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







 JOBS FOR WOUNDED WARRIORS: INCREASING ACCESS TO CONTRACTS FOR SERVICE 
                           DISABLED VETERANS

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

                                HEARING

                               before the

                SUBCOMMITTEE ON TECHNOLOGY, INFORMATION
                POLICY, INTERGOVERNMENTAL RELATIONS AND
                           PROCUREMENT REFORM

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 7, 2012

                               __________

                           Serial No. 112-143

                               __________

Printed for the use of the Committee on Oversight and Government Reform









         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform

                                _____

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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

   Subcommittee on Technology, Information Policy, Intergovernmental 
                    Relations and Procurement Reform

                   JAMES LANKFORD, Oklahoma, Chairman
MIKE KELLY, Pennsylvania, Vice       GERALD E. CONNOLLY, Virginia, 
    Chairman                             Ranking Minority Member
JASON CHAFFETZ, Utah                 CHRISTOPHER S. MURPHY, Connecticut
TIM WALBERG, Michigan                STEPHEN F. LYNCH, Massachusetts
RAUL R. LABRADOR, Idaho              JACKIE SPEIER, California
PATRICK MEEHAN, Pennsylvania
BLAKE FARENTHOLD, Texas















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 7, 2012.................................     1

                               WITNESSES

The Honorable Bill Johnson, A Representative in Congress from the 
  State of Ohio
    Oral statement...............................................     4
    Written statement............................................     6
The Honorable Max Cleland, Former Representative in Congress from 
  the State of Georgia
    Oral statement...............................................     8
Ms. Belinda Finn, Asst. IG, Veterans Admin, OIG
    Oral statement...............................................    11
    Written statement............................................    13
Mr. Rick Hillman, Managing Director, Forensic Audits and 
  Investigative Service, GAO
    Oral statement...............................................    22
    Written statement............................................    24
Mr. Rick Weidman, Exec. Dir., Vietnam Veterans Association
    Oral statement...............................................    47
    Written statement............................................    50
Mr. Andre Gudger, Director, Office of Small Business Programs, 
  Dept. of Defense
    Oral statement...............................................    61
    Written statement............................................    63
Mr. Thomas Leney, Exec. Dir., Small and Veteran Owned Business 
  Programs, Dept. of Veterans Affairs
    Oral statement...............................................    71
    Written statement............................................    73
Mr. William Puopolo, President, Verissimo Global Inc.
    Oral statement...............................................    79
    Written statement............................................    81

