is, is qualified veteran-owned small businesses getting the 
priority to get the contracts, do business, grow their 
business, and serve the VA and other veterans to the best of 
their ability.
    Do you think it is being portrayed uncharacteristic or 
unfairly, I should say, that there is a slowness here and that 
there is a resistence to what the GAO said and there is a 
resistance to making changes because that is certainly the way 
it feels to me?
    So I know this is somewhat of a subjective question because 
I have no doubt that your hundred percent commitment is to 
delivering the resources to veterans in the best way and 
shepherding the taxpayer dollars in a responsible manner.
    How come it appears like there is a disconnect here? What 
are we missing that is making it appear, because I think you 
are seeing a lot of unanimous agreement that there is a problem 
here?
    Mr. Leney. Sir, I absolutely believe that we share the 
goals that you just stated, not only myself as the director of 
Small and Veteran Business Program, but the senior leadership 
at the VA, absolutely sure of those goals. And I am absolutely 
confident there is no hesitation to pursue aggressively the 
goals that were laid in 109-461. I think the numbers speak for 
themselves. In terms of----
    Mr. Walz. Was my number correct on disbarment? It was 
wrong?
    Mr. Leney. We have actually made seven disbarment decisions 
at the Debarment Committee and I am happy to provide for the 
record the details for that.
    [The VA subsequently provided the following information:]

    L  VA Response: VA is serious about debarring companies who 
misrepresent their status as a VOSB or SDVOSB, and in September 
2010 formed the 8127 Debarment Committee, named after the 
portion of the U.S. Code that implements the Veteran small 
business acquisition portions of P.L. 109-461. VA has developed 
and formalized specific processes and criteria related to the 
8127 Debarment Committee which can be found on the Committee's 
Web site at: (http://www.va.gov/oal/business/
8127debarments.asp). The Committee consists of representatives 
from the Office of Acquisition, Logistics, and Construction 
(OALC); the Office of Small and Disadvantaged Business 
Utilization (OSDBU); the Office of General Counsel (OGC); and 
the Veterans Health Administration (VHA). The Committee will 
review referrals for debarment and make formal recommendations 
to the debarring official pursuant to the procedures in VAAR 
809.406-3.
    L  As of December 2011, the Committee had debarred seven 
separate firms and ten individuals associated with those firms. 
These firms are:

       LSeabreeze Contracting, Inc.
       LTriton Services, Inc.
       LChevron Construction Services, LLC
       LMitsubishi Construction Corp.
       LKDV, Inc.
       LT.E.M. Group, Inc.
       LDAVID Construction, Inc.

    L  Of this seven, one firm has completed the debarment 
period and is no longer listed in Excluded Parties List System 
(EPLS) listing. This firm is:

       LDAVID Construction, Inc.

    L  Of this seven, two have filed a lawsuit against VA in 
Federal district court, and the court directed VA to remove the 
names of the firms from EPLS pending resolution of the 
litigation. These firms are:

       LKDV, Inc.
       LT.E.M. Group, Inc.

    L  The remaining four firms are currently debarred and 
listed in EPLS. These firms are:

       LSeabreeze Contracting, Inc.
       LTriton Services, Inc.
       LChevron Construction Services, LLC
       LMitsubishi Construction Corp.

    Mr. Walz. Okay.
    Mr. Leney. We have referred over 60 cases in the last 12 
months to the Office of Inspector General. So there is 
absolutely no resistence within the VA to supporting and 
maintaining the integrity of the 109-461 Veterans First 
Verification Program.
    The senior leadership of the VA has put resources into it. 
The challenges we face is the implementation of resources. When 
it comes to hiring, when it comes to contracting, these things 
do not happen overnight.
    I think in the last 6 months, we have made major strides. 
As I said in my opening statement, we are not satisfied. We are 
not done.
    And I apologize, Mr. Chairman, for my stuttering in 
response to your question, but these are very important issues 
of acquisition policy. And I would like to submit for the 
record from the VA a response that we can lay out in detail 
both our Vet First preferences and how they link to FAR Part 
18.
    Mr. Walz. Mr. Leney, if I could ask you. On some of these 
firms, it is high risk. I hear what you are saying. We want to 
give you all the tools necessary. And I think with the GAO and 
the IG and things, those are all tools to streamline the 
process.
    Do we do unannounced visits to high-risk firms?
    Mr. Leney. Yes, sir, we do. One of the things we 
established about 4 months ago was a program of unannounced 
visits. As part of our Risk Mitigation Program, we now rank 
firms based on a number of factors in terms of their risk to 
the VA and the taxpayer.
    We not only do unannounced visits with respect to high-risk 
firms as a part of the application process, we now have 
established visits to already verified firms based on their 
risk category.
    We have also included a random element to that. We have 
instituted random site visits for verified firms because we 
realize that verification is a snapshot in time.
    Mr. Walz. Do you think those things are helpful? Are those 
tools helpful? Is this good best practices in terms of fraud 
and management?
    Mr. Leney. Yes, sir, I believe so. It works for the IRS and 
it is working for us as well.
    Mr. Walz. Okay. I yield back, Mr. Chairman. Thank you for 
the time.
    Mr. Johnson. I thank you and thank you for your indulgence. 
I apologize that I did not scan down.
    Mr. Leney or Mr. Thompson, I apologize. We have more 
Members showing up. I got to get my scan down. I yield to our 
colleague from Florida, Mr. Bilirakis.
    Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it.
    I recently had a veteran small business roundtable and the 
difficulty they have encountered with the verification process 
is extensive.
    I particularly am concerned that the reconsideration 
process is taking much too long and could inhibit the 
legitimate veteran small business owners from opportunities to 
create jobs and keep their doors open.
    Specifically one of my constituents, and I would like to 
discuss this with you, Mr. Leney, but specifically one of my 
constituents competed in a 17 month VA bid process and was 
awarded a multiple award task order contract in mid October.
    He found out that he had been denied service-disabled 
veteran-owned small business status and submitted a request for 
reconsideration. However, his business needs to be verified by 
December 6, 2011 to meet the deadline to maintain the multiple 
award task order contract.
    Yet, under the first in, first out methodology, it seems 
improbable that this time frame will be met which will cost 
jobs, of course.
    I worry that a process intended to help veterans is hurting 
them, Mr. Chairman.
    What solutions would you suggest to this circumstance? 
Would it be feasible to expedite requests for reconsideration 
pending a documented contract award that will reflect specific 
deadlines or, in the alternative, would it be possible to 
maintain a conditional verified status until the 
reconsideration review is complete?
    I am concerned about the lack of due process under the 
current reconsideration structure and how this lack of due 
process affects legitimate service-disabled veteran-owned small 
businesses.
    Can you specifically answer those questions and if you can, 
please, I would like to get them in writing and maybe share 
with the Committee as well?
    Thank you. Mr. Leney, please.
    Mr. Leney. Sir, I would be happy to provide for the record 
information with regard to the specific situation that you 
referred to. But I would like to address some of the more 
general and important issues that you raised.
    First, I want to reassure the Committee there is an 
absolute commitment to due process both in our initial 
verification and our request for reconsideration. One of the 
prices we are paying for a commitment to due process is time.
    I mentioned in response to Congressman Walz's question the 
ebb and flow of applications. We have received recently a 
dramatic surge in requests for reconsideration. And at one 
point going, almost a thousand requests for reconsideration 
came in within 45 days.
    Our priority has been to ensure that those firms when 
patiently in line to receive a verification determination get 
that in a timely way. Every request for reconsideration--it is 
important to note is those firms have failed to meet the 
requirements of Public Law 109-461.
    I have a difficult time putting those firms in front of 
firms that have, as far as we know, met all of the criteria 
and, again, are waiting patiently in line.
    We have shifted resources in CVE to put more resources 
against requests for reconsideration. I have made a policy 
decision to not disadvantage those firms who are undergoing 
initial verification and to avoid sending us over the 90-day 
limit so that those firms can have some expectation that we 
will meet our objective and meet our goals in their initial 
verification.
    That has resulted quite frankly in the fact that we are now 
not meeting our objective in terms of turning around all of our 
requests for reconsideration within 60 days. But it is not a 
capricious process.
    In order to ensure that a firm that has been determined to 
not meet the requirements, that firm is now a higher risk, when 
they submit a request for reconsideration, we do a complete 
reevaluation. All of those firms are referred to our Office of 
General Counsel to ensure that they do receive due process and 
that we make an accurate determination.
    Many of them receive site visits because their issues are 
more complex. And our first priority based on the 
communications we receive from this body are to ensure the 
integrity of the process to ensure that when the GAO and the IG 
come by the next time and they are coming back that they report 
to you that we have maintained the integrity of the program and 
that ineligible firms are not being verified.
    And, unfortunately, sir, that takes time.
    Mr. Bilirakis. Thank you, Mr. Chairman.
    I would like to follow up with you on this.
    Mr. Leney. Be happy to do that, sir.
    Mr. Bilirakis. And the lack of communication as well and 
what these folks are doing wrong, what the requirements are. 
They need to know these things.
    And, you know, this guy has a contract, Mr. Chairman, and 
this is creating jobs in my district.
    So I would like to follow up with you on that. Thank you, 
sir.
    I yield back.
    Mr. Johnson. Thank you.
    We are going to go to Mr. Amodei to see if he has 
questions.
    Mr. Amodei. Thanks, Mr. Chairman. I do not at this time. I 
yield back.
    Mr. Johnson. Okay. Well, thank you.
    Then I would like to follow up a little bit on yours just 
quickly.
    How does a company get a contract if they have not been 
verified?
    Mr. Leney. Sir, they do not----
    Mr. Johnson. Well, they did. That is what you said, right?
    Mr. Bilirakis. Absolutely.
    Mr. Johnson. Okay. So how do they get a contract if they 
have not been verified?
    Mr. Leney. There are a number of firms that currently have 
contracts with the VA who were verified under the self-
certification process.
    Mr. Johnson. This is a new one. They were awarded the 
contract in October. That is recently. How does that happen?
    Mr. Thompson, you got any ideas?
    Mr. Leney. Sir, I am not aware of any firms--I am not aware 
of any firms to include that one receiving a contract from the 
VA that is not verified.
    Mr. Johnson. Okay. Well, I look forward to hearing some 
feedback on that further discussion then because it sounds like 
we have a dichotomy.
    Mr. Leney. If I could clarify. My understanding, what does 
occur is we have firms that submit proposals for procurements. 
Prior to award, contract officers are required to check the 
vendor information pages to ensure that firms are, in fact, 
verified.
    At that time, we have had requests by contract officers, 
hey, I have an apparent awardee and we need them to be 
verified.
    Unfortunately, our response is we are happy to verify firms 
that have submitted applications and have been through the 
process, but we do not currently have a program of accelerating 
the----
    Mr. Johnson. Is it typical to even consider? Why would we 
consider a firm and entertain a proposal from a firm that is 
not verified?
    Mr. Leney. You raise an excellent point, Mr. Chairman. And 
we have clarified to the acquisition community that they now 
check, as part of my training to the thousand contracting 
officials in the VA, they now check VIP upon receipt of 
proposals because it is a waste of good government resources.
    Mr. Johnson. When did that policy go into effect?
    Mr. Leney. The policy was always in effect, sir. We 
clarified that policy and conducted training because there were 
instances where contracting officials did consider proposals 
prior to confirming verification.
    Mr. Johnson. Well, it appears somebody is not following the 
internal rules then if indeed this contractor or this firm was 
considered. I am glad you have clarified that and hopefully----
    Mr. Bilirakis. Mr. Chairman, will you yield? I understand 
that he was certified under the old process.
    Mr. Johnson. Okay.
    Mr. Bilirakis. He did the recertification and that is what 
he is waiting for. And he has secured the contract and he has 
to be recertified. And this is a legitimate small business. I 
can attest to that. But he has to be recertified by December 
6th. Otherwise, he loses the contract.
    Mr. Johnson. How long does it take once a company is 
certified, how long does it take to get them into system so 
that they are visible and can compete for contracts?
    Mr. Leney. Currently that time is measured in hours. It 
was----
    Mr. Johnson. It is measured in hours?
    Mr. Leney [continuing]. Measured in weeks. Right now upon 
determination, whether it is a denial or an affirmation, we 
immediately now post it into the VIP system----
    Mr. Johnson. Okay.
    Mr. Leney [continuing]. That same day.
    Mr. Johnson. So if a company is verified today, you are 
saying within hours----
    Mr. Leney. Yes, sir.
    Mr. Johnson [continuing]. They would show up in the system? 
Are you familiar with a company called Ironclad?
    Mr. Leney. The name is familiar, sir. I would hesitate to 
speak to the details.
    Mr. Johnson. They received their congratulatory 
verification letter on November 7th. Any idea why they are not 
in the system?
    Mr. Leney. I would have to check, sir, because I would be 
surprised that they are not in the system given the changes 
that we have made. If they received a congratulatory letter on 
November 7th, they should have been in the system on the same 
day.
    Mr. Johnson. Well, as of today, they are still not in 
there. So I----
    Mr. Leney. I will be happy to check on that, sir, and 
provide you a response for the record to find out why not.
    Mr. Johnson. Yeah. I would like some feedback.
    Mr. Leney, your testimony specifically mentions the tools 
to aid veteran entrepreneurs provided in the Vet First Program, 
yet, as you are aware from the recent Aldevra decision by GAO, 
VA does not always use these tools according to the VAO 
analysis.
    Do you think VA is fully utilizing the Vet First Program 
given its stated preference for using the Federal supply 
schedule?
    Mr. Leney. Sir, while I do not claim to be an expert on 
acquisition policy, I do believe that the department does have 
an obligation to balance a number of objectives.
    First we have an obligation to seek best value for the 23 
million veterans we support. We have an obligation to promote 
competition and to reduce costs to the Federal Government. And 
we have an obligation to help veteran businesses in the Federal 
procurement process.
    And as we balance these obligations, I think we have made 
use of the Federal supply schedules in a positive way. Forty 
percent of our Federal supply schedule dollars go to small 
businesses. Across the government, the figure is 20 percent. 
Thirteen percent of our Federal supply schedule dollars go to 
veteran businesses.
    So I think we are making use of the Federal supply 
schedules. And it allows us to support veterans. It allows us 
to provide opportunities to veteran firms. It also allows us to 
be good stewards of the taxpayers' dollars.
    The Federal supply schedules are an important tool for all 
agencies within the government to include the VA. We use that 
tool. We use that tool to get to veteran businesses.
    And so my efforts have been to encourage and to educate 
veteran small businesses on how to get on these Federal supply 
schedules so we can----
    Mr. Johnson. Based on your preference for using the Federal 
supply schedule, where do the VOSBs and SDVOSBs fall in open 
source, where do they fall on that Federal supply schedule?
    Mr. Leney. You mentioned our preference to use the Federal 
supply schedules.
    Mr. Johnson. Yeah.
    Mr. Leney. Only about 20 percent of our procurement is done 
through the Federal supply schedule. Eighty percent is done in 
the full and open marketplace. Within that 20 percent, we do 13 
percent to veterans. Currently veterans do not, as Mr. Thompson 
stated, do not have a preference. Our position is, our 
understanding of the law is that veterans do not have a 
preference within the Federal supply schedule.
    Mr. Johnson. When did your interpretation of the law 
change, Mr. Leney?
    As I reiterated earlier, as early back as October 26 of 
2010, the United States Court of Federal Claims, the ANGELICA 
decision stated that the Veterans Benefit Act is a specific 
mandate to the department and only to the department to grant 
first priority to SDVOSBs and VOSBs in the awarding of 
contracts.
    You go even further back than that. April 28th of 2010 in a 
VA information letter, the VA again noted that on December 
22nd, 2006, Public Law 109-461, the Veterans Benefits Health 
Care and Information Technology Act of 2006 was signed. 
Sections 502 and 503 of the legislation authorized a unique 
veterans first approach to specific VA contracting implemented 
as the Veterans First Contracting Program.
    And going back to the June 20th, 2007, this approach 
changes the small business hierarchy within VA placing service-
disabled veteran-owned small businesses and veteran-owned small 
businesses first and second respectively in satisfying VA's 
acquisition requirements.
    It does not talk about percentages. It does not talk about 
the Federal supply schedule or any of that. It says first and 
second respectively in satisfying the VA's acquisition 
requirements.
    When did your interpretation of the law change?
    Mr. Leney. Our interpretation of the law has not changed. 
But in terms of that interpretation, I defer to our deputy 
general counsel, Mr. Thompson.
    Mr. Thompson. Sir, he is correct. We have always 
interpreted the Veterans First legislation as it is sometimes 
called as establishing within the hierarchy of set-asides the 
primacy of service-disabled veteran-owned small businesses.
    Mr. Johnson. Mr. Thompson, nothing in previous VA 
statements on this issue says anything about VA set-asides. And 
the GAO disagrees with your interpretation of the law.
    Mr. Thompson. I understand GAO is of a different opinion.
    Mr. Johnson. And can you please tell us, tell this 
committee----
    Mr. Thompson. Uh-huh.
    Mr. Johnson [continuing]. How VA considers itself exempt 
from the requirements laid out in Title 38, Section 8127 of 
Public Law 109-461? You see, the Federal Government cannot be 
sued for not meeting goals, but the Federal Government can be 
sued for not adhering to the law. And that is what this 
committee is concerned about.
    Your department is supposed to be looking out for veteran-
owned businesses. Why is there such reluctance from the 
department to follow the intent and the spirit of the law as 
identified by the GAO?
    Mr. Thompson. Sir, as I indicated, we have a different 
interpretation than GAO. And, you know, our interpretation has 
consistently been that Public Law 109-461 did several things, 
among them establishing service-disabled veteran-owned 
businesses as having primacy within the categories of all set-
aside categories.
    It also authorized VA and only VA to do restricted 
competitions that are limited to VOSBs and SDVOSBs for purposes 
of meeting the secretary's goals. And VA has been meeting those 
goals. It has complied with the letter and with the spirit of 
the law in our humble opinion.
    Mr. Johnson. I am going to yield to the Ranking Member to 
ask some questions. Just one final follow-up on this issue.
    Obviously there is great disagreement with the VA's 
interpretation of the law. The GAO disagrees. I disagree.
    Is there going to be a review to go back and look at this 
because you have been told by the GAO that your interpretation 
is wrong?
    Mr. Thompson. We have been told by GAO. GAO recommendations 
are just that to Federal agencies. This issue is still being 
discussed with the executive branch. There has been no final 
decision as to what position the Administration will take on 
this issue. And so as soon as that is resolved, we will 
certainly be back in touch.
    Mr. Johnson. I yield to Mr. Donnelly.
    Mr. Donnelly. Mr. Leney, with the prime contracting goals 
at 12 percent for VOSB and 10 percent for SDVOSB, and we 
exceeded those, why can't those goals be 25 and 25 or 35 and 
35? Do we have enough contractors to meet those numbers and 
shouldn't our efforts in the VA above all--not even above all 
Federal agencies, but as an example to all Federal agencies 
that we not shoot for the lowest number but push hard for 
higher numbers? What will hold us back from moving those to a 
higher percentage?
    Mr. Leney. I believe that the VA has served as an example 
in this arena. We are a leader in this area. We have exceeded 
the goals. We have not attempted to do minimum necessary. We 
have not----
    Mr. Donnelly. I did not say that. What I am trying to say 
is how can we move those numbers higher? And, for instance, 
what would stop us from doing 25 and 25 this year and 35 and 35 
next year?
    Mr. Leney. You asked a very important question, what are we 
doing to move those numbers higher, and we are doing a number 
of things.
    First of all, with respect to verification is to promote 
the number of firms that are being verified while at the same 
time ensuring that only eligible firms are verified because if 
we fail in that regard, then we put at risk all of the firms 
who are receiving the preferences and the benefits of the Vet 
First Program.
    Secondly, we have initiated an aggressive program to 
directly connect veteran-owned small businesses with 
procurement decision makers within the VA.
    At the national veterans conference back in August, we 
brought more than 250 procurement decision makers to New 
Orleans.
    Mr. Donnelly. So who sets the 12 and 10?
    Mr. Leney. In this case, the secretary set expanding goals.
    Mr. Donnelly. Then it would be the Secretary we would go to 
to say can we make it 25 and 25 for next year?
    Mr. Leney. Yes, sir. At the end of the day, the secretary 
drives the train at the VA.
    I would just caution you that as we put more and more of 
our procurement dollars into a relatively small group of firms 
that we run the risk of--whenever we limit competition via set-
asides, we run the risk of increasing the cost to the 
government in terms of its procurements.
    Mr. Donnelly. Well, let me ask you this. And we run the 
risk. If our veterans can match them on price, shouldn't we be 
giving it to our veterans?
    Mr. Leney. If we have veteran-owned businesses that are 
qualified, if we have veteran-owned businesses that are 
competitive, absolutely. And in our program, when we have those 
situations, we give preference to veterans.
    Mr. Donnelly. And I understand your concern because you 
want to be a good steward of the taxpayers' dollar. But at the 
same time, if we can do it at 12 and 10 and we are already 
pushing way over our number and we look and we say let's shoot 
for 25 and 25 and we are able to do it in a taxpayer-funded 
protected way, wouldn't that be a good thing?
    Mr. Leney. I think it is a good thing and I support maximum 
practical opportunities to small businesses and particularly 
veteran-owned small businesses. And that is what we seek to do 
is to identify maximum practical opportunities and get to those 
businesses. I am not able to speak to whether or not 25 is the 
right number or 22 is the right number.
    Mr. Donnelly. I am not saying that is the right number. I 
am saying why don't we continue to push our numbers in an 
effort to continue to try to pay back the people who have put 
their lives on the line for our country.
    I yield back, Mr. Chairman.
    Mr. Johnson. I thank the gentleman for yielding back.
    Mr. Stutzman.
    Mr. Stutzman. Thank you.
    And I think that is an excellent point in what Mr. Donnelly 
is saying is, and if I understood his comments correctly, is 
what is the harm in trying to pursue more? I mean, if this is 
the VA, it should be a priority in finding and contracting to 
those veteran-owned businesses.
    It should not be an obligation. It should really be at the 
top of our priority list. And I think back to the question that 
the chairman is asking is why not?
    And the question here is, why are there fully eligible 
firms being denied because of state community property laws? 
Any comments? It sounds like there are fully eligible 
businesses out there that are being denied.
    Mr. Leney. Mr. Chairman, I am not aware fully eligible 
businesses are being denied. We have had an issue with and we 
have examined the issue of community property laws in a number 
of different states.
    And we have actually provided some assistance as part of 
our Veteran Assistance Program, our Verification Assistance 
Program to clarify how a firm can meet the community property 
requirements of their state while still meeting the requirement 
to have ownership and control.
    The problem that we encountered in the past was the lack of 
understanding and how to address both of those issues. And we 
provided clarification to applicants on how they--and we are 
getting applicants who are, in fact, from community property 
states who are being verified.
    Mr. Stutzman. Are they being denied?
    Mr. Leney. Sir?
    Mr. Stutzman. Are they being denied?
    Mr. Leney. If an applicant has not met the requirements of 
38 CFR 74, they are denied. If they have not taken the action 
to disassociate and to ensure that they have 51 percent 
ownership, then they are denied. And in some cases, applicants 
primarily through ignorance have not met those requirements.
    Mr. Stutzman. Can you give us an interpretation for the 60 
percent increase in the last 2 months on the number of denials 
that are requesting reconsideration?
    Mr. Leney. Yes, sir. That is primarily a function of our 
efforts to move a larger number of firms through the process. 
We have had great success in completing verification decisions 
on initial applications. As a result, more decisions have come 
out. And when you have more decisions, we are denying almost 50 
percent of those applications because they do not meet the 
requirements of the law.
    Mr. Stutzman. And it appears you have hired contractors to 
assist with verification. How do you determine whether their 
employees are qualified to make verification decisions?
    Mr. Leney. No verification decisions are made by 
contractors. All verification decisions are made by government 
employees. Without the support of government contractors from 
SDVOSBs, I would not be able to sit here and demonstrate any 
progress over the last 6 months.
    Mr. Stutzman. It just sounds to me like our veteran-owned 
businesses, small businesses are having to scrap and scrap 
for--I mean, they should not be getting their crumbs. They 
should not be the ones that are having to fight so hard.
    I mean, is this typical for any other small businesses?
    Mr. Leney. Sir, I came out of the small business community 
and I will tell you that I have enormous respect for small 
businesses because small businesses do scrap. They have to be 
scrappy.
    Mr. Stutzman. I agree with that. I am a small business 
owner and I agree with that.
    Mr. Leney. It is not our intent to make it difficult or 
more difficult for small businesses to be successful. It is I 
believe our responsibility as provided by this body to ensure 
that when we give preferences to veteran-owned businesses that 
they are eligible to receive those preferences. And that is 
what we seek to do and that is what we are working very hard 
at.
    We realized we are also trying to balance the challenge of 
ensuring that you do not confront us with a failure to ensure 
that only eligible businesses get verified and to ensure that 
we do have due process. Our rules are not capricious. Our 
process is not capricious.
    Yes, we use contractors to assist us with this process in 
order to speed up. We have expanded the number of contractors 
we use in the process. Why? Because I had an imperative to get 
127 days to get an initial determination made down to less than 
our 90 day commitment that we have made to small businesses. 
And we have successfully done that.
    But we have a process. Is it as streamlined as I want it to 
be? Absolutely not. Is it a lot better? Absolutely yes.
    Mr. Stutzman. Let me ask you this because I am a nonveteran 
and I am a small business owner. And if I am trying to get a 
contract, is it easier for me to get a contract than it would 
be for a veteran-owned small business?
    Mr. Leney. Not in the VA. Not in the VA because currently 
in the VA, if you look at our numbers, last year we did 37 
percent, actually a little over 36 percent to small businesses. 
Twenty-two percent went to vet--two-thirds of our small 
business dollars go to veterans.
    So if you are a small business, my advice to you and my 
advice to small businesses who are not veterans is the VA is 
probably not a lucrative market for you because we do give 
preference to veterans and we have demonstrated that.
    Mr. Stutzman. Thank you.
    I will yield back.
    Mr. Johnson. Thank you for yielding back.
    Mr. Walz.
    Mr. Walz. Thank you, Mr. Chairman.
    Thank you, Mr. Leney.
    We are trying to get at this and I cannot help but think 
this is somewhat of a microcosm of what goes on in the country, 
that we are polarized. We have the either/ors. We are all in 
here together working on the same cause. We have the private 
sector. We have the government sector.
    But I also am certainly not going to defend what we are not 
moving quickly enough.
    I was going to ask and not facetiously or whatever, how 
many of those contractors helping on the contractor 
verification process were veteran businesses?
    Mr. Leney. Every contractor that we used in the 
verification process is a veteran-owned business.
    Mr. Walz. That is great.
    Mr. Leney. Every company.
    Mr. Walz. And how did you come to that? How did you do 
that? How did you fill that or how did you succeed at a hundred 
percent in that because the question I think that has been very 
important asked today is, if the VA is not going to give the 
highest veteran preferences, who then? Who then? There is 
nobody else to do it. I argue that with our offices that we 
have a hiring preference and my last hire comes right back from 
Iraq and gets hired. We have to live by our own rules. I am 
just curious on that. That is good.
    How did you get that done? So you got a hundred percent of 
these contractors that are helping with verification are 
veteran-owned small businesses that is great and that is a 
positive story. How did we get to that?
    Mr. Leney. Well, we took advantage of the tool that you 
provided us which is 109-461 and opted into the Vet First 
Program. We were able to reach out to service-disabled veteran-
owned small businesses who are fully qualified and fully 
competitive.
    And I am fully satisfied that we have received quality work 
at a competitive price from these firms. And there are many, 
many service-disabled veteran-owned small businesses and 
veteran-owned small businesses that fall in that category.
    My focus is to ensure that we enhance the opportunities for 
those businesses and that is why we have undertaken a major 
effort within the VA to enhance their ability to deal directly 
with program decision makers.
    Mr. Walz. And this is where I am going to be your 
staunchest supporter on this. I want to tell that story. That 
is good. You have some folks behind you that I do not think 
have been overly appreciative. I think they are glad to hear 
that.
    My question is, is part of this equation that we are 
talking some carrot and doing some of this? Is the stick to be 
there?
    What I want to know is, if you are a business and you are 
applying fraudulently on the backs of veterans, I think we 
should smoke you in the public like you have never been smoked 
because I tell you whether there is a legal precedence, the 
public's perception of that business trying to scam off 
veterans will be enough to keep people away from it.
    Can we give more tools to make sure that that hammer that 
drops, you better think twice about signing that paper? If you 
do not have the DD214 and you are not going to be in there 
working the number of hours doing this, there is going to be 
hell to pay because what you are doing is not just defrauding 
the taxpayers, you are cheating a veteran who is coming back 
from serving this Nation.
    Is that a part that can help? Is that part of the equation 
that would strengthen your ability to cut down on these because 
it just seems like you are being bombarded with these?
    And I am asking the staff up here who has the audacity to 
put in a false claim as a veteran-owned business knowing you 
are taking away from a deserving veteran? Is that a place where 
we can help you?
    Mr. Leney. I want to assure you of a couple things. One, we 
agree that we are also opposed to any fraudulent business doing 
business with the VA or any part of the Federal Government.
    I think it is important to note that a very, very small 
percentage of those firms that we deem to be ineligible to 
participate in Vets First are intentionally misrepresenting or 
are pursuing a fraudulent endeavor.
    All of those that we believe to be in that category, we 
refer to the IG for action. As I said, we have referred over 60 
firms.
    However, that is 60 firms out of over 2,000 that we have 
denied verification. There is----
    Mr. Walz. Are the rules so unclear that people do not know? 
Is that what is happening here, the rules on what a veteran-
owned small business?
    I was just asking here. The colonel was sitting here. If he 
and I as both veterans decided we wanted to do this, how would 
you verify us? I got a 214. He has got a 214. We are going to 
invest some money. We are going to hire our kids to work in the 
company or whatever. Would we get a contract? What would stop 
us from getting a contract?
    Mr. Leney. Less than 1 percent of the denials are a 
function of the owner not being a veteran. There are very few 
instances that I have seen in the last----
    Mr. Walz. Okay.
    Mr. Leney [continuing]. Six months, very few where the 
person who asserts that I am a veteran is, in fact, not. That 
is the outlier. That is the extreme outlier.
    Mr. Walz. The reason for getting thrown is control of the 
company----
    Mr. Leney. Yes, sir.
    Mr. Walz [continuing]. And the rules?
    Mr. Leney. Yes, sir. And the rules within 38 CFR 74 that 
came out of 109-461 are rigorous. And we believe----
    Mr. Walz. Are they too rigorous because you are telling me 
these are real veterans really applying, but they are getting 
thrown out?
    Now, some of them you want to be thrown out if they are a 
firm that does not have the capacity to fill the contract. I 
certainly do not expect you to award them the contract. But if 
they have the capability, what is throwing them out?
    Mr. Leney. Well, let me address I think the core of your 
question. I believe that the current policy is designed to 
ensure only legitimate businesses, veteran-owned businesses are 
verified as eligible for Vet First.
    And I really welcome and I have reached out to veterans 
service organizations and a large number of veteran-owned 
businesspeople to engage in policy discussions on where should 
we and how should we and is it appropriate to change the 
policy.
    And I was surprised at the lack of consensus over what 
policy changes should be made. And while I have initiated these 
conversations, given the diversity of viewpoints that I have 
run into, it is going to require considerable discussion and 
consideration by the VA and by this body.
    And I will confess my focus over the last 6 months has been 
to improve the process because I am painfully aware having come 
out of that community of what it means to a small business and 
its ability to do business with the VA.
    So I have been focused on making sure that we communicate 
and that we implement the policy that exists rather than 
focusing on how to change that policy. But there are those who 
would argue for changes and I confront those who would argue 
that it should not be changed.
    Mr. Walz. No. I thank you. That is helpful to me. This is 
one of those things, if the Chairman would indulge me for just 
a minute, I always like myself to know the exact process that 
goes through this.
    I would be curious, and I certainly do not want to take up 
your time on a hypothetical or whatever, but I would be curious 
to see what it would be like for myself.
    Do you know if there are any Members of Congress who are 
veterans that have used this program who would have firsthand 
experience of what these small business owners are frustrated 
about?
    Mr. Leney. I am not aware that there has been any Member of 
Congress. I will check and respond.
    Mr. Walz. I am just curious because I think it would 
probably be for me to go back again and look at every single 
one of those forms, look at every single verification, look at 
the potential because this is--I was hopeful that it would not 
be a whole bunch of people fraudulently claiming to be 
veterans. And you are telling me that is the absolute anomaly.
    But I am curious now and maybe even a little more concerned 
of these veterans that are saying I am a veteran, I still got 
thrown out. It made no difference. That is the part that I am a 
little more concerned about.
    Mr. Leney. If I could respond to that, Mr. Chairman.
    Mr. Walz. Sorry.
    Mr. Leney. The major issue is about control of the firm. 
And as I say, I believe the current policy is designed to 
ensure that veterans are, in fact, in control of the firm, that 
veterans are not used as passers, veterans are not used as 
fronts.
    We have had instances where that has happened. And I do not 
think it is the intent of this body to allow that to go 
forward. The nature of the rules is such that it does make it 
difficult sometimes for a veteran to do business like he would 
like to or he or she would like to do business and still meet 
the requirements of 109-461.
    I will give you one clear example that has an adverse 
effect on small businesses. And I am not making a statement 
about whether I support the policy or do not support the 
policy. I support the VA policy on this. I support 38 CFR 74.
    But 109-461 makes it very difficult for a veteran-owned 
small business owner to get equity financing. Why? Because, 
sir, if you were providing me with a million dollars to my 
business and I am the veteran and you are not a veteran, are 
you going to give me 100 percent control of that organization? 
Are you going to allow me to sell that business out from under 
you and you receive 49 percent of the million dollars I get for 
the business and I receive 51 percent of that million dollars 
when I put in not a nickel and you put in a million dollars? I 
do not think----
    Mr. Walz. Does it have to be a hundred percent then? We 
were just asking that question. This hypothetical could be 
real, though, this----
    Mr. Leney. It is very real to a lot of firms. That is how 
it works.
    Mr. Walz. Well, that is very helpful. I do not want to----
    Mr. Leney. The current requirement is for 100 percent 
control. Right now the regulation says I could sell the 
business in which you have invested a million dollars tomorrow 
for $500,000 and walk away with 51 percent of the sale price 
and give you 49 percent of that sale price.
    Mr. Walz. Thank you, Mr. Chairman, for indulging me.
    Mr. Johnson. I thank you for your line of questioning.
    We are going to have to wrap this up because we have a 
second panel that we want to hear from today.
    But did I understand you correctly that the law currently 
says in your interpretation that the veteran has to own 100 
percent of the company?
    Mr. Leney. Absolutely not. The veteran has to own 51 
percent of the company.
    Mr. Johnson. Okay.
    Mr. Leney. But the veteran must be in control of the 
company.
    Mr. Johnson. Okay.
    Mr. Leney. One hundred percent in control.
    Mr. Johnson. Isn't 51 percent in control of the company?
    Mr. Leney. No, sir, it is not.
    Mr. Johnson. On the outside, if you have two partners and 
one partner is at 51 percent and one partner is at 49 percent, 
the 51 percent makes the decision. That is who is in control of 
the company, right?
    Mr. Leney. Unless your operating agreement authorizes the 
board that may and is often comprised of or includes 
nonveterans.
    Mr. Johnson. Okay. All right. Well, obviously there are 
some details that we do not have time to get into here today. 
That is helpful. And, you know, I do not want to come across as 
berating.
    I know that what the intent of your department is, but I 
think you can see from the questions and the concerns from this 
Subcommittee and our other Subcommittee on Economic 
Opportunity, we have some real concerns whether veterans and 
disadvantaged veterans, disabled veterans' businesses are 
getting the fair shake that was intended in the law.
    The GAO has validated our concerns. We have expressed those 
concerns to you folks. We are going to continue to address this 
issue until we feel that we have an adequate answer and a 
response and a process that is going to ensure that our 
veterans are getting the shake that they are supposed to.
    With that, I want to thank you for your testimony.
    Mr. Leney. Thank you, sir.
    Mr. Johnson. And you are now excused.
    I will call the second panel. On our second panel today, we 
will hear from Mr. Greg Kutz and Mr. Ralph White from the U.S. 
Government Accountability Office.
    Mr. Kutz and Mr. White, your complete written statements 
will be made a part of the hearing record.
    Mr. Kutz, you are now recognized for five minutes.