 
 JOBS FOR WOUNDED WARRIORS: INCREASING ACCESS TO CONTRACTS FOR SERVICE 
                           DISABLED VETERANS

                              ----------                              


                       TUESDAY, FEBRUARY 7, 2012

                  House of Representatives,
   Subcommittee on Technology, Information Policy, 
Intergovernmental Relations and Procurement Reform,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 11:06 a.m., in 
Room 2154, Rayburn House Office Building, Hon. James Lankford 
[chairman of the subcommittee] presiding.
    Present: Representatives Lankford, Kelly, Chaffetz, 
Walberg, Meehan, Farenthold, Issa, and Connolly.
    Staff Present: Ali Ahmad, Majority Deputy Press Secretary; 
Michael R. Bebeau, Majority Assistant Clerk; Richard A. Beutel, 
Majority Senior Counsel; Robert Borden, Majority General 
Counsel; Molly Boyl, Majority Parliamentarian; John Cuaderes, 
Majority Deputy Staff Director; Adam P. Fromm, Majority 
Director of Member Liaison and Floor Operations; Linda Good, 
Majority Chief Clerk; Jaron Bourke, Minority Director of 
Administration; Krista Boyd, Minority Counsel; Adam Koshkin, 
Minority Staff Assistant; Lucinda Lessley, Minority Policy 
Director; Suzanne Owen, Minority Health Policy Advisor; Rory 
Sheehan, Minority New Media Press Secretary; and Cecelia 
Thomas, Minority Counsel.
    Mr. Lankford. The hearing on Jobs for Wounded Warriors: 
Increasing Access to Contracts for Service Disabled Veterans 
will come to order.
    Let me read a quick mission statement from the Oversight 
and Government Reform Committee.
    We exist to secure two fundamental principles: first, 
Americans have a right to know that the money Washington takes 
from them is well spent; second, Americans deserve an 
efficient, effective government that works for them. Our duty 
on the Oversight and Government Reform Committee is to protect 
these rights.
    Our solemn responsibility is to hold government accountable 
to taxpayers because taxpayers have a right to know what they 
get from their government. We will work tirelessly in 
partnership with citizen watchdogs to deliver the facts to the 
American people and bring genuine reform to the Federal 
bureaucracy. This is the mission of the Oversight and 
Government Reform Committee.
    Let me make a brief opening statement, set the context for 
the day.
    The men and women of our armed forces understand that 
serving their Nation in the armed forces as a soldier, sailor, 
airmen, Marine, is part of what citizenship is all about. The 
men and women of the armed forces take an oath that begins with 
``I do solemnly swear'' and ends with ``if necessary, with my 
life, so help me God.''
    More than 40 million Americans have responded to that call 
and served their Country in wartime. More than 1 million 
Americans who heard that call did not come home. Millions of 
others have been gravely injured in defense of our basic 
freedoms. As the long conflicts in Iraq and Afghanistan begin 
to wind down, thousands of service-disabled veterans are coming 
home. Today we have one of those veterans, Bill Puopolo, who 
has served tours of duty in both Iraq and Afghanistan.
    As if their personal challenges are not enough, these 
soldiers, airmen, and Marines return home to hard economic 
times and an extremely tight economy. The least we can do to 
support our wounded veterans is to ensure they have access to 
jobs and economic opportunities. Service-disabled veterans 
should have a level playing field in obtaining economic 
opportunity. This is the least we can do to provide for them.
    This basic obligation to honor their service and support 
them upon their return from foreign fields has been recognized 
since at least 1999. At that time, Congress passed legislation 
directing Federal agencies to place at least 3 percent of their 
contract spending with service-disabled veterans small 
businesses. Unfortunately, almost no agency has come close to 
meeting this goal.
    The Department of Defense has a special responsibility to 
service-disabled veterans, but their percentage is also not 
close to 3 percent. President Bush directed Executive Branch 
agencies to do better by an Executive Order in 2004. President 
Obama, in 2009, established an interagency task force to 
improve capital access, business development opportunities, and 
goals for service-disabled veterans.
    As a quick side note, as a part of our request for 
information and testimony, this Committee requested from OMB a 
person to testify about the progress of the President's 
interagency task force. Mr. Jordan has testified on these 
issues in 2009 before the Veterans Committee, but the 
Administration was unwilling to allow him to appear today to 
give an update on the interagency task force progress and the 
progress of this Committee.
    This hearing is not a partisan issue or a single 
administration issue. We understand very well that the failure 
to strengthen and monitor the service-disabled veterans program 
is not unique to the current Administration, but it is well 
passed time to fix it.
    Agencies across the Federal Government are woefully behind 
in meeting their obligations to our wounded warriors. Several 
reports have documented an unacceptable level of waste, fraud, 
and abuse in the service-disabled veterans program. In too many 
instances disabled veterans are cynically engaged to serve as 
fronts so that companies and individuals can get access to 
contracts and business opportunities that are supposed to be 
going to wounded warriors. In other instances charlatans pose 
as wounded warriors and steel valor, thereby syphoning off 
precious program resources.
    No honest American should stomach fraud in a program 
designed to help our wounded warriors. This waste and fraud 
hurts the entrepreneurship of our veterans by taking away the 
business opportunities available to eligible service-disabled 
veterans when the Federal Government purchases goods and 
services.
    The award of service-disabled veterans contracts to 
ineligible businesses reduce the funding available to eligible 
businesses and the accuracy of VA's reported socioeconomic goal 
accomplishment data. Examples of fraud in this program are 
legion, but let me just give you one. A business received one 
sole-source and two set-aside veterans' contracts for duct 
cleaning and maintenance work valued at $343,500.
    Although the owner had self-certified his business as being 
service-disabled, the military system did not have record of 
him and he had no disability rating. When the contracts were 
investigated, the disabled veteran stated he was in the Marine 
Corps for five weeks when he attended boot camp, but had 
injured his leg during a pickup football game, resulting in his 
discharge from the military.
    These frauds take precious program dollars away from 
service-disabled veterans. The VA inspector general projects 
that VA awards ineligible businesses a minimum of 1,400 veteran 
sole-source and set-aside contracts valued at $500 million 
annually, and could award a minimum of $2.5 billion to 
ineligible businesses over the next five years. Given VA's 
unique and special responsibility to veterans, these numbers 
are staggering.
    Today we have three distinguished panels to address these 
issues. First we will hear from the honorable former senator 
from Georgia, Max Cleland. Senator Cleland is a distinguished 
Vietnam veterans. Senator Cleland served in the United States 
Army during the Vietnam War, attaining the rank of captain. He 
was awarded the silver star and bronze star for acts of valor 
in combat. Senator Cleland has been a tireless advocate for the 
veteran community and we welcome him here today.
    Next we have Congressman Bill Johnson from the 6th District 
of Ohio. Congressman Johnson is himself a distinguished veteran 
and is currently the chairman of the Subcommittee of Oversight 
and Investigations Committee on Veterans Affairs. Congressman 
Johnson has been a forceful advocate on behalf of service-
disabled veterans.
    Both these gentleman will have a brief statement from them 
in a moment. We won't field questions, necessarily, from them, 
to allow them to make a statement from the record, and we are 
very honored that you are here.
    Our second panel consists of the overseers. We have 
Assistant Inspector General Belinda Finn and Assistant 
Inspector General James O'Neill from the Veterans 
Administration Office of the Inspector General to discuss the 
recent report and audit on service-disabled veterans program. 
We have Rick Hillman from the Government Accountability Office 
to discuss the recent findings on the scope of waste and fraud 
and abuse in these program.
    Our final panel consists of veterans representatives and 
agency officials. We have Mr. Andre Gudger, Director of the 
Office of Small Business Programs in the Office of the 
Undersecretary of Defense. We also have Mr. Thomas Leney, who 
is the Executive Director for Small and Veteran Owned Business 
Programs at the Department of Veterans Affairs; we have Mr. 
Rick Weidman, the Executive Director of the Vietnam Veterans of 
America, representing a coalition of veterans groups called 
VET-Force; and we have Mr. Bill Puopolo, who is President of 
Verissimo Global Incorporated, a service-disabled veteran, 
owner of a small business.
    Thank you all for being here today.
    The second and third panel we will swear in at that time. 
It is our habit to not swear in members of Congress or former 
members of Congress, former Senators.
    Any other members will have seven days to submit opening 
statements and extraneous material for the record.
    I would now like to welcome our first panel. Mr. Bill 
Johnson represents Ohio's 6th District, as I mentioned before. 
I would be honored to be able to receive your testimony today, 
Mr. Johnson.

                     STATEMENT OF WITNESSES

                   STATEMENT OF BILL JOHNSON

    Mr. Johnson. Good morning Chairman Lankford, Ranking Member 
Connolly, distinguished Members of the Subcommittee. I 
appreciate the opportunity to testify today in support of our 
nation's veterans and Service-Disabled Veteran-Owned Small 
Businesses, or SDVOSBs.
    I strongly believe that veterans are the segment of society 
that most deserves our sincere gratitude and assistance, and I 
am grateful to the brave men and women who have and continue to 
serve our Country. As a 26-year Air Force veteran who also 
serves on the House Veterans' Affairs Committee, I am aware of 
the sacrifice and commitment that these brave men and women, in 
addition to their families at home, endure everyday to protect 
the freedoms we enjoy as Americans.
    Due to advances in medical technology, more of our veterans 
than ever before are returning home, including many who may not 
have survived in the past. Now that is good news. But some of 
these veterans are coming home severely injured, with PTSD, 
TBIs, and sometimes with multiple limbs missing. However, you 
wouldn't believe the positive attitudes of these veterans I 
have met who have come home with such severe injuries. These 
veterans want to use their talents to lead meaningful lives 
despite their condition, and we owe it to them to provide the 
rehabilitation programs and support they need to be successful.
    Speaker Boehner couldn't be more clear when he stated last 
November, ``the men and women who wear the uniform of our Armed 
Forces deserve our full support when they serve and after they 
come home, especially now in the middle of a tough economy.'' 
With 815,000 veterans unemployed, a number, by the way, that is 
far too high, our Government needs to act immediately. I am 
deeply troubled that nearly one in twelve of our Nation's 
heroes are unable to find a job after sacrificing so much for 
our Nation.
    Contracting with Service-Disabled Veteran-Owned Small 
Businesses is just one way in which our Government can act now 
to support these brave warriors. Compared to other Government 
agencies, the Department of Veterans Affairs is considered to 
have the best SDVOSB program. According to the Small Business 
Goaling Report for Fiscal Year 2010, approximately 20 percent 
of the VA's contracts are going to these worthy veteran-owned 
businesses. However, VA contracts only account for 30 percent 
of Government contracting, meaning the vast majority of 
Government contracts are not affected by the VA or their SDVOSB 
program.
    Currently, a mere 1.8 percent of Department of Defense 
contracts are with SDVOSBs. This is unacceptable. The 
Department of Defense trained these former warriors. They are 
tremendous assets to our Nation because of the experience 
gained in our armed forces. It is time the DOD and other 
Government agencies considered contracting at higher 
percentages with the SDVOSBs.
    The VA's SDVOSB program is by no means perfect. As Chairman 
of the House Veterans' Affairs Subcommittee on Oversight and 
Investigations, I chaired two hearings last year on this issue. 
However, I can say with certainty that the VA is attempting to 
produce positive results in their SDVOSB program. And be 
assured, I will be keeping track of the VA's progress to reform 
the SDVOSB program and streamline the certification process to 
better serve our veterans.
    Furthermore, I would argue that instances of fraud within 
the VA's SDVOSB program warrant a need for other Government 
agencies to also take a look at their SDVOSB contracts. The 
fact that there are fraudulent companies claiming to be 
veteran-owned underscores the need to build stronger SDVOSB 
programs across our Government to ensure that our Nation's 
heroes, our veterans, are the ones receiving these contracts.
    I believe America would greatly benefit from contracting 
with more veteran-owned small businesses. Our service members 
and veterans are highly trained, skilled professionals with a 
solid work ethic. They have already demonstrated their 
abilities and dedication to our Country. Why wouldn't our 
Government strive to work with an increased number of these 
upstanding men and women?
    Mr. Chairman, Ranking Member Connolly, thank you again for 
the opportunity to speak on behalf of our Nation's veterans and 
the need to assist Service-Disabled Veteran-Owned Small 
Businesses. I am pleased to answer any questions you may have.
    [Prepared statement of Mr. Johnson follows:]