      STATEMENTS OF GREGORY D. KUTZ, FORENSIC AUDITS AND 
 INVESTIGATIVE SERVICE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; 
    RALPH O. WHITE, MANAGING ASSOCIATE GENERAL COUNSEL FOR 
  PROCUREMENT LAW, OFFICE OF GENERAL COUNSEL, U.S. GOVERNMENT 
                     ACCOUNTABILITY OFFICE

                     STATEMENT OF MR. KUTZ

    Mr. Kutz. Chairman and Members of the Subcommittees, thank 
you for the opportunity to discuss the Service-Disabled 
Veteran-Owned Small Business Program.
    Today's testimony highlights the results of our assessment 
of the Department of Veterans Affairs' fraud prevention 
controls.
    My testimony has two parts. First, I will discuss progress 
made in the Verification Program and, second, I will discuss 
our recommendations.
    [Chart]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Mr. Kutz. As you can see on the monitor, this shows GAO's 
fraud prevention framework which we use to assess VA's 
controls. On the left is prevention which includes steps to 
keep ineligible firms from entering the program.
    In the middle is monitoring which is making sure that 
verified firms remain eligible. And on the right is 
investigation and consequences for fraud and abuse.
    Let me start by saying that VA has made the most progress 
in the area of prevention. This is evident with progress and 
enhanced staffing, as Mr. Leney mentioned, and stronger 
verification of firms and individuals.
    According to VA, these steps have helped the agency deny 
the applications of 1,800 ineligible firms. They also led to 
the rejection of our applications for two bogus firms that used 
fictitious individuals that were not service-disabled veterans.
    Overall, there has been less progress in the areas of 
monitoring and consequences. However, with respect to 
monitoring, VA is doing random announced site visits for 
verified firms to ensure that they remain eligible.
    They have also with respect to consequences established a 
Debarment Committee and, as Mr. Leney said, taken several 
debarment actions. They have also, as was mentioned, referred 
70 is what we understand firms to the VA Inspector General for 
further investigation.
    Moving on to my second point, we are making 13 
recommendations to address a number of remaining 
vulnerabilities. VA generally has concurred with these 
recommendations and is taking action on most of them.
    We will work with Mr. Leney and his staff to determine 
which of these 13 recommendations has been fully implemented 
and report our results back to you.
    There are three areas in particular that VA should focus on 
starting with human capital. For this program to succeed, VA 
needs expert staff dedicated to maintaining program integrity.
    Mr. Leney has shown strong leadership and very good 
progress in a short period of time. However, VA needs to 
develop a deep bench of expert staff to sustain progress made 
and to perhaps build on it in the near future.
    Second, unannounced site visits are an important tool that 
we use in our own investigations. For example, the monitor 
shows what we found during an unannounced site visit to Fort 
Irwin in California as part of a past investigation.
    The portable toilet and hand wash stations that you see 
belong to an ineligible pass-through firm that was actually 
performing the work. We recommended VA use unannounced site 
visits like this as part of their application process and as 
part of re-verification with a particular focus, as Mr. Leney 
said, on high-risk firms.
    Third, historically the vast majority of fraud and abuse in 
this program was not identified and the bad actors face 
absolutely no consequence.
    For example, the front firm for the portable toilet case 
again that you see on the monitor was highlighted not only in 
our investigation but was found to be ineligible by the SBA 
during a protest. This firm was not debarred by SBA and got to 
keep the contracts that they won through fraud and abuse.
    We recommend that VA strengthen its Debarment Committee 
established in September of 2010 to prevent known bad actors 
like this from entering the program.
    In conclusion, stealing money from legitimate service-
disabled veterans should not be tolerated. That is why we are 
here today and that is why this is so important.
    I look forward to continuing to work with both 
Subcommittees and VA to help protect the rights of legitimate 
service-disabled veteran entrepreneurs.
    Mr. Chairman, that ends my statement and I look forward to 
your questions.
    [The prepared statement of Gregory D. Kutz appears on p. 
42.]
    Mr. Johnson. Thank you for your testimony.
    Mr. White, you are now recognized for five minutes.

                  STATEMENT OF RALPH O. WHITE

    Mr. White. Thank you, Mr. Chairman.
    Chairman Johnson, Chairman Stutzman, Ranking Members, and 
Members of the Subcommittees, my name is Ralph White and I am 
the head of the Bid Protest Unit at GAO.
    Thank you for asking for us to come today and talk about 
GAO's recent bid protest decision, sustaining a protest filed 
by a service-disabled veteran-owed small business named 
Aldevra.
    Mr. Chairman, for more than 80 years, GAO has provided 
disappointed bidders with an objective, independent, and 
impartial forum for the resolution of disputes concerning the 
award of Federal Government contracts.
    In 1984, Congress provided a statutory basis for these 
protests with the passage of the Competition in Contracting 
Act.
    Under this statute, any business participating in a Federal 
procurement can challenge the award or the solicitation for a 
government contract provided it acts within a very short time.
    When a protest is filed within this short time, executive 
branch agencies are required by the law in most instances to 
wait for GAO's decision. In return, GAO is required to produce 
its decision within 100 days.
    The standard of review set by Congress is simply whether 
the award or planned award violates procurement law regulation. 
Unlike GAO's audit function, we do not consider issues of 
whether the agency is properly managing a program or buying the 
right mix of goods or services.
    In the case called Aldevra, which has been discussed a fair 
amount here, we were given a protest that involved two VA 
solicitations seeking to buy industrial kitchen equipment using 
the Federal supply schedule.
    As you know, the Federal supply schedule is administered by 
the GSA available for us by all executive branch agencies and 
open to businesses of all sizes.
    Aldevra appearing before us without the benefit of a lawyer 
argued that the VA's use of the Federal supply schedule 
violated a statute passed by this committee, the Veterans 
Benefits Health Care and Information Technology Act of 2006.
    Aldevra argued that under the 2006 act, the VA first had to 
consider whether this equipment could be purchased using a 
competition between two or more service-disabled veteran-owned 
small businesses. In our October 11 decision, we agree with 
Aldevra.
    In short, our decision applied the plain meaning of the 
2006 act. The act sets up a two-step priority first for 
service-disabled veteran-owned small businesses, then followed 
by veteran-owned small businesses, and it then states that the 
VA shall set aside contracts for these businesses whenever, 
one, there are two or more of them capable of performing the 
work and, two, they can do the work at a fair and reasonable 
price. If these conditions are not met, the VA is free to 
procure in any manner appropriate.
    In conclusion, just a few observations. First, the 2006 act 
applies only to the VA. It is different from the 2003 act which 
applies to the entire executive branch.
    Second, the 2006 act does not always require set-asides. It 
only operates when there are two or more veteran-owned small 
businesses capable of doing the work at a fair market price.
    Thus, Congress directed the VA to rely upon the power of 
competition and the power of the free market, but if the 
competition and the marketplace permit, give first priority to 
veteran-owned small businesses.
    Third, because GAO is a legislative branch agency, we 
cannot compel the VA to follow our recommendations. GAO's 
statute gives the VA 60 days to decide whether to follow the 
recommendation and five more days to advise us of their 
decision.
    If the VA elects not to follow the recommendation, GAO is 
required to notify the Congress of the agency's decision. The 
due date for the VA to respond to GAO is December 15th.
    Finally, I just would like to also mention that the owner 
of Aldevra and his family are in the audience here today.
    Mr. Chairman, with that, that is the end of my prepared 
statement and I would be happy to answer any questions that you 
might have.
    [The prepared statement of Ralph O. White appears on p. 
46.]
    Mr. Johnson. Well, thank you, gentlemen. Thank you both.
    We will start with the questioning. Mr. White, how many bid 
protests are filed with the GAO each year? Do you have an idea 
of what that number would be?
    Mr. White. I do. We have been seeing an increase in 
protests in recent years and we had just over 2,300 in fiscal 
year 2011.
    Mr. Johnson. Okay. How many get sustained?
    Mr. White. Actually, a good number of our decisions do not 
go all the way to a decision. Agencies voluntarily pull back a 
number of procurements. But of the cases that go to a decision, 
that was 417 of them, we sustained 67.
    Mr. Johnson. Okay. Is it safe to say then that the 
remainder get denied?
    Mr. White. Yes, the 417 minus 67. The percentages, Mr. 
Chairman, just to put it in perspective, we deny about 84 
percent of protests. We sustain 16 percent of the ones we 
decided on the merits.
    Mr. Johnson. Okay. How many protests are there of VA 
procurements?
    Mr. White. Actually, we have not quite topped 200 in VA 
procurements. I have the numbers for the last few years. I 
think it was about 180 in fiscal year 2011. If I could, I would 
like to provide you for the record both the total number of VA 
protests and denies and sustains for the record.
    Mr. Johnson. Okay. All right. I would appreciate that.
    You have heard in previous testimony this morning that the 
VA does not interpret the law the same way that GAO does.
    Would you care to comment on that, either of you?
    Mr. White. Well, first, I just would not mind mentioning 
that we view our obligation is to in thinking about legislative 
history to look at the plain meaning of the statute. And if we 
can decide a question based on the plain meaning, that is 
really where we stop.
    And the plain meaning of this statute led us to conclude 
that Congress used the word shall. It did not include any 
exceptions. And we could not see nor did the VA provide any 
explanation of how they could justify going elsewhere.
    Mr. Johnson. Just a good distinction. The word shall has a 
very, very explicit meaning in government contracting, right? 
What does the word shall mean?
    Mr. White. It certainly does not mean may.
    Mr. Johnson. That is right. It does not leave much to 
interpretation. Is that safe to say?
    Mr. White. Yes, sir.
    Mr. Johnson. Okay. All right. In dealing with the 
certification process, of your 13 recommendations, several 
relate to the need for VA to enhance its staff capabilities. 
You have noted that there is enhanced staffing at VA, but that 
more needs to be done in this area.
    How important is the staffing or the human capital element 
of the VA employees to the overall success of the Verification 
Program?
    Mr. Kutz. Well, it is very important. You have the human 
capital element, processes, uses of technology, but none of it 
works unless you have strong expert government employees 
running the operation. That is really very important.
    As Mr. Leney and some of you mentioned, there are a lot of 
contractors involved in this process, so contract management 
and oversight is also important. But I really believe that the 
human capital is probably central to the success of this 
Verification Program, not only the quality of the people but 
the right number of people.
    Mr. Johnson. Okay. Has the VA taken steps to evaluate the 
sufficiency of the number of staff and the training and 
qualifications of the staff that are overseeing this program?
    Mr. Kutz. Yeah. They have taken steps and there are two 
parts to it. Again, there is the government employee group 
which is between 10 and 20. I do not know what the current 
number is. And then there is the contracting group which is 
larger.
    And so it is a combination of both. And I think at this 
point, they have good people, but I think that they may not 
always be trained in the right areas. Mr. Leney has talked 
about having them trained in the area of certified fraud 
examination, for example.
    So I believe they are doing an assessment and looking to 
see ways to upgrade their own staff and perhaps the contract 
staff also.
    Mr. Johnson. Okay. In regards to debarments, how do you 
explain the gap between 1,800 ineligible firms, 70 firms 
referred by VA to the IG, and only a few debarment actions?
    Mr. Kutz. Well, I think it is difficult. I mean, the way 
the law was written, it said misrepresentation, but I think we 
all could agree that the interpretation would be willful 
misrepresentation.
    I do not think we want to debar people who are making 
mistakes necessarily. But there is a large gap between what has 
been done so far and perhaps the people that should have been 
debarred. And I think what it creates is a situation where 
people are going to be able to get into the system that perhaps 
should not and stay in the system.
    They may even be kicked out here or denied, but then they 
go do work with DoD or NASA or someone else because keep in 
mind you are looking at $3.2 billion or so out of $10 or $11 
billion government-wide in service-disabled contracting. So I 
think that it is a matter of--right now all the staff as we 
understand are part time on the Debarment Committee, so it is a 
matter of perhaps resources and how many can you actually do. A 
debarment is a very difficult, time-consuming process.
    Mr. Johnson. Okay. All right. Thank you.
    I will yield to Mr. Walz for his questions.
    Mr. Walz. Well, thank you both for being here. It is good 
that we are having both these panels. Obviously we want to hear 
the whole thing. It seems like there is a bit of a disconnect.
    How often does it happen, if you can help me with this, 
where a GAO's recommendation, and we heard from the last panel 
that they are just interpreting it differently, do you have an 
idea how often that happens in your experience?
    Mr. White. That happens very rarely, Mr. Walz. In fact, I 
think I can think of fewer than five times in the last decade.
    Mr. Walz. Okay.
    Mr. White. We had about 2,000 cases.
    Mr. Walz. And I am also curious and I am a stickler for 
getting the details right. I mentioned the one disbarment. We 
got that from the GAO, from you guys, was the number that we 
were using.
    I want to be very clear. The VA says it is seven now. Is 
that just the lag time in reporting it is happening there?
    Mr. Kutz. Well, you are talking about the ten cases that we 
identified in our first report. None of those have been 
debarred by VA. The ones that they have debarred have come 
through their own processes.
    In fact, one of those ten in----
    Mr. Walz. My scenario of 20, 22 is actually optimistic on 
those ten cases.
    Mr. Kutz. Yeah. I do not think it is going to happen at VA 
probably, but one of the ten recently this month was indicted 
on 15 counts of wire fraud and other fraud. So as you may be 
aware of that, that was one of our original cases, and----
    Mr. Walz. And they are still not disbarred? Now, I want to 
give due process. They were indicted. They were convicted.
    Mr. Kutz. They were indicted and I believe the individual 
and not the firm right now is debarred which that is 
questionable. And we are going to look at that.
    Part of our follow-up work for both Subcommittees here is 
to report back to you the details of what happened to those ten 
firms. And I believe SBA did debar or suspended a couple of 
them. And now this is the first indictment out of the ten and 
there a couple of others that are still under investigation.
    Mr. Walz. I am curious about this. You know, I mentioned 
one. They said, no, it is seven. And we have a disconnect here.
    Are those still small numbers? I know it is the statistics 
here type of thing. I finished seventh in my class which was 
great, but there were only 25 of us. So that is a little 
different.
    So is this is a case of this--yeah, they know it is 
Congress. Do you know what I am saying? It seems like an 
inordinately small number, but maybe the problem is not as 
great in the ineligibles.
    I am trying to get at this of where--I just get a feeling 
and maybe I will take this one step further to you, Mr. White. 
This is a very unusual disconnect between GAO and an agency 
since I have been here. I am feeling that. And I have to say 
your initial statement mentioning Aldevra being here seemed 
highly unusual to me.
    Do you feel that strongly that that is why you mentioned 
that? I am glad they are here and it is an open public hearing, 
but for the GAO to mention that they are here and their 
statement seems to me to show--maybe I am misinterpreting 
here--that you feel very strongly about this.
    Mr. White. I actually noticed they were here and I thought 
it was a nice gesture.
    Mr. Walz. Okay. Well, good. And I do not want to read 
anything into it. I want to be very clear on that. You know, 
and I think it is great for the citizens. I think what we are 
seeing is a great example of how the checks and balances can 
work.
    What I am trying to figure out is, is how we use what you 
have given us, how we apply that to improve which is, as I said 
again, an incredibly good organization, the VA, an incredibly 
good program that is serving veterans. We just want to make it 
even better and get these out.
    Do you get the feeling they are implementing your 
suggestions at a pace that can be done, Mr. Kutz? Do you think 
they are?
    Mr. Kutz. With respect to the 13 recommendations----
    Mr. Walz. Yes.
    Mr. Kutz [continuing]. They are taking action on most of 
those and, as I mentioned, I believe that the prevention area 
is where they are the strongest and perhaps the debarment is 
the area where they are the weakest.
    And I wanted to mention that firm that I showed you on the 
monitors is one of our original firms and they were never 
debarred by SBA. They got to keep the contracts, millions of 
dollars of contracts they got through fraud and abuse, and now 
they are vet bus verified today.
    Now, I am not going to blame VA on that necessarily because 
they may look good today, but the point is that protecting the 
government interest was not done in the first place through a 
firm in this case that misrepresented their status and our 
belief intentionally and committed fraud.
    Mr. Walz. So this is one of the egregious ones here 
probably.
    Mr. Kutz. Yes, this is an egregious case. And, again, it 
just shows the impact of not debarring someone, that they are 
able to continue to exist and move around the government and 
stay in programs and keep doing business. And if they are going 
to lie about this, what else are they going to lie about?
    Mr. Walz. I am always very careful and I think the group up 
here tends to be that way. Is this a case where we can clarify 
or tweak--I know this gets people nervous--the original law to 
make the intent very clear that our spirit and letter of the 
law converge very clearly as with shall and may and some of 
those? Is that your interpretation? Would that help you make 
the case?
    Mr. Kutz. Well, not on debarment. I mean, I think 
debarment----
    Mr. Walz. Just in general on the whole program.
    Mr. Kutz. On the whole program, no. I think the framework 
you have set up for the VIP--I mean, the bigger issue here, we 
are--I am just here to talk to you about VA.
    Mr. Walz. Right.
    Mr. Kutz. The bigger issue is you have not addressed, no 
one has addressed what happens outside of VA. So you still have 
the ability of firms--it is still a self-certification program 
for service-disabled vets outside of VA.
    Now, granted, some of the agencies I think are using the 
VIP pages, but it is not necessarily happening across the 
government. And so you still have a little bit bigger problem. 
Even if VA gets it tight here for their $3 or $4 billion worth 
of service disabled, you have the other $7 billion or so 
happening outside of that that is still self-certification 
basically.
    Mr. Walz. Very good. Well, I thank you for your time. That 
is very helpful.
    Mr. Johnson. Mr. Stutzman.
    Mr. Stutzman. Thank you, Mr. Chairman.
    How often do executive branch agencies refuse to follow the 
recommendation--I think maybe, Mr. White, you kind of touched 
on that--in a GAO bid protest?
    Mr. White. Very rarely. This would be the first time this 
year. It happened last about 2 years ago. And it happened 
involving a very similar statute where the word shall in one 
statute versus may in some others. And it was a difficult 
situation because different Members of Congress felt that the 
different statutes should have had priority in that situation.
    And could I say just one other thing about that? We do not 
get invested in which of the statutes sets a priority. We 
simply try to interpret the statutes that Congress passes.
    Mr. Stutzman. Sure. What will happen if the VA refuses to 
follow the recommendation in the Aldevra decision?
    Mr. White. Under the statute that governs the bid protest 
process, the comptroller general is required to notify the 
Congress, the Committees involved, that would be this 
committee, and then it would be a matter between the executive 
branch and the legislative branch.
    Mr. Stutzman. Has the VA in recent past refused any other? 
Has there been any other GAO reports to the VA?
    Mr. White. I am not aware that there has ever been an 
instance where the VA has not followed a GAO bid protest 
recommendation.
    Mr. Stutzman. Why on this one?
    Mr. White. Why? I do not really understand why. Could I 
speak factually about a couple of things that I think they are 
mistaken about?
    In the testimony earlier, they mentioned that they will get 
back to the Committee on where this is laid out in the Federal 
Acquisition Regulation Part 19 which governs small businesses 
and set-aside programs.
    Well, I can tell you that there is only one subpart of Part 
19 that addresses service-disabled veteran-owned small business 
contracting preferences. And it has a preamble and in its 
preamble, it expressly states that it is implementing the 2003 
Veterans Benefits Act that applies government-wide and is 
codified in Title 15.
    It was not written to implement the 2006 Veterans Benefits 
Act that is specific to the VA and codified in Title 38.
    Mr. Stutzman. And I agree with Mr. Walz's statements 
earlier that if there is somebody out there that is taking 
advantage of this particular program, I mean that the hammer 
should come down. But at the same time, we do not want to 
overreact and make it so difficult for businesses that are 
legitimate.
    And I guess would there be an appropriate way to have 
appeals reviewed by a third party like SBA's Office of Hearings 
and Appeals? Is there something we could add to the process 
that would make it more fair or make the appeal process 
legitimate for a business that would be denied?
    Mr. White. And do you mean other than the Federal courts?
    Mr. Stutzman. Yes.
    Mr. White. I know that there have been exchanges between 
the VA and the SBA about whether or not SBA would review the 
VA's decisions in this area. And I think the SBA has taken the 
view that it will not. So I do not know why they took that 
position. I imagine they have reasons for their views.
    Mr. Stutzman. But doesn't it seem inappropriate to have SVE 
reviewing their own decisions when it comes to verification?
    Mr. White. I can understand that they may view it that 
Congress did not anticipate anyone else doing that kind of 
review other than the courts, but----
    Mr. Stutzman. Okay. Thank you, Mr. Chairman. I yield back.
    Mr. Johnson. I thank the gentleman for yielding back.
    I think that is all the questions that we have. You have 
certainly enlightened us here.
    We talk about the word shall. We talk about Title 38 versus 
Title 15. I am very concerned with the VA's refusal to accept 
the GAO's response to this particular bid protest.
    I am looking forward to see their response.
    What did you say again the deadline is?
    Mr. White. The deadline works out to be December 15th.
    Mr. Johnson. Okay. All right. Well, gentlemen, I appreciate 
your being here. Our thanks to you today and you are now 
excused.
    In closing, improvements in the SDVOSB verification process 
are obviously a good thing, but I believe we all know and we 
have seen from today that the work is far from over.
    I look forward to the VA's continued reporting to this 
committee on progress made in this effort, not only in 
approving those eligible companies, but also in taking prompt 
action against those that seek to defraud the government and 
take business away from our deserving veterans.
    Our concerns regarding the Aldevra decision are fairly 
clear as well. Knowing that for the last 30 days that it would 
come up at this hearing, the testimony provided was 
disappointing at best.
    There is a prime opportunity for the VA to solve this issue 
without the added time and expense of forcing it into the court 
system. Our veterans serve this country with pride and we 
should be proud to do business with them when they return to 
the workforce. The VA can maintain leadership in this arena, 
but instead it is choosing to only do so when it is convenient. 
That is not the treatment our veteran small business owners 
deserve.
    With that, I ask unanimous consent that all Members have 
five legislative days to revise and extend their remarks and 
include extraneous material. Without objection, so ordered.
    I want to thank all Members and witnesses for their 
participation today, especially to Chairman Stutzman in today's 
hearing and the Ranking Members from both the Subcommittees for 
being here today.
    With that, this hearing is now adjourned.
    [Whereupon, at 11:53 a.m., the Subcommittees were 
adjourned.]