    
    Mr. Lankford. Thank you, Mr. Johnson.
    Senator Cleland.

             STATEMENT OF THE HONORABLE MAX CLELAND

    Mr. Cleland. Thank you, Mr. Chairman. May I say that it is 
nice to be back in the people's house. Forty-seven years ago I 
was an intern across the street, in the Longworth House Office 
Building, in the summer of 1965. I am making progress; I am not 
across the street here. So we are delighted to be with all of 
you and my friend, Bill Johnson from Ohio. Thank you for 
focusing on this.
    I have had some time to think a little bit about what 
really is important to a disabled veteran. There are a lot of 
things that go on in your mind after the turbulence of getting 
wounded in war and then surviving it, and maybe spending the 
rest of your life trying to figure out why you survived. After 
the rehabilitation, after the VA services, after the voc rehab, 
after all that, we are dealing with young people who still have 
their lives ahead of them.
    Therefore, nothing solidifies the life of a disabled 
veteran like a job. It provides focus, it provides meaning, it 
provides purpose in living. And when one is so confused in many 
ways about why they survived, how did they survive, how did 
they get wounded, what was the war all about, then that job 
seems to provide the glue with which all of this seems to come 
together and make some sense and give some sense of direction. 
That is why I think a job for a disabled veteran is really the 
key to that successful reentry into this Country again.
    Now, we can't put the toothpaste back into the tube. We 
can't reverse the stream of history. We can't rewind the war 
backwards. We have to live in the present. But our disabled 
veterans have to live in the present and the future, and 
dealing with the present and preparing for that future is what 
they are all about. Nothing does that better than a job.
    I have thought a lot about what is most important, and that 
is the glue that holds it all together. So thank you for your 
focus on this issue. Thank you, Congressman Johnson, and all of 
you for focusing on this. And the incredible thing that Mr. 
Johnson pointed out was that these young men and women, what I 
like to borrow the phrase from my friend, General Hal Moore, 
who said, ``you may not be a member of the greatest generation, 
but you are the greatest of this generation.''
    So for the greatest of this generation, we owe all of our 
efforts toward providing them the opportunity to make sense of 
their lives, and nothing does that better than a job. And the 
amazing thing about it is that these young people, blown apart 
as they are, wounded as they are, sometimes mentally, 
physically, and emotionally, provide, believe it or not, 
tremendous leadership skills on the job, tremendous examples of 
courage and faith to other people around them. It just works 
that way. They seem to be strong at the broken places, to use a 
phrase that Ernest Hemingway, who was wounded in World War I, 
used in his great war novel.
    So I would like to conclude my remarks by just saying that 
in the words of a World War II chaplain about disabled 
veterans, here is the way I see it: out cruelty they learned 
compassion; from living in hate they have learned love; from 
the loss of freedom they have learned the love of freedom. They 
shall return not only eager to create a better world, what is 
far more important, they shall come back prepared to create 
that world.
    Thank you, Mr. Chairman.
    Mr. Lankford. Thank you, Senator. You are always welcome to 
be here in the House as well. Glad to be able to have both your 
testimonies. I know we weren't fielding any questions on that.
    Let me just make a statement to both of you. Thank for your 
service. As one of the people that has stood next to the parade 
clapping, very much appreciate what you have done and what you 
have given for our Nation's service on this. In my own city of 
Oklahoma City and the surrounding areas, there are many 
employers that pursue veterans when they come back because they 
do not know how to quit and they don't know how to stop until 
it is done.
    So many of these veterans that are coming home in Oklahoma 
are coming home to find employers eager to be able to hire them 
because of their leadership and their great work ethic, and 
thank you for reminding Americans that that extends also to 
service-disabled veterans.
    The Ranking Member, would you like to make any quick 
comment before I dismiss this first panel?
    Mr. Connolly. Thank you, Mr. Chairman, and I do have an 
opening statement. I will hold off, with your permission, until 
the next panel.
    But I did want to thank particularly Senator Cleland and 
Representative Johnson for being here. Max Cleland represents 
the finest tradition of service to his Country and left an 
awful lot of himself physically back in Vietnam, but in terms 
of spirit he is very much present here and I think represents, 
as I said, the finest tradition of public service, both in the 
military and here in the Congress, to his community. We are 
honored with his presence. Thank you.
    Mr. Lankford. Thank you. Let's take a short recess and 
allow the clerks to be able to reset the panel for our second 
panel.
    Thank you, Representative Johnson.
    [Recess.]
    Mr. Lankford. I am going to yield for just a moment to the 
Ranking Member, Mr. Connolly, for a quick opening statement, 
and then we will go directly to our second panel.
    Mr. Connolly. Thank you, Mr. Chairman, and thank you for 
convening this very important hearing to review contracting 
policy for service-disabled veterans. I appreciate your 
attention to this issue, which is of critical importance to our 
Nation's veterans.
    We have, in my view, a sacred obligation to support those 
who chose to wear the uniform. That support, however, does not 
end when veterans leave the service; we must do everything in 
our power to help veterans and their families transition back 
to civilian life.
    As the war in Iraq comes to a close and we begin to 
transition, we will see even more veterans transfer out of the 
service, come back home into our respective congressional 
districts. After years of personal and family sacrifice, 
combined with unique training and a willingness to serve, it is 
important to remember the desire of many veterans to continue 
to serve their Country.
    In 2011, 27 percent of post-9/11 veterans worked for 
Federal, State, and local governments, compared to 14 percent 
of the civilian population. In 2011, I hired a veteran of the 
Iraq war through the Wounded Warrior Fellowship Program, to 
work in my office, and I would like Joe Wearing to stand and be 
recognized for his service to his Country.
    [Applause.]
    Mr. Connolly. Joe is a Purple Heart recipient. His tireless 
work ethic and desire to elevate the voices of a new generation 
of veterans has proven an enormous asset in our community. 
Programs like the Post-9/11 GI Bill, passed by Congress in 2008 
and used by over half a million veterans, are essential in 
providing veterans the opportunity to contribute as civilians.
    I have seen firsthand the benefits of veterans who utilize 
the Post-9/11 GI Bill at local colleges, universities, 
community colleges, and trade schools, and I know how important 
this benefit is, especially for younger veterans, in order to 
have access to educational opportunities and to compete in this 
troubled economy.
    After 10 years of war and with incredible advances in 
lifesaving technology, we are seeing many of our veterans 
return with wounds, both physical and emotional. These life-
altering experiences, however, are not all created equal and 
should not be seen as a detriment to an ability to contribute 
in the civilian workforce. There is hope, however, and we know 
programs aimed at supporting our veterans in making an impact.
    The Administration's efforts to lower veteran unemployment 
by providing hiring tax credits and securing private sector 
commitments to hire service members separating from the 
military are not only good for veterans, but actually good for 
our economy and for our respective communities. As service-
disabled veterans begin to build their own small businesses, we 
must understand and improve their opportunity to become 
certified and to compete for governmental contracts.
    President Obama signed the Veterans Benefits Act of 2010 in 
October last year. Section 104 of that law expands the VA's 
requirement to verify business status as owned and operated by 
veterans, service-disabled veterans, or eligible surviving 
spouses. This important piece of legislation helped ensure that 
no small business applicant may appear in the VA's vendor 
information pages, also known as VetBiz, and their website 
database unless it has been verified as owned and controlled by 
a veteran or a service-disabled veteran. Furthermore, the 
Department of Veterans Affairs has met and exceeded goals for 
VA government contracts since the law was implemented in 2010.
    Although we have seen vast improvements after the VA 
implemented its review in 2010, some businesses found to be 
ineligible by the VA are still registering with the Federal 
Government in the Central Contractor Registration database. We 
must improve verification programs throughout the Government in 
order to prevent businesses from obtaining contracts after 
being found ineligible by the Department of Veterans Affairs, 
because when they do that they take away opportunities from 
those who are eligible.
    Thank you again, Mr. Chairman, for holding this hearing for 
veterans who have sacrificed so much for their Country.
    Mr. Lankford. Thank you, Mr. Connolly.
    We will now welcome our second panel. Ms. Belinda Finn is 
the Assistant Inspector General of the Department of Veterans 
Affairs; Mr. James O'Neill is Assistant Inspector General for 
Investigations at the Department of Veterans Affairs; and Mr. 
Rick Hillman is Managing Director of Forensic Audits and 
Investigative Service Team at the Government Accountability 
Office.
    Ms. Finn and Mr. O'Neill, I understand that you all are 
sharing, you both have a written testimony that has been 
submitted and one of you will do oral testimony, but may both 
testify or answer questions, so I would ask you both to be 
sworn in.
    If you would all rise, as you already are. Would you raise 
your right hands?
    Do you solemnly swear or affirm that the testimony you are 
about to give this Committee to be the truth, the whole truth, 
and nothing but the truth, so help you God?
    [Witnesses respond in the affirmative.]
    Mr. Lankford. Let the record reflect that all witnesses 
answered in the affirmative.
    You may be seated.
    In order to allow time for discussion, please limit your 
testimony to five minutes. Your entire written statement, of 
course, will be made part of the record. You have a timer in 
front of you, which I am sure you will recognize the green, 
yellow, red on it, and will be honorable with your time, and 
thank you for being here.
    Ms. Finn, I recognize you first.