                            A P P E N D I X

                              ----------                              

                Prepared Statement of Hon. Bill Johnson,
         Chairman, Subcommittee on Oversight and Investigations
    Good morning. This hearing will come to order.
    I want to welcome everyone to today's follow-up hearing on the VA's 
Service-Disabled Veteran-Owned Small Business Certification Process. I 
thank the Members of the Subcommittee on Economic Opportunity for their 
participation today and their efforts in improving the process for 
veteran-owned and service-disabled veteran-owned small businesses to do 
business with the VA.
    A first item I would like to mention is the several outstanding 
deliverables due to the Committee, some of which are now nearly 2 
months overdue. If the VA is sincere about working with this Committee 
to better the lives of our Veterans, I would expect action that 
reflects that desire. Failing to identify the leadership structures of 
your own VISNs for over 2 months, or not being able to identify 
efficiency measures in patient visits for over a month is alarming, and 
makes me wonder whether the VA is fully aware of events happening under 
its watch.
    In July, we held a hearing on this certification process. At that 
time, Mr. Tom Leney (``Linn-ee'') was relatively new to his position as 
the Executive Director of Small and Veteran Business Programs at VA's 
Office of Small and Disadvantaged Business Utilization, commonly 
referred to as the ``OSDBU'' (``Ausd-booh''). At that hearing, we 
promised a follow-up discussion with Mr. Leney to see how his planned 
improvements for the process in certifying veteran-owned small 
businesses had been implemented after several months. Today is that 
follow-up. I look forward to hearing of the progress made toward 
achieving those goals and how much longer it will be until the goals 
are realized.
    I also have concerns regarding recent actions taken by the VA's 
Senior Procurement Executive in response to the recent GAO Aldevra 
decision, which states that the VA should make efforts to contract with 
veteran-owned small businesses when feasible, and in accordance with 
the Veterans First contracting program. GAO recently upheld a bid 
protest filed by the Aldevra business on a VA contract, and recommended 
that the VA re-bid that contract. Despite clear legislative and 
committee report language outlining the intent of the Veterans First 
contracting program, the VA decided that GAO's decision would not apply 
to its contracting operations and that it would continue as it pleased, 
doing away with preference for VOSBs and SDVOSBs in much of its 
contracting.
    The VA has made it clear in correspondence and meetings following 
the Aldevra decision that it has no intention of attempting to clear up 
its own questions about Veterans First. Despite acknowledging a 
problem, the VA is not trying to solve the problem, nor did it even ask 
Congress or this Committee those questions that needed to be answered 
years ago.
    Even after the Aldevra decision and the VA's response, efforts by 
these two Subcommittees to help explain parts of the law that the VA 
had trouble understanding--several years after its passage--were met 
with a lack of cooperation on the VA's part.
    Instead, the VA is determined to run this through the court system, 
eliminating key opportunities for VOSBs to contract with the Federal 
Government.
    When the VA cannot, or chooses not to, implement clearly written 
legislation, we have a problem.
    This is not rocket science. The Veterans First contracting program 
exists to help the VA set the standard in Federal Government 
contracting with VOSBs and SDVOSBs. With Congress and the 
Administration sharing a goal of increasing contracting with VOSBs and 
SDVOSBs, the Veterans First language facilitated the achievement of 
that goal. The law contains clear wording on how the VA can achieve 
that goal, while simultaneously helping our veterans do business and 
not hindering the VA in its contracting efforts. With straightforward 
language such as ``the Secretary shall give priority to a small 
business concern owned and controlled by veterans,'' it is difficult to 
understand the VA's failure to correctly interpret this law, which also 
provides reasonable accommodations when a VOSB or SDVOSB cannot fill 
the need.
    We need to get this right. The certification process must ensure 
that VOSBs and SDVOSBs are efficiently processed and certified. We then 
must ensure that those same businesses are able to compete for the 
appropriate contracts. Otherwise, there is no point in having these 
businesses in the system if the VA is going to ignore them.
    I look forward to today's testimony on improvements made in the 
certification process since our last hearing and the further 
improvements we can look forward to in the near future. I also look 
forward to discussion on how we can make the actual contracting system 
with VOSBs and SDVOSBs work as it is intended. I am, however, 
disappointed that VA's testimony barely touches on the Aldevra topic 
despite knowing for 30 days that it would be a part of this hearing. 
This is no surprise to anyone, and since VA's October meeting with 
Committee staff we see no great effort on VA's part to improve this 
situation.
Closing remarks
    Improvements in the SDVOSB verification process are obviously a 
good thing, but I believe we all know the work is far from over. I look 
forward to VA's continued reporting to the Committee on progress made 
in this effort, not only in approving those eligible companies but also 
in taking prompt action against those that seek to defraud the 
government and take business away from our deserving Veterans.
    Our concerns regarding the Aldevra decision are fairly clear as 
well. Knowing for the last 30 days that it would come up at this 
hearing, the testimony provided was disappointing at best. There is a 
prime opportunity for VA to solve this issue without the added time and 
expense of forcing it into the court system. Our Veterans served this 
country with pride, and we should be proud to do business with them 
when they return to the workforce. The VA can maintain leadership in 
this arena, but instead is choosing to only do so when convenient. That 
is not the treatment our veteran small business owners deserve.

                                 
             Prepared Statement of Hon. Marlin A. Stutzman,
             Chairman, Subcommittee on Economic Opportunity
    Thank you Chairman Johnson. First, let me express my appreciation 
for offering to join forces on enabling service disabled veteran-owned 
small businesses to compete for contracts with the Department of 
Veterans Affairs.
    Let me begin by adding some context to why we are here today. In 
1999, the President signed legislation that became Public Law 106-50, 
which established a government-wide goal for all Federal agencies to 
award 3 percent of their contract dollars to small businesses owned and 
controlled by service-disabled veterans. Until that time, there was no 
goal for Service Disabled Veteran Owned Small Businesses or SDVOBs.
    Since then, there have been several laws and an Executive Order 
that make it clear that Federal agencies are to make every effort to 
award at least 3 percent of their acquisition dollars to service 
disabled veteran-owned small businesses.
    This legislative effort has continued with the passage of two laws 
that established and reinforced section 8127 of title 38 to provide VA 
with special tools and priorities to meet, and hopefully exceed, the 3 
percent goal. By most indicators, the intent of section 8127 has been 
met. But meeting the 3 percent goal is not the sole intent of section 
8127. Another goal is to establish a database of validated veteran and 
service disabled veteran-owned businesses that any government agency 
can access as part of their efforts to meet the 3 percent goal. And 
that is where there are still significant problems.
    Today, VA data shows contract awards exceeding 20 percent and I 
congratulate them for that effort. However, the process in achieving 
those numbers has been painful at best. Until recently, implementation 
of the database of validated veteran and service disabled veteran-owned 
small businesses required by P.L. 109-461 has been less than 
professional, to put it kindly.
    VA is still recovering from its initial reluctance to implement the 
law. Its policy of allowing self-certification of ownership and control 
status instead of actively performing the validation function 
prescribed in the law was, frankly, a disaster. As a result, as we will 
hear today, millions of contract dollars went to businesses that did 
not meet veteran or disabled veteran-owned and controlled status.
    I also find VA's recent decision to ignore GAO's finding in favor 
of a protest by Aldevra, a service disabled veteran-owned small 
business, as evidence of a continuing reluctance to fully embrace the 
clear requirements of section 8127. The law does not require VA to set 
aside all contracts for SDVOSBs or award all contracts to SDVOSBs. More 
importantly, nowhere in section 8127 is there a provision exempting 
acquisitions using the Federal Supply Schedule. If nothing else, 
setting aside contracts using the FSS will provide VA contracting 
officers additional flexibility in meeting the SDVOSB goals.
    Let's assume for the moment that those who believe the provisions 
of section 8127 go too far and that they give too much advantage to 
SDVOSBs are correct. To those I would point out the literally dozens of 
Federal agencies who continue to fail miserably to meet even the 3 
percent goal. For example, DoD, the largest Department in the Federal 
Government, awarded only 1.82 percent to SDVOSBs in FY 2010. I suspect 
DoD could do better if they limited janitorial awards to those SDVOSBs 
in that business. So, if VA is picking up part of the slack for the 
rest of the Federal Government, so be it.
    Finally, my staff and I have been hearing with increasing frequency 
that many legitimate SDVOSBs are having an extremely difficult time 
being validated and several have even had to close down as a result. 
While I understand that verification rules must be enforced to ensure 
non-SDVOSB are kept out there must be a balance. I am interested to 
hear from Mr. Leney about how he can better strike this balance and 
expedite re-consideration for many of these small businesses. I am also 
concerned about what appears to be very dubious arbitrary decisions to 
deny status to businesses by contractors hired to validate the 
ownership and control status and I suggest that may be as a result of a 
lack of clear regulations on things like survivorship and conflicts 
with state laws.
    I yield back.

                                 
  Prepared Statement of Hon. Joe Donnelly, Ranking Democratic Member, 
              Subcommittee on Oversight and Investigations
    The tough economic times make it as important as ever to properly 
address oversight, programmatic, policy concerns, and thoroughly review 
the Service Disabled Veteran Owned Small Business or SDVOSB 
certification process.
    Providing contracting opportunities to our deserving Veterans 
through the SDVOSB process is important, but when you have a successful 
program such as the VA's small business contracting program awarding 
millions of dollars, it attracts non-veteran business owners whose 
intentions are unfortunately to commit fraud. This is why it's 
important for the VA to implement and enforce fraud prevention 
measures.
    During this joint hearing, I will look for the following: an 
overview of VA's preventive measures and monitoring control to minimize 
vulnerability to fraud, VA's debarment procedures, staff training to 
identify and monitor potential fraud, VA's verification process such as 
how they verify SDVOSBs and the purpose of conducting unannounced site 
visits. These are just some of the few items I have in today's agenda. 
I believe that unless we remedy these concerns, the same problems that 
have haunted the VA's verification program will remain.