                   STATEMENT OF BELINDA FINN

    Ms. Finn. Thank you, Chairman. Chairman Lankford, Ranking 
Member Connolly, members of the Subcommittee, thank you for the 
opportunity to testify on our audits and investigations of 
Veteran-Owned and Service-Disabled Veteran-Owned Small Business 
programs. Although our work focuses on the implementation of 
these programs in the Department of Veterans Affairs, our 
findings and results have significance for other Federal 
agencies.
    As you stated, with me today is Mr. Jim O'Neill, the 
Assistant IG for Investigations in VA.
    At the end of fiscal year 2010, the Department of Veterans 
Affairs reported that they had awarded about $3.5 billion 
through its Veteran-Owned Business contracting programs. Our 
audit of these programs found that 76 percent of 42 randomly 
selected businesses were ineligible for the programs and/or the 
specific contract awards. We projected these ineligible 
businesses received $46.5 million in contract awards. We 
projected that VA annually awards a minimum of 1400 contracts, 
valued at $500 million, to ineligible businesses. This equates 
to $2.5 billion over 5 years that is awarded to ineligible 
businesses.
    Our results also throw VA's reported procurement dollars 
awarded to veteran-owned and small disadvantaged veteran-owned 
businesses into question. VA reported awarding 23 and 20 
percent of its procurement dollars to these businesses. We 
believe this could be overstated anywhere from 3 to 17 percent.
    These awards occurred because of several reasons. First, VA 
did not always review veterans' ownership and control of 
businesses thoroughly. Second, the VA contracting officers did 
not check the businesses' eligibility at the time of award and 
properly assess the subcontracting and partnering agreements to 
ensure that the veteran-owned businesses met program 
requirements for substantial participation in the work.
    We recommended VA improve management and program controls, 
enhance verification processes, and coordinate contract 
monitoring to reduce the number of ineligible businesses that 
received awards. VA has taken steps to improve its verification 
programs, both during and since our audit.
    The VA OIG Office of Investigations is aggressively 
pursuing allegations that ineligible businesses are 
misrepresenting themselves as veteran-owned and service-
disabled veteran-owned businesses to win contracts. We 
currently have 88 open investigations and, to date, have issued 
369 subpoenas and executed 26 search warrants. We recently won 
a conviction against the CEO of a non-veteran-owned business on 
charges of fraud against the United States, mail fraud, witness 
tampering, and making false statements. This business had 
received more than $16 million in VOSB and SDVOSB set-aside 
construction contracts from the Department of Veterans Affairs 
and the Department of Army.
    Three other investigations have resulted in the arrest of 
six individuals and we anticipate additional prosecutions in 
other investigations in the near future.
    Mr. Chairman, thank you for the opportunity to be here 
today. As I said earlier, we believe our findings have 
significance across the Government, especially since the 
Department of Veterans Affairs is the only Federal agency that 
validates the veteran and service-disabled status of a business 
owner, as well as attempting to verify the veteran ownership 
and control of a business.
    Mr. O'Neill and I are here to answer your questions. We 
would be pleased to respond.
    [Prepared statement of Ms. Finn follows:]





    
    Mr. Lankford. And we look forward to those questions.
    Mr. Hillman.

                   STATEMENT OF RICK HILLMAN

    Mr. Hillman. Chairman Lankford, Ranking Member Connolly, 
and members of the Subcommittee, I am pleased to be here today 
to discuss the fraud prevention controls within the Service-
Disabled Veteran-Owned Small Business program, or the SDVOSB 
program.
    This program, established by the Veterans Benefit Act of 
2003, is designed to honor disabled veterans' service by 
providing them with exclusive contracting opportunities. This 
program permits contracting officers to award set-aside and 
sole-source contracts to small business concerns owned and 
controlled by one or more service-disabled veterans.
    In fiscal year 2010, Federal agencies awarded $10.8 billion 
to SDVOSBs, according to the Small Business Administration. Of 
this amount, the Department of Veterans Affairs awarded $3.2 
billion, or approximately 30 percent of the government-wide 
awards.
    In prior work we reported on weaknesses and the fraud 
prevention controls in both the government-wide program and 
VA's program. My testimony today summarizes the status of 
government-wide fraud prevention controls over this program and 
discusses our recent assessment of fraud prevention control 
improvements instituted by VA as part of its verification 
program.
    Regarding our first objective, our prior work has shown 
that the government-wide fraud prevention control weaknesses 
over the Service-Disabled Veteran-Owned Small Business program 
leave it vulnerable to fraud and abuse. In October 2009, we 
reported on 10 selected firms that misrepresented their status 
as SDVOSBs which allowed them to win approximately $100 million 
in SDVOSB set-aside and sole-source contracts. Cases like this 
happen because the government-wide program relies on firms to 
self-certify annually in the Federal Government's contractor 
registry that they are owned and controlled by service-disabled 
veterans, and most agencies do not validate this information.
    The firms have exploited the lack of effective government-
wide fraud prevention programs using a variety of schemes, 
including setting up front companies to pass contracts on to 
larger, sometimes multinational, firms ineligible for the 
program. Other firms receive contracts even though no service-
disabled veteran was associated with the firm. Or, if one was 
employed, he or she did not manage or control the business.
    The primary government-wide fraud prevention control in 
place is SBA's bid protest process, in which interested parties 
can contest contract awards. In prior work we found that the 
process lacked effective controls because firms could complete 
contracts even after SBA found them ineligible, rendering the 
process ineffective.
    In contrast, through the limited fraud prevention controls 
for the government-wide program, the Veterans Benefits, 
Healthcare and Information Technology Act of 2006 required VA 
to institute controls over its SDVOSB contracts. Specifically, 
the Act required VA to verify firms' eligibility and maintain a 
database, now called VetBiz, of the SDVOSBs it verified 
starting in June of 2007.
    Over time, VA has made progress implementing a verification 
program for firms seeking SDVOSB contracts from VA. GAO 
testified, in November 2011, that VA's program includes an 
initial verification process involving document reviews, site 
visits to contractor offices, and risk assessments for each 
applicant firm.
    In addition, VA has instituted a status protest process and 
a debarment committee designed to help ensure only eligible 
firms receive contracts and that ineligible firms face 
consequences for misrepresenting their status. Those 
improvements may help VA reduce the risk that ineligible firms 
will gain access through VA's SDVOSB contract dollars.
    Nonetheless, GAO also made 13 recommendations to VA for 
improving its verification program and further reducing the 
risk of fraud and abuse. In particular, we noted in a November 
2011 testimony that there was room for improvement in the area 
of debarments since, as of the date of that statement, only one 
firm and related individuals had been debarred by VA, but at 
the same time VA had rejected 1800 firms from further 
consideration as part of this verification process and had 
referred to VA's IG's office 70 firms for potentially 
fraudulent actions. VA generally concurred with our 
recommendations and stated that they have taken numerous 
actions to address the identified issues.
    To improve government-wide fraud prevention controls, we 
recommended SBA and VA coordinate with the Office of Federal 
Procurement Policy in order to explore the feasibility of 
expanding VA's verification process government-wide. However, 
agency officials stated that legislative changes would be 
necessary in order for Federal agencies to change the 
government-wide program from a self-certification process into 
using VA's VetBiz verification program.
    We also suggested that Congress consider expanding the VA 
verification program government-wide to employ more effective 
fraud prevention controls over the billions of dollars awarded 
to SDVOSBs outside of VA's fraud prevention control process.
    While a bill calling for this passed the Senate last fall, 
no legislation to address this issue has become law.
    Chairman Lankford, Ranking Member Connolly, and members of 
the Subcommittee, this completes my prepared statement. I would 
be pleased to address any questions at the appropriate time.
    [Prepared statement of Mr. Hillman follows:]