                                 
Prepared Statement of Hon. Bruce L. Braley, Ranking Democratic Member, 
                  Subcommittee on Economic Opportunity
    The opportunity we have to hold this hearing with the Subcommittee 
on Oversight and Investigations is rare but shows how important today's 
topic is. By having this joint hearing, I believe it will bring to 
light the importance of preventing service-disabled veteran owned small 
business program fraud by non-veteran small business.
    Providing contracting opportunities to veteran owned small 
businesses and service-disabled veteran owned small businesses was a 
preference that Congress agreed veterans and disabled veterans merited. 
The purpose of the 3 percent set-aside for SDVOSB was to increase 
contracting opportunities throughout the Federal Government; this was a 
right that our service-disabled veterans earned.
    At this time, I would like to take the opportunity to thank the 
Department of Veterans Affairs for their support to VOSBs and SDVOSBs 
and for exceeding the government-wide goal as well as the VA's own 
internal goals. This program lacks rigorous controls to prevent fraud 
by contractors seeking to perform under the SDVOSB program when they 
deliberately misrepresent themselves as such. VA has a long history of 
problems in its verification program but I'm pleased to hear that they 
are working through these hurdles. However, verification doesn't only 
happen once, businesses are required to be re-verified yearly which 
means the VA needs to be prepared to have enough staff, resources, and 
proper guidelines to re-verify SDVOSBs.
    I would like to thank my colleagues from the Subcommittee on 
Oversight and Investigations for including us in this hearing today. I 
look forward to today's joint hearing and hearing from all of our 
panelists here today.

                                 
   Prepared Statement of Thomas J. Leney, Small and Veteran Business
   Programs, Office of Small and Disadvantaged Business Utilization,
                  U.S. Department of Veterans Affairs
    Chairman Johnson, Chairman Stutzman, Ranking Member Donnelly, 
Ranking Member Braley, and Members of the Subcommittees, thank you for 
inviting me to testify on the VA's implementation of Veteran-owned 
small business (VOSB) provisions in the Veterans Benefits, Health Care 
and Information Technology Act of 2006 (Public Law 109-461, Sections 
502 and 503), and the Veterans Benefits Act of 2010 (Public Law 111-275 
Section 104).
    The goal of VA's Office of Small and Disadvantaged Business 
Utilization (OSDBU) is to help small and Veteran-owned businesses 
contribute most effectively to the important mission of VA. The Center 
for Veterans Enterprise (CVE), which is part of OSDBU, is responsible 
for ensuring that all money and contracting preferences set-aside for 
Veterans and service-disabled Veterans go to legitimate Veteran-owned 
small businesses through a verification process that is intended to put 
contracts and job-creating opportunities into the hands of legitimate 
Veteran owned and controlled businesses.
    Congress has provided VA with tools to aid Veteran entrepreneurs. 
The Vet First program under P.L. 109-461 enables VA to provide 
preference to Service Disabled Veteran Owned Small Businesses (SDVOSB) 
and Veteran Owned Small Businesses (VOSB). VA has used this program 
aggressively and leads the Federal Government in contracting with 
service-disabled Veteran-owned small businesses (SDVOSBs). VA is also 
the only agency with specific authority to contract with all VOSBs, 
regardless of service-disability. In Fiscal Year 2011, VA awarded more 
than $3 billion in contracts to both categories, out of our contracting 
base of $15.5 billion. P.L. 109-461 enabled VA to far exceed its 
procurement goals of 10 percent for SDVOSBs and 12 percent for VOSBs, 
by reaching nearly 20 percent and nearly 22 percent respectively.
    That is real money in the hands of Veterans and their small 
businesses, and it establishes VA as a leader in this area. At the same 
time, VA has actively implemented statutory provisions to ensure the 
Public Law 109-461 procurement eligibility goes only to legitimate 
SDVOSBs and VOSBs. We are carrying out the direction of Congress to 
verify such firms, and to ensure that only those firms whose business 
models meet the criteria laid out in P.L. 109-461 gain the benefits of 
the preferences it provides. We have also moved aggressively against 
the relatively small number of firms who would misrepresent their 
status in order to obtain illegitimate benefit.
    I would like to update you on the progress VA has made to improve 
the VA VOSB Verification Program and our plans to continue improving so 
that legitimate SDVOSBs and VOSBs have greater access to VA procurement 
opportunities. As we promised, we have completed the removal of all 
non-verified companies from the Vendor Information Pages (VIP). In 
April 2011, we had nearly 1,800 non-verified companies in VIP. As of 
September 4, 2011, only verified companies are listed in VIP, 3 months 
ahead of schedule. In June, 2011, it took an average of 127 days to 
process an initial verification application. Today it takes an average 
of 75 days. When the Veterans Small Business Verification Act (Public 
Law 111-275, Section 104) required business owners to send in 
documents, we did not have an easy way for them to do so. We received 
CDs, paper copies and even email attachments, and our first attempt at 
an online upload site did not produce the desired results. Veterans now 
have the ability to submit their entire application online, to include 
uploading all required documents directly to their VIP profile. In 
April, a Veteran may have waited months to receive word that there was 
an issue with their Veteran or service-connected status in the VA 
Beneficiary Identification Records Locator Subsystem (BIRLS) database. 
The BIRLS database is used to determine the Veteran's status, character 
of service and whether or not the Veteran has a service-connected 
disability. Veterans now receive this status within 48 hours.
    To further ensure the accuracy of our verification process, CVE 
conducts an additional Quality Check (QC) on 10 percent of its approval 
decisions. The QC check includes site visits for a randomly selected 
sample of approved applications. CVE officials have also increased our 
communications with applicants. Our policy is that applicants receive 
updates within 30 days, and at all key points in the process. The CVE 
help desk provides a response within one business day regarding at what 
stage the application is in and applicants can receive an update on 
demand in our new online system. Decision letters are also now 
delivered electronically to avoid the delay of conventional mail. VA's 
online application tool also posts the approval letters in the 
company's profile.
    Along with more frequent correspondence, we have launched our 
Verification Education Program, which is a series of fact sheets that 
explain the most frequent reasons for denial. This program aims to 
educate applicants on common issues. Our goal is to eliminate common 
errors up-front to help legitimate SDVOSB/VOSBs quickly receive 
favorable decisions. We are also seeking partnerships with the 
Association of Procurement Technical Assistance Centers, the 
Association of Small Business Development Centers and Veterans Service 
Organizations so that applicants can receive assistance from local 
business counselors.
    VA has recently launched a new online application and tracking 
system called VIP-6. The initial launch of VIP-6 created a number of 
challenges, but the platform is now fully operational. The project is a 
complete overhaul of the legacy system, built on a new platform. It 
seeks to provide VA with a robust application process that gives 
Veteran business owners the ability to complete applications online, 
immediately obtain the results of their Veteran status check by VA from 
BIRLS, and track the status of their application on demand.
    The Government Accountability Office (GAO) did a follow-up on its 
May, 2010 evaluation of the CVE verification and identified some 
challenges and vulnerabilities that VA has since overcome. Among these 
were issues of training, unannounced site visits and debarment of 
ineligible firms. CVE staff are now evaluated and provided on-the-job-
training for job functions. A fraud awareness program is in place for 
CVE staff that will provide Certified Fraud Examiner credentials for 
all CVE staff through training and evaluation. Qualified supervisors 
train staff on fraud awareness on a rotating basis. All firms 
identified by the risk mitigation program as high risk currently 
undergo an in-depth second examination that includes an announced site 
visit. Site visits are an important part of our risk mitigation program 
and a tool to ensure eligibility; we have increased them nearly ten-
fold from calendar year 2010 and 2011. Verified firms that are 
identified as high risk undergo unannounced site visits. CVE also has 
initiated random unannounced site visits for verified firms.
    In June and October 2011, OSDBU provided training to 500 
contracting officers on the use of VIP. The Office of Acquisition and 
Logistics (OAL) clarified policy regarding contracting officer (CO) use 
of VIP for SDVOSB or VOSB set-aside and sole-source actions. The policy 
clarification states that the CO must check VIP at both the proposal 
receipt and again before making the award. Those businesses not in VIP 
are ineligible to submit a proposal and ineligible to receive an award. 
Checking the database a second time ensures that a company has not lost 
its eligibility between the proposal submission and award.
    VA is serious about debarring companies who intentionally 
misrepresent their status as a VOSB or SDVOSB, and has formed the 8127 
Debarment Committee, named after the portion of the U.S. Codes that 
implements the small business portions of P.L. 109-461. VA has 
developed and formalized specific processes and criteria related to the 
8127 Debarment Committee which can be found on the Committee's Web 
site. As of October 2011, it had debarred seven separate contractors 
and related individuals. Two additional concerns which VA had worked to 
debar, filed suit and a resulting Court Order required VA remove the 
concerns and associated individuals from the Excluded Parties List 
System (EPLS) listing pending remand to VA for further action and final 
decision of the Court. However, it is important to note that most 
ineligible firms are not committing fraud. The vast majority of firms 
self-report issues that preclude their eligibility for verification. 
Those firms that provide false information or omit material information 
are referred to VA's Office of the Inspector General (OIG) for action.
    Even with the substantial progress that VA has made, we realize 
that there are still challenges to face and improvements to be made. 
Our request for reconsideration option has faced a tremendous increase 
in use. Historically, about 20 percent of applicants who received an 
initial denial submitted a request for reconsideration. Over the last 2 
months, this has increased to more than 60 percent. We have shifted and 
increased resources to speed up the process. In order to be fair to all 
applicants, we continue to process all requests for reconsideration on 
a first-in, first-out basis.
    Mr. Chairman, we were also asked to address an October 11, 2011, 
GAO decision upholding a bid protest by an SDVOSB on two VA 
solicitations for the purchase of food-preparation equipment. In the 
Matter of Aldevra decision, B-405271 & B-405524, GAO determined that 
before placing purchase orders against the Federal Supply Schedule 
(FSS), VA should have first determined whether the factual predicates 
for a set-aside for VOSBs using the restricted-competition standards of 
38 U.S.C. Sec. 8127(d) were satisfied.
    GAO's decisions in these matters are advisory and its 
recommendations are not binding on executive agencies. This particular 
decision is still being discussed internally within the Executive 
Branch.
    However, VA has consistently interpreted the authority Congress 
gave it in Public Law 109-461 as a small business set-aside program 
with VOSBs having priority over any other class of small businesses 
when VA is conducting full-and-open-competition procurements. Congress 
also gave the Department authority to do ``restricted competitions'' 
(set-asides) ``for the purpose of meeting the goals'' set by the 
Secretary for contracting with VOSBs. VA has not interpreted the latter 
as a requirement that VA always endeavor to do restricted competitions, 
nor have we interpreted it as abridging VA's authority to make FSS buys 
when it is appropriate to do so. VA has always been of this view, as it 
made clear in the Federal Register notice (74 Federal Register 64619 
(December 8, 2009).
Conclusion
    VA has made significant progress in the last 6 months in its VOSB 
verification program. We have overcome many of the challenges and 
vulnerabilities that were raised by the GAO and OIG reports, and are 
working to resolve those that remain. We are being proactive in our 
approach to these issues and seek continuous improvement. Mr. Chairmen 
and Members of the Subcommittees, this concludes my statement. I am 
pleased to answer any questions you may have.

                                 
 Prepared Statement of Gregory D. Kutz, Director, Forensic Audits and 
      Investigative Service, U.S. Government Accountability Office
   Service-Disabled Veteran-Owned Small Business Program: Additional 
          Improvements to Fraud Prevention Controls Are Needed
    Chairmen Stutzman and Johnson, Ranking Members Braley and Donnelly, 
and Members of the Subcommittees:
    Thank you for the opportunity to discuss the fraud prevention 
controls within the Service-Disabled Veteran-Owned Small Business 
(SDVOSB) program at the Department of Veterans Affairs (VA). Today's 
testimony summarizes our report, released today, on the design of VA's 
fraud prevention controls within the SDVOSB verification program, 
including recent improvements in controls.\1\ The SDVOSB program is 
intended to provide Federal set-aside and sole-source contracts to 
small businesses owned and controlled by one or more service-disabled 
veterans. About $10.8 billion in contracts were awarded in fiscal year 
2010 to firms that self-certified as SDVOSBs in the Central Contractor 
Registration (CCR), according to the Small Business Administration 
(SBA).\2\ VA's SDVOSB contracts accounted for $3.2 billion, or about 30 
percent of the $10.8 billion in governmentwide SDVOSB contracts during 
fiscal year 2010. As of October 2011, VA's VetBiz Vendor Information 
Pages database shows that the agency has verified the eligibility of 
more than 5,000 SDVOSB firms. In addition, more than 15,000 firms also 
self-certified their SDVOSB eligibility in CCR.
---------------------------------------------------------------------------
    \1\ GAO, Service-Disabled Veteran-Owned Small Business Program: 
Additional Improvements to Fraud Prevention Controls Are Needed, GAO-
12-152R (Washington D.C.: Oct. 26, 2011).
    \2\ CCR is the primary contractor registrant database for the U.S. 
Federal Government. CCR collects, validates, stores, and disseminates 
data in support of agency acquisition missions.
---------------------------------------------------------------------------
    In audits of the SDVOSB program conducted in 2009 and 2010, we 
identified weaknesses in fraud prevention controls that allowed 
ineligible firms to receive about $100 million in SDVOSB contracts.\3\ 
These weaknesses included a lack of governmentwide controls, which 
allowed ineligible firms to receive contracts by self-certifying that 
they were legitimate SDVOSB firms. In addition, we found the absence of 
continued monitoring of firm eligibility and an ineffective process for 
investigating and prosecuting firms abusing the program. We also found 
that VA had made limited progress enacting an effective verification 
program as required by the Veterans Benefits, Health Care, and 
Information Technology Act of 2006.\4\ To improve governmentwide 
program controls, we recommended that SBA and VA explore the 
feasibility of expanding the use of VA's verified VetBiz database to 
the rest of the Federal Government. SBA and VA generally agreed with 
our recommendation.
---------------------------------------------------------------------------
    \3\ See the list of related GAO products at the end of this 
testimony.
    \4\ The act requires VA to institute controls over its SDVOSB 
contracts. The requirement to maintain a database of VA-verified 
SDVOSBs and Veteran-Owned Small Businesses (VOSB) became effective June 
2007. The act also requires that VA only use its set-aside and sole-
source award authority for SDVOSB firms listed in the database and to 
debar for a reasonable period of time, as determined by VA, firms that 
misrepresent SDVOSB and VOSB status. Pub. L. No. 109-461, Sec. 502, 120 
Stat. 3403, 3431-3435 (2006).
---------------------------------------------------------------------------
    After the Veterans Benefits, Health Care, and Information 
Technology Act of 2006 was passed, Congress passed laws further 
intended to strengthen the SDVOSB program within VA and governmentwide. 
The Veterans Small Business Verification Act requires VA to verify a 
firm's eligibility before including that firm in the database and 
permits VA to request additional documentation substantiating veteran 
ownership and control of a firm in order to establish eligibility.\5\ 
Furthermore, Congress also passed the Small Business Jobs Act of 2010, 
which facilitates prosecution of firms that willfully seek and receive 
small business awards through misrepresentation of their status, 
including SDVOSBs.\6\
---------------------------------------------------------------------------
    \5\ Veterans Small Business Verification Act, Pub. L. No. 111-275, 
Sec. 104, 124 Stat. 2864, 2867-2868 (2010).
    \6\ Small Business Jobs Act of 2010, Pub. L. No. 111-240, 
Sec. 1341, 124 Stat. 2504, 2543-2544 (2010).
---------------------------------------------------------------------------
    Today's testimony summarizes our report on the design of VA's fraud 
prevention controls within the SDVOSB verification program, including 
recent VetBiz verification efforts, instituted in response to the 
Veterans Small Business Verification Act. The report is being released 
today as a separate product.\7\ To conduct this work, we reviewed prior 
findings from GAO audits and investigations of the SDVOSB program. We 
reviewed applicable guidance on internal control standards from GAO's 
Standards for Internal Control in the Federal Government,\8\ the fraud 
prevention framework,\9\ VA's Office of Inspector General (OIG) 
report,\10\ and VA's Verification Process Guidelines and internal 
control policies. We also interviewed VA officials and reviewed related 
documents. In addition, we conducted undercover tests to assess initial 
screening controls of an individual's service-disabled veteran status 
within VA's verification process. The undercover tests were limited in 
scope to providing a fictitious firm controlled by an individual whose 
Social Security number was not listed as a service-disabled veteran in 
VA's database of service-disabled veterans. Our assessment is part of 
an ongoing review of fraud prevention controls for the entire SDVOSB 
program. This testimony focuses on the design of VA's SDVOSB 
verification controls within its Center for Veterans Enterprise (CVE) 
office. With the exception of undercover tests to assess initial 
screening controls, we did not test the effectiveness of VA's fraud 
prevention controls or attempt to project the extent of fraud and 
abuse. Additional information on our scope and methodology is available 
in the issued report.
---------------------------------------------------------------------------
    \7\ GAO-12-152R.
    \8\ GAO, Standards for Internal Control in the Federal Government, 
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
    \9\ GAO, Service-Disabled Veteran-Owned Small Business Program: 
Fraud Prevention Controls Needed to Improve Program Integrity, GAO-10-
740T (Washington, D.C.: May 24, 2010).
    \10\ VA OIG, Office of Audit and Evaluations, Department of Veteran 
Affairs: Audit of Veteran-Owned and Service-Disabled Veteran-Owned 
Small Business Programs, 10-02436-234 (July 25, 2011).
---------------------------------------------------------------------------
    We conducted the work related to the report from July 2011 to 
October 2011 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. We 
performed our investigative work, limited to our undercover tests, in 
accordance with the standards prescribed by the Council of the 
Inspectors General on Integrity and Efficiency.
Summary
    VA's fraud prevention controls for the SDVOSB program within VA 
have improved since the Veterans Small Business Verification Act was 
enacted. Specifically, VA has made progress in implementing an enhanced 
initial SDVOSB verification process that reduces the risk that 
ineligible firms will receive VA contracts. However, further 
enhancements could do more to reduce the program's vulnerability. 
Improvements in the areas of preventive controls, detection and 
monitoring, and investigations and prosecutions could be made within 
VA's VetBiz verification process. With a comprehensive framework in 
place, VA can be more confident that the billions of dollars meant to 
provide VA contracting opportunities to our Nation's service-disabled 
veteran entrepreneurs make it to the intended beneficiaries. In an 
effort to improve controls, in our report, we made recommendations to 
improve fraud prevention controls in the areas of prevention, detection 
and monitoring, and investigations and prosecutions. VA generally 
agreed with the recommendations.
VA's SDVOSB Program Controls Have Improved, but Vulnerabilities Remain
    VA's fraud prevention controls for the SDVOSB program have improved 
since the Veterans Small Business Verification Act was enacted, but 
additional enhancements would further reduce the vulnerabilities we 
identified in the areas of preventive controls, monitoring and 
detection, and investigations and prosecutions. These are also the 
components of GAO's fraud prevention framework (see fig. 1). First, 
preventive controls are an effective and efficient way of preventing 
ineligible firms from being verified. Second, active and continual 
monitoring of verified SDVOSB firms is necessary to detect any changes 
in their status that may affect eligibility. Third, investigations and 
prosecution is a strong deterrent for those considering misrepresenting 
their SDVOSB status.
Figure 1: GAO's Fraud Prevention Framework

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Additional Improvements to Preventive Controls Are Needed
    VA has enhanced deterrents to ineligible firms becoming verified 
through VetBiz. As of April 2011, VA had established verification 
guidelines, including a requirement to search the exact names of 
company principals in the Excluded Parties List System, and developed a 
risk assessment model to examine applications. VA also updated its data 
systems to limit manual data entries. Its process of verifying service-
disabled veteran status allowed VA to prevent two fictitious ineligible 
SDVOSB applications submitted by GAO from being verified. Specifically, 
we submitted two fictitious companies for verification, listing the 
names and Social Security numbers of the majority owners who were not 
service-disabled veterans. VA's controls appropriately identified that 
our company owners were not service-disabled veterans and rejected our 
applications. VA also hired additional CVE staff to conduct initial 
file reviews and site visits. Additionally, VA has conducted announced 
site visits at high-risk firms before they receive VetBiz approval. 
Finally, VA created a quality review team to inspect a subset of 
initial file examination decisions. VA's enhanced deterrents under new 
guidelines have resulted in VA's denial of verification to over 1,800 
firms under the new verification guidelines, according to VA.
    Even with these enhanced deterrents, program weakness and 
vulnerabilities remain within VA's SDVOSB program. During our 
interviews with CVE officials, we found that CVE had not performed a 
systematic assessment of the qualifications of its staff. In addition, 
CVE staff and contracting officials had not received fraud awareness 
training. VA also did not have formal processes or procedures for 
considering all SBA status protest decisions related to an applicant, 
and was not validating applicants' self-reported information. VA also 
did not have a formal process for selecting high-risk companies for 
unannounced site visits or using information from previously denied 
SDVOSB applications to prevent individuals and fraudulent companies 
from repeated attempts at breaching VA controls. Additionally, we found 
that VA was not requesting that denied companies reassess their self-
certified SDVOSB status in CCR. By addressing the identified 
vulnerabilities, VA could further improve its fraud prevention 
controls.
Additional Improvements to Detection and Monitoring Controls Are Needed
    VA has developed some controls that may help identify firms in the 
VetBiz-verified database that do not meet SDVOSB eligibility 
requirements, such as a reverification initiative designed to review 
previously verified SDVOSB firms under new controls. VA has also 
developed a process for interested parties to protest a firm's status, 
and instituted random announced site visits of verified SDVOSB firms. 
However, even with enhanced controls, certain weaknesses and 
vulnerabilities remain because of VA's focus on initial eligibility 
verification. For example, VA does not monitor firms' continued 
compliance with North American Industry Classification System size 
standards, nor does it have contact with contracting officials to 
determine whether the required percentage of work on SDVOSB contracts 
has been performed. VA also does not systematically data mine existing 
contract awards for review and further inspection. VA also does not 
have a formal process for selecting companies for unannounced site 
visits to contract performance locations and does not have a formal 
process for interviewing contracting officials. Finally, VA has not 
formalized its quality assurance process for selecting verified 
companies for unannounced site visits to determine if the verification 
process is effective. Further improvements in these areas would 
increase the design of detection and monitoring controls within the 
verification process.
Additional Improvements to Investigations and Prosecutions Are Needed
    VA has taken some actions to debar firms violating SDVOSB program 
requirements. VA may debar an ineligible firm in accordance with the 
Veterans Benefits, Health Care, and Information Technology Act of 2006, 
which requires that any business determined to have misrepresented its 
status as an SDVOSB shall be debarred from contracting for a reasonable 
period of time, as determined by VA. VA instituted a debarment 
committee in September 2010 specifically to debar firms violating 
SDVOSB regulations. As of October 2011, the Committee had debarred one 
SDVOSB firm and related individuals that had misrepresented their 
status as an SDVOSB. Several other debarment actions are currently 
pending or are being litigated. Additionally, CVE officials have sent 
about 70 referrals to the VA OIG for potential fraudulent actions by 
firms receiving SDVOSB contracts. VA OIG is currently investigating 
these cases.
    We identified certain weaknesses and vulnerabilities in the 
investigation and prosecution controls during our site visits. The 
debarment of only one firm and related individuals suggests that there 
is room for additional action given the 1,800 firms rejected by VA 
during its verification process and the 70 firms referred to VA OIG for 
potentially fraudulent actions. Additionally, VA does not have specific 
procedures for CVE staff to refer companies to the debarment committee 
or VA OIG, and has no specific guidelines documenting how VA is 
implementing debarments or outlining the debarment committee's decision 
process. Providing more emphasis on debarments and investigations could 
further help VA deter firms from attempting to fraudulently gain access 
to its SDVOSB program.
Conclusions
    In conclusion, VA has made progress in implementing a valid 
verification program to deter ineligible firms from becoming verified 
and receiving SDVOSB contracts. However, additional improvements can be 
made, particularly in monitoring and detection and investigations and 
prosecutions. Specifically, developing a robust unannounced site visit 
process for verified firms and aggressively pursuing debarments and 
prosecutions of firms found to have violated program rules will further 
enhance fraud prevention controls. With a comprehensive framework in 
place, VA can be more confident that the billions of dollars meant to 
provide VA contracting opportunities to our Nation's service-disabled 
veteran entrepreneurs make it to the intended beneficiaries.
    To minimize the risk of fraud and abuse within VA's SDVOSB program, 
in the report released today, we recommended that the Secretary of 
Veterans Affairs take 13 actions in the following three areas:

      Improve VA's preventive controls to provide reasonable 
assurance that only eligible firms gain access to the VetBiz database.
      Strengthen VA's detection and monitoring controls over 
verified firms.
      Strengthen VA's investigative and prosecutorial actions 
for firms violating SDVOSB program laws and regulations.

    VA generally concurred with our recommendations and noted a number 
of significant actions planned or taken since the time of our site 
visits and development of our findings, which, according to VA, address 
many of the identified vulnerabilities.
    According to VA officials, VA has recently made improvements of its 
preventive controls. For example, VA officials stated that CVE staff 
and most contractors assisting with the application evaluation are now 
required to receive Certified Fraud Examiner training, and additional 
VetBiz training has been provided to contracting officials. VA 
officials also stated VA has recently strengthened the agency's 
monitoring and detection of verified SDVOSB firms. Specifically, VA 
officials stated that VA conducts unannounced visits to verified 
companies either randomly or during the course of a high-risk SDVOSB 
reverification assessment. Finally, VA officials stated that VA 
recently strengthened the investigative and prosecutorial actions by 
creating guidelines for referring firms to VA OIG and the debarment 
committee. We plan to follow up on actions taken by VA as part of our 
ongoing work and will report back to the Subcommittees on our findings.
    Chairmen Stutzman and Johnson, Ranking Members Braley and Donnelly, 
and Members of the Subcommittees, this completes my prepared statement. 
I would be pleased to answer any questions that you may have at this 
time.
GAO Contacts
    If you or your staff have any questions about this testimony, 
please contact Gregory D. Kutz at (202) 512-6722 or [email protected]. 
Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this statement.
Related GAO Products
Service-Disabled Veteran-Owned Small Business Program: Additional 
    Improvements to Fraud Prevention Controls Are Needed. GAO-12-152R. 
    Washington, D.C.: October 26, 2011.
Service-Disabled Veteran-Owned Small Business Program: Preliminary 
    Information on Actions Taken by Agencies to Address Fraud and Abuse 
    and Remaining Vulnerabilities. GAO-11-589T. Washington, D.C.: July 
    28, 2011.
Department of Veterans Affairs: Agency Has Exceeded Contracting Goals 
    for Veteran-Owned Small Businesses, but It Faces Challenges with 
    Its Verification Program. GAO-10-458. Washington, D.C.: May 28, 
    2010.
Service-Disabled Veteran-Owned Small Business Program: Fraud Prevention 
    Controls Needed to Improve Program Integrity. GAO-10-740T. 
    Washington, D.C.: May 24, 2010.
Service-Disabled Veteran-Owned Small Business Program: Case Studies 
    Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of 
    Dollars in Contracts. GAO-10-306T. Washington, D.C.: December 16, 
    2009.
Service-Disabled Veteran-Owned Small Business Program: Case Studies 
    Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of 
    Dollars in Contracts. GAO-10-255T. Washington, D.C.: November 19, 
    2009.
Service-Disabled Veteran-Owned Small Business Program: Case Studies 
    Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of 
    Dollars in Contracts. GAO-10-108. Washington, D.C.: October 23, 
    2009.

(192388)

                                 
   Prepared Statement of Ralph O. White, Managing Associate General 
  Counsel, Office of General Counsel, U.S. Government Accountability 
                                 Office
   Veterans Administration Procurement: Protests Concerning Service-
      Disabled Veteran-Owned Small Business Preferences Sustained
                             GAO Highlights
GAO's Role Under The Competition in Contracting Act
    Under the Competition in Contracting Act of 1984, GAO is required 
to consider protests filed by interested parties concerning the terms 
of solicitations or contract awards. In deciding protests, GAO makes a 
determination of whether the agency's actions complied with procurement 
statutes and regulations. Aldevera, an SDVOSB concern, argued that two 
solicitations issued by the Veterans Administration should have been 
set aside for SDVOSB concerns.
GAO's Recommendations
    GAO recommended, for the solicitation where the record showed that 
two or more SDVOSBs were capable of meeting the agency's requirements 
at a fair and reasonable price, that the VA cancel the solicitation and 
obtain its requirements using an SDVOSB set-aside. GAO also 
recommended, for the solicitation where the record did not indicate 
whether there were two or more SDVOSBs capable of meeting the agency's 
requirements at a fair and reasonable price, that the VA conduct 
reasonable market research regarding its requirements. If the VA 
determines that there is a reasonable expectation of receiving offers 
from two or more SDVOSB concerns capable of performing the requirements 
at a fair and reasonable price, we recommended that the VA cancel the 
solicitation and re-solicit its requirements using an SDVOSB set-aside.
GAO's Findings
    The Veterans Benefits, Health Care, and Information Technology Act 
of 2006, 38 U.S.C. Sec. Sec. 8127-8128 (2006) (the 2006 Act) provides 
in relevant part that the Department of Veterans Affairs (VA) must set 
aside procurements for Service-Disabled Veteran-Owned Small Business 
(SDVOSB) concerns if the contracting officer has a reasonable 
expectation of receiving offers from two or more SDVOSB concerns and 
that award can be made at a fair and reasonable price that provides the 
best value to the government.
    Aldevra, an SDVOSB concern, challenged the terms of two 
solicitations issued by the VA for kitchen equipment. In both protests, 
Aldevra argued that the VA should have restricted the competitions to 
SDVOSB concerns, instead of issuing the solicitations for competition 
under the General Services Administration's (GSA) Federal Supply 
Schedule (FSS). In its response to the protest, VA argued that the 
SDVOSB set-aside requirements of the 2006 Act did not apply to the FSS.
    In a decision issued by our Office, GAO concluded that the 2006 Act 
applies to the FSS.
    Accordingly, GAO sustained the protests. The decision is available 
at: http://www.gao.gov/decisions/bidpro/405271.pdf.

                               __________

    Chairman Johnson, Chairman Stutzman, Ranking Members, and Members 
of the Subcommittees:
    Thank you for the opportunity to be here today to discuss the bid 
protest decision recently issued by the Government Accountability 
Office (GAO) in response to two protests challenging the issuance of 
solicitations by the Department of Veterans Affairs (VA). This decision 
addressed the statutory preference for setting aside VA procurements 
for Service-Disabled Veteran-Owned Small Business (SDVOSB) concerns.
    GAO provides an objective, independent, and impartial forum for the 
resolution of disputes concerning the awards of Federal contracts. 
Since 1984, the Competition in Contracting Act (CICA) has established 
statutory authority for GAO's bid protest function. GAO has issued 
implementing regulations establishing the procedural framework for our 
bid protest forum in Title 4, Part 21, of the Code of Federal 
Regulations.
    In Fiscal Year 2011, we received 2,353 bid protests challenging 
procurements across the Federal Government. The bid protest process is 
a legal one, and both the process and the resulting product differ from 
those associated with the reports that GAO issues in connection with 
its program audits and reviews. Protests are handled solely by GAO's 
Office of General Counsel (OGC), not by its audit teams. In developing 
the record, OGC provides all parties--the protester, the awardee, and 
the contracting agency--an opportunity to present their positions. In 
some cases, OGC conducts a hearing to further develop the record. Under 
CICA, as amended, we have 100 calendar days to decide a protest.
    The product of a GAO protest--our legal decision--does not address 
broad programmatic issues such as whether or not a particular 
government program is being managed effectively or consistent with best 
practices. Instead, our bid protest decisions address specific 
allegations challenging particular procurement actions as contrary to 
procurement laws, regulations, and the evaluation scheme set forth in 
the solicitation. We sustain a protest when we find that the procuring 
agency has not complied with procurement laws, regulations, or the 
solicitation's evaluation scheme, and that the violation prejudiced the 
protester's chances of winning the contract.
    With that background, my testimony today will summarize our 
recently issued decision concerning challenges to the VA's 
interpretation of the statutory requirement that VA set aside 
procurements for SDVOSB concerns.
Background
    Our decision concerns two protests filed by Aldevra, an SDVOSB. The 
first protest, which was received on July 1, 2011, challenged the terms 
of solicitation No. VA-69D-11-RQ-1170 for a tilting skillet/braising 
pan and one countertop electric griddle for the Federal Health Care 
Center in Chicago, Illinois. The second protest, which was received on 
August 12, challenged the terms of solicitation No. 693-11-4-179-0306, 
for two griddles and one food slicer for the VA Medical Center in 
Wilkes-Barre, Pennsylvania. Our decision of October 11 addressed both 
protests by the 100-day deadline for the first protest.
    The VA issued both solicitations under the Federal Supply Schedule 
(FSS), which is a program consisting of contracts administrated by the 
General Services Administration that is available for all Executive 
Branch agencies to use in their procurements. The solicitations here 
were not restricted to SDVOSB concerns, or concerns under any other 
socio-economic program.
The Legal Standard
    The sole issue raised by Aldevra was whether the Veterans Benefits, 
Health Care, and Information Technology Act of 2006, 38 U.S.C. 
Sec. Sec. 8127-8128 (2006) (the 2006 VA Act), required the VA to 
conduct market research to determine whether the VA should set aside 
the procurements for SDVOSB concerns before using the FSS to satisfy 
its requirements.
    In relevant part, the 2006 Act provides as follows:

       . . . a contracting officer of [the VA] shall award contracts on 
the basis of competition restricted to small business concerns owned 
and controlled by veterans if the contracting officer has a reasonable 
expectation that two or more small business concerns owned and 
controlled by veterans will submit offers and that the award can be 
made at a fair and reasonable price that offers best value to the 
United States.

    The statute also sets out an order of priority for the contracting 
preferences it establishes, providing that the first priority for 
contracts shall be given to SDVOSB concerns, followed by veteran owned 
small businesses (VOSBs).
    A regulation issued by the VA implementing the 2006 Act similarly 
stated that a contracting officer ``shall'' set aside a procurement for 
SDVOSBs (or VOSBs) if there is a ``reasonable expectation'' that offers 
will be received from two or more SDVOSB (or VOSB) concerns, and award 
will be made at a reasonable price. Veterans Administration Acquisition 
Regulation (VAAR), 48 CFR Sec. 819.7005(a) (2011).
    The VA argued that, notwithstanding the statutory language in the 
2006 Act, the agency is not required to conduct market research to 
determine whether SDVOSBs (or VOSBs) are capable of performing the 
requirement if the VA instead chooses to procure its requirements 
through the FSS. In support of its position, the VA cited provisions of 
Federal Acquisition Regulation (FAR) part 19.14, which states that 
agencies ``may'' set aside procurements for SDVOSBs if they have an 
expectation of receiving two or more offers from SDVOSB concerns 
capable of performing the requirements at a fair and reasonable price. 
As relevant to the protests--and the VA's response to the protests--FAR 
part 8.4 states that the small business set-aside rules under FAR part 
19--including SDVOSBs--do not apply to the FSS.
GAO's Review of the Record
    Our Office reviewed the language of the 2006 Act, as well as the 
FAR provisions cited by the VA. We concluded that the 2006 Act plainly 
states that the VA ``shall'' set aside procurements for SDVOSB (or 
VOSB) concerns if it determines that there is a reasonable expectation 
of receiving offers from two or more SDVOSB (or VOSB) concerns capable 
of performing the requirements at a fair and reasonable price. This 
statutory language takes precedence over any regulatory language to the 
contrary.
    Moreover, the FAR provisions cited by the VA, which state that 
agencies ``may'' consider using an SDVOSB set-aside, were implemented 
to meet the statutory requirements of the Veterans Benefit Act of 2003, 
15 U.S.C. Sec. 657f (2006) (the 2003 Act), which applies government-
wide. The 2006 Act, however, is a separate statutory authority codified 
within the statutes that govern the VA (i.e., Title 38 of the U.S. 
Code) that applies only to the VA.
    Thus, the FAR provisions, which state that agencies ``may'' set 
aside procurements for SDVOSBs, and which are also exempt under the FSS 
from the provisions of FAR part 19.14, do not apply to the VA, because 
the VA is governed by the later-enacted and VA-specific 2006 Act, and 
not the 2003 Act, which applies government-wide. Put differently, the 
VA is subject to procurement rules concerning SDVOSBs that do not apply 
to any other Executive Branch agency.
    For the record, our decision does not state that the VA must set 
aside every competition for SDVOSB (or VOSB) concerns. Instead, our 
decision states that the VA must first conduct market research to 
determine whether it will receive offers from two or more SDVOSB (or 
VOSB) concerns. If the VA concludes that there is a reasonable 
expectation of receiving offers from two or more SDVOSB (or VOSB) 
concerns capable of performing the requirements at a fair and 
reasonable price, the agency must set aside the procurement for SDVOSBs 
(or VOSBs). If the VA concludes that there is not a reasonable 
expectation of receiving offers from two or more SDVOSB (or VOSB) 
concerns capable of performing the requirements at a fair and 
reasonable price, it may use any other authorized procurement method.
Recommendation
    Based on our review of the record, we sustained the protests. For 
the first solicitation, the VA conceded that there were two or more 
SDVOSB concerns capable of performing its requirements at a fair and 
reasonable price. GAO therefore recommended that the VA cancel the 
first solicitation and re-solicit its requirements using an SDVOSB set-
aside. For the second solicitation, the record did not address whether 
there were two or more SDVOSB concerns capable of performing the 
requirements at a fair and reasonable price. GAO therefore recommended 
that the VA conduct market research regarding its requirements for that 
solicitation.
    If the VA determines that there is a reasonable expectation of 
receiving offers from two or more SDVOSB concerns capable of performing 
the requirements at a fair and reasonable price, we recommended that 
the VA cancel the solicitation and re-solicit its requirements using a 
SDVOSB set-aside. We also recommended that the agency reimburse the 
protester the costs of filing and pursuing the protests.
    Under CICA, a GAO decision sustaining a protest results in a 
recommendation. The statute gives agencies 60 days to implement a GAO 
recommendation. In the event an agency does not implement a GAO 
recommendation, the agency must advise GAO within 5 days after the 
conclusion of the 60-day period. In the event an agency advises it will 
not follow a GAO recommendation, CICA requires GAO to advise the 
Congress of the agency's decision.
    Here, the VA has until December 15, 2011, to respond to our 
recommendation. As of today, the VA has not yet responded.
    Chairman Johnson, Chairman Stutzman, this concludes our prepared 
statement. I would be happy to respond to any questions regarding our 
bid protest decisions that you or other Members of the Subcommittees 
may have.

                                 
                       SUBMISSIONS FOR THE RECORD
          Statement of Steve L. Gonzalez, Assistant Director,
             National Economic Commission, American Legion
    Chairman Bill Johnson, Ranking Member Donnelly and Members of the 
Subcommittee:
    Thank you for the opportunity in allowing The American Legion to 
submit for the record its views on the Department of Veterans Affairs' 
(VA) Center for Veterans Enterprise and Veterans First Contracting 
Program.
    For more than half a century, it has been the policy of the Federal 
Government to provide ``maximum practicable opportunity'' for small 
businesses to participate in Federal contracts. To achieve this 
objective, Congress established an aspirational goal in 1978 for the 
percentage of annual prime contract spending awarded to small 
businesses each year. Congress later set the government-wide goal at 23 
percent and created a set of sub-goals to support the participation of 
special segments of the small business community: small disadvantaged 
businesses (5 percent), women-owned small businesses (5 percent), 
service-disabled-veteran-owned small businesses (3 percent), and small 
businesses in Historically Underutilized Business Zones (HUB Zones) (3 
percent). These goals help ensure that a diverse set of small 
businesses share in the jobs and opportunities created by Federal 
contracting.\1\
---------------------------------------------------------------------------
    \1\ http://www.sba.gov/content/interagency-task-force-federal-
contracting-opportunities-small-businesses.
---------------------------------------------------------------------------
    America has benefited immeasurably from the service of its 23.4 
million \2\ living veterans, who have made great sacrifices in the 
defense of freedom, preservation of democracy, and the protection of 
the free enterprise system. Due to the experience veteran's gain in the 
military, the success rate of veteran-owned businesses is higher than 
non-veteran-owned businesses. The current Global War on Terror has had 
a devastating impact on the Armed Forces and has exacerbated this 
country's veterans' unemployment problem, especially within the 
National Guard and Reserve components. According to the most current 
Federal data available, veterans owned 2.4 million businesses. Another 
1.2 million firms were at least 50 percent veteran owned \3\ within the 
fifty states and District of Columbia. According to this survey, 
veteran-owned and co-owned firms accounted for 13.5 percent of all non-
farm businesses in the United States, employed 11 million people (4.9 
percent of total U.S. employment) and generated $1.655 trillion in 
receipts.\4\
---------------------------------------------------------------------------
    \2\ http://www.va.gov/opa/publications/factsheets/
fsdepartment_of_veterans_affairs.pdf.
    \3\ http://web.sba.gov/faqs/faqIndexAll.cfm?areaid=24.
    \4\ Survey of Business Owners--Veteran-Owned Firms: 2007. U.S. 
Census Bureau. http://www.census.gov/econ/sbo/get07sof.html?17.
---------------------------------------------------------------------------
    According to the Department of Labor, the present unemployment rate 
for recently discharged veterans is as high as 12.1 percent. One way of 
combating unemployment or underemployment is through the creation of 
new jobs. Increasingly, the growth and stability of this Nation's 
economy is dependent on the long-term success of the small business 
networks across the country. However, during a time of war there is 
much to be accomplished. Ironically, for too many years, the very men 
and women who served in uniform, stood ready to fight, and if necessary 
die in order to protect and preserve the free enterprise system, are 
summarily ignored by the Federal agencies responsible for meeting their 
small business needs.
    The barriers to entry for small businesses are numerous: weak 
policies and rules that limit the effectiveness of tools that are 
supposed to facilitate contracting opportunities; inadequate workforce 
training to help contracting officers, small business advocates, and 
program offices to successfully use contracting tools; and a lack of 
coordination among and accessibility to agency training and outreach 
events designed to help small businesses navigate the contracting 
system. Action must be taken to remove these barriers and ensure small 
businesses get access to Federal contracts.
                   THE CENTER FOR VETERANS ENTERPRISE
    According to its Web site, the VA's Center for Veterans Enterprise 
(CVE) ``is designed to improve the business climate for veterans, to 
minimize access barriers and to inform the public about the benefits of 
working with veteran-owned small businesses.'' In addition, CVE 
provides opportunities for veteran-owned small businesses by 
collaborating with like-minded individuals and organizations who 
believe that veterans in business are still serving the American 
public. They work and link with partner organizations to provide local 
support to veteran-owned small businesses, because they are the face of 
a local economy. They also support acquisition teams through 
procurement coaching, free market research, awareness briefings and 
provide awards for noteworthy achievements. Their goal is to provide 
smart business information for those veteran-owned small businesses in 
search of starting their business or continuing to grow their business.
                           PUBLIC LAW 109-461
    On December 22, 2006, President Bush signed Public Law (P.L.) 109-
461, The Veterans Health Care, Benefits and Information Technology Act 
of 2006. This law directs the Secretary of Veterans Affairs to ``give 
priority to a small business concern owned and controlled by veterans, 
if such business concern also meets the requirements of that 
contracting preference.'' 38 U.S.C. Sec. 8128(a). To implement the 
Veterans Benefits Act, VA established the ``Veterans First Contracting 
Program'' on June 20, 2007. See AR 38-540 to 541 (New Guidelines for 
Placing Items and Services on the AbilityOne Procurement List (Apr. 28, 
2010) (``New Guidelines'')). The program directed VA to consider 
service-disabled veteran-owned small businesses (``SDVOSB'') and 
veteran-owned small businesses (``VOSB'') as a first and second 
priority when satisfying its acquisition requirements. Id. at 38-541. A 
final implementing rule establishing changes to the Department's 
acquisition regulations was made effective January 7, 2010. See 74 Fed. 
Reg. 64619-01 (Dec. 8, 2009) (codified in scattered sections of 48 CFR 
Subparts 802, 804, 808, 809, 810, 813, 815, 817, 819, 828, and 852).
               VA'S IMPLEMENTATION OF PUBLIC LAW 109-461
    In 2006, Congress created the Veteran First contracting program to 
help provide preference to small businesses owned by veterans and 
service-disabled veterans over other companies. VA was charged with 
putting procedures in place to verify the ownership and status of the 
companies that wanted to participate in Veterans First. The VA has 
failed time and time again to follow the ``Veterans First'' law, which 
establishes set aside guidelines for service-disabled veteran-owned 
small businesses. While the GAO has investigated and agreed with the 
protest's claims, an internal memo from the VA dated October 17th makes 
the assertion that since the GAO is part of the legislative branch, the 
VA is not bound by their findings and that the courts would decide the 
issue. The memo goes on further to state that ``GAO recommendation does 
not change how VA will acquire goods and services in support of its 
mission.''
    On October 26, 2010, the United States Court of Federal Claims 
(USCFC) set precedence on behalf of all SDVOSB/VOSB, when it ruled in 
favor of Angelica Textile Services, Inc., in the case of Angelica 
Textile Services, Inc., v. United States (10-496C).\5\ The Federal 
Court decision confirmed that veterans have a contract preference and 
priority. Here are some excerpts from the court ruling: \6\
---------------------------------------------------------------------------
    \5\ http://www.uscfc.uscourts.gov/sites/default/files/
LETTOW.ANGELICA102610.pdf.
    \6\ Ibid.

      ``The Veterans Benefits Act is a specific mandate to the 
Department, and only to the Department, to grant first priority to 
SDVOSBs and VOSBs in the awarding of contracts.''
      Above ``any other provision of law'' such as FAR Part 8 
Required Sources of Supply
      Above ``any other provision of law'' such as FAR Part 
19.14;
      Above general Federal statues and initiatives
      In all market types such Federal supply schedules and 
open market;
      Exclusively within the VA under 8127 (b), (c), or (d) and 
8128

    In March 2007, Scott Dennison, Director of the VA's Office of 
Service-Disabled Veteran-Owned Small Business Utilization (OSDBU) wrote 
in his department's local newsletter the Small Business Advocate ``a 
major challenge to implementing P.L. 109-461 will be educating and 
training VA's workforce of the significant changes brought by the law. 
To that end, OSDBU is available to provide training to acquisition 
professionals, program officials engineering officers and personnel, 
purchase cardholders and anyone else involved in the acquisition 
process that could use this training.''
Challenges:

      Over the past 10 years, VA has built CVE through non-
appropriated funds. CVE markets itself as a technical training and 
assistance center that maintains a database of veteran-owned small 
businesses. With regard to CVE's technical assistance capabilities, 
this effort represents a negligible impact locally and virtually no 
impact nationally. CVE maintains one small assistance center in 
Washington, DC, where they see a small amount of clients and field 
phone calls.
      It takes anywhere from 1 month to 1 year to have a 
company registered with VA. One veteran complained after registering, 
he was deleted from the data system a few months later.
      Veterans cannot register multiple businesses at one time, 
and owners must work full time in their registered business.
      CVE staff qualifications have been questioned by many.
      A 10-case Government Accountability Office study proved 
approximately $100 million in SDVOSB sole-source and set-aside 
contracts through fraud and abuse of the program.
      The Web site is not user-friendly and needs to be 
improved.
      An inability to foster communication between veteran-
owned small businesses on the Web site.

    On July 21, 2009, Secretary of Veteran Affairs Eric Shinseki 
addressed SDVOSB/VOSB at the 5th Annual National Veteran Small Business 
Conference in Las Vegas and stated, ``VA will begin putting Veterans 
first--fully first--in our contracting efforts because we recognize the 
on-time, on-budget, quality solutions that you offer to meet our 
contracting needs.'' \7\ This statement seems to be contradictory to VA 
Department official's actions when issuing VA contracts to businesses.
---------------------------------------------------------------------------
    \7\ http://www.va.gov/opa/speeches/2009/09_0721.asp.
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                            RECOMMENDATIONS
    The American Legion fully understands and support Title 38 section 
8127 and 8128 does not automatically award VA government contracts to 
SDVOSB/VOSB; however, when qualified SDVOSB/VOSB are being overlooked 
or ignored by the VA this is cause for great concern.
    CVE's marquee program is their VIP database. As the only Federal 
database focusing strictly on veteran-owned small businesses, the VIP 
database has established itself as the premiere database for veterans 
in the country. CVE has successfully promoted this database 
commercially, as well as cross agency and has established a strong 
foundation and infrastructure that can easily be interwoven into other 
Federal databases such as the Central Contractors Registry (CCR).
    VA and the Small Business Administration (SBA) should develop a 
comprehensive partnership to assist veterans who are interested in 
participating in Federal procurement. CVE should maintain the database 
(VIP) and verify accurate veteran/service-connected disabled veterans' 
status. SBA should retain the responsibility for validating the 
business ownership, size standards, and structural integrity of the 
business. SBA should have direct reporting and input authority to the 
VIP database through the Office of Veterans Business Development once 
this information is collected. VA should maintain the eligibility 
status regarding veteran status. SBA is responsible for verifying all 
other socioeconomic categories for the purpose of Federal procurement. 
SBA already maintains the infrastructure, expertise and established 
regulatory guidance to include the veterans' population within their 
authority. VA should develop clearer and more comprehensive small 
business contracting policies.\8\
---------------------------------------------------------------------------
    \8\ http://www.sba.gov/sites/default/files/
contracting_task_force_report_0.pdf.
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    Recommendation 1: Update acquisition policies and regulations to 
provide clear guidance on small business set-asides and related tools.
    Recommendation 2: Issue guidance clarifying practices and 
strategies to prevent unjustified contract bundling and mitigate any 
negative effects of justified contract bundling on small businesses.
    Recommendation 3: Identify where focused efforts will likely have 
the most positive effect on increasing small business utilization in 
prime contracting.
    Recommendation 4: Strengthen the skills of the acquisition 
workforce by revising existing core certification, requiring training 
on small business contracting, procurement policies and regulations, 
and creating focused refresher materials for continuous learning.
    Recommendation 5: Use meaningful ``carrots and sticks'' to create a 
greater sense of agency accountability for reaching small business 
Federal contracting goals.
    Recommendation 6: Facilitate the identification and rapid adoption 
of best practices across the agencies to maximize successful 
strategies.
    These observations come from The American Legion's National Small 
Business Task Force. This Task Force is made up of veterans who are 
successful business owners, Federal agency officials and The American 
Legion leaders. Their mission is to gather information, data and 
research regarding the current and future economic status of veteran 
businesses. These individuals are the very individuals who are using 
the CVE and are a part of the database that CVE is maintaining.
                               CONCLUSION
    While The American Legion applauds the Federal Government in 
setting up and implementing a program that is designed to assist 
Veteran-Owned and Service-Disabled Veteran Owned Small Business to 
start up and receive government contracts, it is our belief that this 
program could be improved. 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. As interpreted by Federal Court, the VA 
is mandated by law to purchase all products and services from SDVOSB/
VOSB as mandated by the Veteran First law, as long as those SDVOSB/VOSB 
meet both the legal and contract requirements. Any regulations, 
policies, and procedures disseminated by the VA that deny SDVOSB/VOSB 
their contracting preference and priority as defined by the United 
States Court of Federal Claims is a violation of law.
    Unfortunately, SDVOSB and VOSB businesses have been relegated to 
last in the VA's procurement hierarchy even when Congress and United 
States Court of Federal Claims said they should be first. The irony and 
greatest insult is that this agency which was created to help veterans 
appears to be actively and knowingly shutting them out when it's time 
to award government contracts.
    The American Legion appreciates the opportunity to present this 
statement for the record. Again, thank you Mr. Chairman, Ranking Member 
Donnelly, and Members of the Subcommittee for allowing The American 
Legion to present its views on these very important issues.

                                 
    Statement of Robert G. Hesser, Vetrepreneur, LLC, SDVOSB Owner, 
                 Herndon, VA, Retired Master Chief, USN
    This document is a compilation of comments from members of the 
veteran business community and includes suggestions, ideas and 
concerns. Most of the comments were unsolicited and frequently 
passionate. Our commenters represent almost every ethnic, cultural, 
age, gender and possible demographic. We are united in our concern for 
how veterans, their families and employees are treated.
    We are also united in our belief that the VA's mission of helping 
veterans should be integral to acquisition planning and implementation 
. . . as we understand that the greatest value to the taxpayers is to 
have a robust and competitive small business industrial base. To us, 
that means that the objectives of Vets First include the impact on 
veteran unemployment and homelessness as well as opportunities through 
the marketplace to improve access to medical care through employer 
funded plans.
    Vets helping vets, it's that simple. We ask the Committee to 
reinforce the importance of including the Department of Veterans 
Affairs mission in the planning and execution of their acquisitions. In 
today's economic environment, it will be good to get a win-win where we 
are helping our Nation's veterans while reducing the total cost of 
implementing the VA's mission.

                                 ______

                         Vets First = Vets Last
    The Department of Veterans Affairs (VA) has stated that it 
``conducts its contracting with small businesses in good faith and in 
the spirit of the ``Veterans First'' legislation that gives preference 
to eligible veteran-owned small businesses (VOSBs) and service-disabled 
veteran-owned small businesses (SDVOSBs).'' Despite the value that 
veteran small business owners bring to VA procurement, they continue to 
face barriers and obstacles. One of the lateral benefits of the 
Veterans First law is its ability to decrease veteran unemployment, 
which is currently 11.5 \1\ percent with estimates as high as 25 
percent when the troops return from Iraq and Afghanistan. Veterans hire 
veterans! From battle to business, veteran small businesses care for 
fellow comrades.
---------------------------------------------------------------------------
    \1\ Bureau of Labor Statistics ``Employment Situation of Veterans 
News Release'' October 20, 2011 http://stats.bls.gov/news.release/
vet.htm.
---------------------------------------------------------------------------
Background on Vets First Law
    On December 22, 2006, Former President Bush signed P.L. 109-461, 
The Veterans Health Care, Benefits and Information Technology Act of 
2006, which directs the Secretary for Veterans Affairs to ``give 
priority to a small business concern owned and controlled by veterans, 
if such business concern also meets the requirements of that 
contracting preference.'' 38 U.S.C. Sec. 8128(a). Note that there is no 
mention of Federal supply schedules, open market, or other qualifiers. 
The law clearly and profoundly declares that veteran owned small 
businesses shall be given priority when the VA procures goods and 
services.
VA Understood Vets Come First
    It's clear that the VA initially understood the intent of the law. 
In the June 19, 2007 Information Letter (IL 049-07-08), VA stated that 
``this approach changes the priorities for contracting preferences 
within VA, placing SDVOSBs and VOSBs first and second, respectively, in 
satisfying VA's acquisition requirements.''
    A year later, the VA still clearly understood the intent of the law 
to consider veteran owned businesses first because they declared in the 
August 20, 2008 Federal Register that ``We interpret section 8128 and 
the legislative history to mean that SDVOSBs and VOSBs must receive 
priority in VA contracting opportunities without regard to other 
provisions of law concerning contracting preferences . . . VA finds 
that section 8128 requires VA contracting officers to have the 
authority to override other statutory contracting preferences to 
provide priority to SDVOSBs and VOSBs . . .'' \2\
---------------------------------------------------------------------------
    \2\ VAAR 808.603 Purchase Priorities, VA Proposed Rule in Federal 
Register August 20, 2008.
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VA Puts Vets Last
    Then, in testimony before the U.S. House of Representatives 
Committee on Veterans' Affairs Subcommittee on Economic Opportunity on 
April 23, 2009, everything changed. Jan Frye, VA Deputy Assistant 
Secretary, Office of Acquisition and Logistics, testified, ``It is 
important to note that the unprecedented and extraordinary contracting 
authorities granted to VA under Public Law 109-461 are preferences in 
open market contracting for veteran entrepreneurs.'' \3\
---------------------------------------------------------------------------
    \3\ Testimony before the U.S. House of Representatives Committee on 
Veterans' Affairs Subcommittee on Economic Opportunity, April 23, 2009.
---------------------------------------------------------------------------
    In one fell swoop; veteran owned small businesses were moved from 
FIRST to LAST in the VA Purchasing Priority List. The VA's unilateral 
interpretation that the law only applies to ``open market'' purchases 
means that veteran businesses are now first in the LAST category on the 
purchasing priority hierarchy.
VA Uses Convoluted Purchasing Priority List
    Eight months later, a commenter in the Federal Register (December 
8, 2009) asked that the VA Purchasing Priority Hierarchy be 
specifically defined for contracting personnel to avoid confusion. The 
VA disagreed by stating ``this rule clearly implements the priority 
purchasing preference for SDVOSB and VOSB in accordance with the 
statute. Under section 8128(a), VA must give priority to small business 
concerns owned and controlled by veterans, if the business concern 
meets the requirements of that contracting preference. In this rule, VA 
will provide discretion to its contracting officers to override certain 
statutory priority preferences, such as Federal Prison Industries and 
Government Printing Office. Under section 8128, VA is implementing 
priority for SDVOSBs and VOSBs to the extent authorized by the law . . 
.''
    Yet, there is confusion for VA contracting personnel. The VA 
purchasing priority list basically goes like this. First and Second in 
the purchasing hierarchy includes--Number 1--Agency inventories and 
Number 2--Excess from other agencies. Veterans understand that the Vets 
First law does not apply here as the VA is not buying goods and 
services because they were previously purchased or are from an existing 
agency on-hand inventory. Number 3--Federal Prison Industries. VA 
regulation (808.6) states that veteran businesses come before Federal 
Prison Industries. Number 4--Supplies which are on the Procurement List 
maintained by the Committee for Purchase From People Who Are Blind or 
Severely Disabled (Ability One). The United States Court of Federal 
Claims found in the ``Angelica'' decision on October 26, 2010 that 
veteran businesses take priority over Ability One (otherwise known as 
``Javits-Wagner-O'Day Act'' (JWOD)). The court found that ``the New 
Guidelines . . . provide mandatory procedures for Departmental 
contracting officers and procurement officials to explore whether 
SDVOSB and VOSB entities are potential suppliers, in which instances 
they are to be accorded first priority over that provided by the 
Javits-Wagner-O'Day Act.'' The court further found that the ``Veterans 
Benefits Act is a specific mandate to the Department [VA], and only to 
the Department, to grant first priority to SDVOSBs and VOSBs in the 
awarding of contracts.''
    Let's continue down the VA purchasing priority list. Number 5--
Wholesale supply sources. Number 6--Mandatory Federal Supply Schedules. 
There are no mandatory Federal supply schedules. This will be further 
clarified once the proposed rule FAR Case 2009-024 takes effect. Number 
7--Optional use Federal Supply Schedules (``FSS''). The October 11, 
2011 Government Accountability Office (GAO) Aldevra decision states, 
``We see nothing in the VA Act or the VAAR that provides the agency 
with discretion to conduct a procurement under FSS procedures without 
first determining whether the acquisition should be set aside for 
SDVOSBs. The provisions of both the VA Act and the VAAR are 
unequivocal; the VA ``shall'' award contracts on the basis of 
competition restricted to SDVOSBs where there is a reasonable 
expectation that two or more SDVOSBs will submit offers and award can 
be made at a fair and reasonable price. Thus, contrary to the agency's 
position, the VA Act requires, without limitation, that the agency 
conduct its acquisitions using SDVOSB set asides where the necessary 
conditions are present. 38 U.S.C. sect. 8127-8128.''
    Finally, we arrive to the bottom, last category on the VA 
purchasing priority list--Number 8--Commercial sources and open market. 
This ``open market'' area is where Jan Frye testified that the Vets 
First law applies.
    Based on these findings, it's no wonder why VA contracting 
personnel and the veteran business community are confused. The 
purchasing priority list is convoluted--how are veteran businesses 
ahead of some areas, yet below others? It makes no sense. The VA allows 
this confusion to continue as a means to NOT consider doing business 
with veterans first.
VA Refuses to Comply with Law
    Even after the U.S. Federal Court of Claims and GAO declared that 
VA should be considering veteran small businesses first, VA stands by 
its faulty interpretation. VA says in an October 17, 2011 internal memo 
from Jan Frye that the agency will continue to violate the law, ``VA is 
of the opinion GAO's interpretation is flawed and legally incorrect. . 
. . Because GAO is part of the Legislative Branch, Executive Branch 
agencies are not bound by GAO's legal advice. Therefore, VA determined 
this GAO recommendation . . . shall not be followed . . . The GAO 
recommendation does not change how VA will acquire goods and services 
in support of its mission.''
VA Refuses to Consider Vets with a Federal Supply Schedule First
    Even when veteran business owners have a Federal Supply Schedule 
contract, they are still not considered first! The VA has stated the 
``Vets First'' program does not apply to awards made using Federal 
Supply Schedules, although the recent interim FAR rule FAR Case 2011-
024 implementing the Small Business Jobs Act of 2010 would allow this 
evaluation factor.
    Service disabled veteran owned small business owners have done 
their best to comply with all the VA terms to do business with them--
the arduous task of verification, in business for 2 years, obtain past 
performance, apply and be awarded a Federal Supply Schedule contract, 
etc. Yet, after obtaining all these requirements, their opportunity to 
do business with the VA is given to others.
VA Transformation Twenty-One Total Technology (T4) Contract--
        $12,000,000,000 IT Contract Awarded to Six Veteran Small 
        Businesses and Eight Non-Veteran Businesses with the existence 
        of P.L. 109-461
    Prior to solicitation release, during briefings and discussions 
with VET-Force the TAC (VA Technology Acquisition Center) provided an 
organizational and mission overview. A key point emphasized during this 
briefing was that T4 would capture funds, such as the GSA/VA Schedule 
Industrial Funding Fee (IFF) for the supply fund.
    T4 Solicitation Q&A's openly flaunted P.L. 109-461, ``Vets First'' 
in at least six of the Q&A responses to industry where TAC emphasized 
that the SDVOSB and VOSB awards were not set-aside and therefore were 
not subject to ``Limitations of Subcontracting.''
    T4, as procured, may actually serve to reduce the SDVOSB and VOSB 
industrial base. In an SDVOSB set-aside, more than 50 percent of the 
direct labor must be performed by the prime and any combination of 
SDVOSBs. By not having an SDVOSB set-aside ``limitations of 
Subcontracting'' several SDVOSB companies will do quite well, but the 
key objective of 109-461--to build SDVOSB capabilities and industrial 
base--will not be met.
    With recent GAO and CoFC decisions re-affirming ``Vets First'' as 
the VA acquisition priority, it would appear that only six of the 
awardees (the SDVOSBs) will be eligible for Task Order Awards.
VA Buys Chinese Gloves Instead of Gloves Made in U.S. from a Veteran 
        with FSS
    In one egregious example, a veteran invented a medical glove. The 
VA buys tens of millions of gloves annually. These gloves are 
manufactured in the United States in a historically underutilized 
business zone (HUBZone) in Alabama by a company that employs veterans. 
The gloves are distributed by a verified service disabled veteran with 
a Federal Supply Schedule. About 32 U.S. jobs are created for every $1 
million in gloves sold. So where do you think the VA spends millions 
buying gloves to care for veterans? The VA spends our hard earned tax 
dollars to buy these gloves from a company that makes them in China and 
sells them to the VA for more money than the American manufactured, 
veteran distributed gloves.\4\
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    \4\ VA Basic Ordering Agreement (BOA) V797P2071.
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    The VA states that it ``continues to strongly support eligible 
Veteran-owned small businesses who seek to do business with the Federal 
Government.'' Yet this example and many others demonstrate otherwise.
VA Touts Inaccurate Numbers
    The VA touts their achievements in awarding 23 percent of contracts 
to VOSBs and 20 percent to SDVOSBs. This is commendable; however, it is 
not accurate. The VA is double dipping. They're counting service 
disabled veteran owned small businesses as part of the veteran owned 
small business contracting percentages. The true numbers are that 3 
percent of contracts go to VOSBs and 20 percent to SDVOSBs. This 
includes $500 million awarded to 1,400 ineligible businesses 
highlighted in the July 25, 2011 VA Office of Inspector General audit. 
In addition, considering that there is a law to consider veteran small 
businesses first 100 percent of the time, the VA's performance is 
disappointing and signifies a loss of approximately $11.8 billion a 
year to veteran owned small businesses.
VA Gives Small Contracts to Large Businesses
    VA fails to first consider qualified veteran small businesses in 
Simplified Acquisitions. These are purchases valued between $3,000 and 
$150,000. The Small Business Act exclusively reserves these contracts 
for small businesses. For FY 2011, the VA had more than 213,000 
simplified acquisition purchases equating to more than $3.8 billion.\5\ 
More than 55 percent of these purchases went to large businesses, most 
of which hold a Federal Supply Schedule contract. The VA awarded 7.74 
percent to SDVOSBs and 4.25 percent to VOSBs of a combined total of 
$606 million of the $3.8 billion of VA simplified acquisition 
transactions. This equates to $3.2 billion in simplified acquisition 
contract awards to non-veteran businesses.
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    \5\ Simplified acquisition transaction numbers extracted from 
USASpending.gov on 11/18/2011.
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VA Leadership Contradicts Itself
    On July 21, 2009, Secretary of Veteran Affairs Eric Shinseki 
addressed veteran entrepreneurs at the 5th Annual National Veteran 
Small Business Conference in Las Vegas and stated, ``VA will begin 
putting Veterans first--fully first--in our contracting efforts because 
we recognize the on-time, on-budget, quality solutions that you offer 
to meet our contracting needs.'' \6\ This statement seems to contradict 
VA practices. The hypocrisy continues in the VA's strategic plan for 
2010-2014, which states that ``As the economy begins to recover, small 
firms will be the most likely source of new jobs for Veterans. Small 
firms employ about half of all private sector employees, create 60 to 
80 percent of net new jobs annually, and tend to lead the way in new 
employment when the economy improves. In this vein, VA has a 
longstanding commitment to contracting with Veteran-Owned Small 
Businesses (VOSBs).'' The VA is not doing what they say they will do! 
Vets hire vets! The only thing veteran small businesses ask is for 
first consideration at the VA. Right now, they don't have it. If 
they're not being considered, veterans can't create jobs for themselves 
or for another veteran.
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    \6\ http://www.va.gov/opa/speeches/2009/09_0721.asp.
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Recommendations:
    VA and the Small Business Administration (SBA) should develop a 
comprehensive partnership to assist veterans who are interested in 
participating in Federal procurement. VA should develop clearer and 
more comprehensive small business contracting policies\7\:
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    \7\ http://www.sba.gov/sites/default/files/
contracting_task_force_report_0.pdf.
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    Recommendation 1: Update or revise existing VA acquisition policies 
and regulations to comply with P.L. 109-461 and provide clear guidance 
to VA contracting personnel to increase veteran small business set-
asides. The revision must clearly state that veteran small businesses 
have a contracting preference and priority:




a......................................  above statutory preference
                                          entities from General Federal
                                          Statutes under FAR Part 8
                                          Required Sources of Supply
                                          that lists Federal Prison
                                          Industries, AbilityOne, and
                                          Federal supply schedules;
b......................................  above statutory preference
                                          entities from General Federal
                                          Statutes under FAR Part 19
                                          Small Business Programs that
                                          lists 8(a), HUBZone, & WOSB;
c......................................  above General Federal
                                          Procurement Statutes and
                                          Acquisition Initiatives such
                                          as Strategic Sourcing
                                          Initiative;
d......................................  in all acquisition thresholds;
e......................................  in all NAICS Codes;
f......................................  in all market categories such
                                          as Federal Supply Schedules
                                          and Open Market; or all goods
                                          or services procured by the
                                          VA;
g......................................  exclusively within the VA.


    Recommendation 2: Issue guidance clarifying practices and 
strategies to prevent unjustified contract bundling and mitigate any 
negative effects of justified contract bundling on veteran small 
businesses.
    Recommendation 3: Identify industries where focused efforts on 
existing qualified veteran small businesses would likely have the most 
positive effect on increasing small business utilization in prime 
contracting. Then develop a plan to increase veteran small business 
participation in those industries where veteran small businesses are 
non-existent to increase contract awards.
    Recommendation 4: Strengthen the skills of the acquisition 
workforce by revising existing core certification, requiring training 
on veteran small business contracting, procurement policies and 
regulations, and creating focused refresher materials for continuous 
learning to increase the number of contract awards to veteran small 
businesses in all industries.
    Recommendation 5: Increase the number of simplified acquisition 
procedure (SAP) transactions awarded to SDVOSBs at 16,000 (7.74 
percent) and VOSBs at 9,000 (4.25 percent) of VA total awards of 
213,000 to 60 percent of SAP transactions within 1 year. This can be 
accomplished due to the fact that more than 100,000 transactions (more 
than 50 percent) were awarded to non-veteran businesses for 
commodities. An increase in simplified acquisition transactions to the 
veteran small business community has a direct effect on increasing 
veteran employment.
    Recommendation 6: Create a separate budget line item designating 
that the funds are to be used for only the Center for Veterans 
Enterprise. The Center for Veterans Enterprise will assist veterans in 
obtaining verification of their small business in accordance with 38 
U.S.C. 74.
Summary
    The veteran small business community has the best overall 
understanding and is in the best position to fully support VA's mission 
with an in-depth procurement knowledge, experience, and understanding 
for mission success. The veteran small business community has a vested 
interest in VA's mission success and the health care, job creation, and 
homelessness of their fellow veterans that goes beyond profits. There 
is no finer group of small business owners and their families who have 
invested through their individual sacrifices to ensure the American 
Nation persevered with each new and challenging millennium.

                                 