    Mr. Lankford. Thank you all for your testimony. I would 
like to yield to myself for five minutes for some questions and 
conversation. How about that?
    Seventy-six percent was the number I think that was floated 
of potential fraud basically that is out there of service-
disabled veterans that they are not complete. Talk us through 
the elements of that. I know you mention it in your testimony 
as well.
    Ms. Finn. Yes, sir.
    Mr. Lankford. If we are dealing with a number of 76 
percent, that is a rather high percentage of potential failure 
in it.
    Ms. Finn. Yes, sir, it is, and we were very surprised by 
the results. I personally was, anyway. Some of my auditors were 
a little more skeptical going in.
    We looked at 42 businesses in clusters across the Country 
that we had selected randomly. We found 24 of those businesses 
weren't meeting the subcontracting requirements. Some of those 
were legitimate veteran-owned businesses, but the veteran 
business wasn't doing the work.
    Mr. Lankford. Because the requirement is if you are a 
service-disabled veteran company, you have to have 51 percent 
ownership management, be in a CEO or president type position. 
You have to lead the company; you can't just employ a service-
disabled veteran. The service-disabled veteran is the leader of 
the company, is that correct?
    Ms. Finn. Right.
    Mr. Lankford. Okay.
    Ms. Finn. And any particular contract, the veteran-owned 
business, the business, not necessarily the veteran, has to 
complete over 50 percent of the work on that contract. In a 
construction contract, the veteran-owned business percentage 
requirement is only 15 percent, since those businesses tend to 
rely a lot on subcontracting, anyway.
    Sixteen businesses in our 42 didn't meet the eligibility 
requirements. Of course, in VA it is pretty unique to find the 
owner not be a veteran, except for those two you mentioned in 
the beginning, and I can speak to those. But the veteran-owner 
didn't meet the ownership or didn't meet the control 
requirements.
    Mr. Lankford. Is the majority, then, that you are finding, 
they don't meet the ownership or control requirements more than 
they are a veteran but they are not service-disabled or they 
are not a veteran at all?
    Ms. Finn. We only had two in our sample that did not have 
service-disabled status. VA had correctly identified that those 
businesses were not service-disabled veterans; however, they 
didn't take them out of their database because, at that time, 
there wasn't a firm requirement to take them out. So the 
businesses were still in the database, still bid for a 
contract, and were awarded a contract.
    Mr. Lankford. Has that been corrected now?
    Ms. Finn. I believe that has been corrected. I know the 
requirement is now that they should be removed from the 
database.
    Mr. Lankford. Let me shift real quick because the VetBiz is 
a big part of this, and that database. If everyone government-
wide is dependent on VetBiz, is that where we are at this 
point, that everyone kind of looks towards that, or where are 
we in the transition here? Because if I am in a HHS situation 
and I have a service-disabled veteran that is applying, how can 
they verify, when VA is the only one that is verifying all 
this? What is the process?
    Mr. Hillman, do you want to address that?
    Mr. Hillman. Yes. Right now the Veterans Affairs Department 
is the only department that is able to rely on a verified list 
of eligible veterans for the program. The rest of the Federal 
agencies rely on a process that does not verify eligibility of 
firms and they do not have a process in place currently to use 
VA's verified database.
    Mr. Lankford. So this is the self-certify. So if I go to 
HHS and say I am a service-disabled veteran and I own this 
company and I want to bid for this contract, they just check I 
am a service-disabled veteran, but there is no one checking 
with the VA that they are actually a veteran, that they are 
service-disabled, and then there is also no certification that 
they are actually the owner or main part of this contracting, 
is that correct?
    Mr. Hillman. Yes. In the contractor registry, the firm 
itself designates whether or not it qualifies for certain types 
of set-aside or sole-source contractors. This is a difference 
to other programs that have set-aside programs. Within SBA's 
8(a) program for disadvantaged businesses, as well as the 
HUBZone program for historically underutilized business areas, 
SBA controls the eligibility of those programs showing up on 
the contractor registry. That type of control does not exist on 
a government-wide basis.
    Mr. Lankford. So if SBA is verifying for everyone 
nationwide, all the different agencies, that this is like a 
female-owned business or a minority-owned business or an 
economically disadvantaged business ownership, is that correct? 
And then who else comes back and does that, rather than a self-
certification?
    Mr. Hillman. That is correct.
    Mr. Lankford. Except for service-disabled. How do we 
connect the dots between these two, then, so that, if someone 
is self-certifying, there is some way to, to use a Reagan quote 
here, to trust and verify, to be able to go back and say thank 
you for putting that down, let me verify you are actually in 
the system somewhere? How can we connect that and why is it 
taking this long to connect the two?
    Mr. Hillman. In our earlier report we made a recommendation 
that VA, SBA, and the Office of Federal Procurement Policy get 
together to look at the feasibility of extending the 
verification program that VA has instituted on a government-
wide basis. In accordance with our recommendations, agency 
officials did collaborate. One of the important factors that 
they determined was that they did not have sufficient authority 
to require verification on a government-wide basis and to 
eliminate firms that weren't verified from consideration for 
these contracts without further congressional authority. We 
made a recommendation to Congress to consider implementation of 
VA's verification program on a government-wide basis. There has 
been a bill in the Senate to make that law; it currently rests 
within the House Small Business Committee for their 
consideration.
    Mr. Lankford. And that is part of this conversation today. 
Let's see what we can do to be able to resolve those issues.
    Mr. Chaffetz, I recognize you for five minutes of 
questioning.
    Mr. Chaffetz. Thank you, Mr. Chairman. I think we are 
hitting on something that is troubling to me as well. Another 
subcommittee within the oversight jurisdiction is also looking 
into this verification problems and challenges, so I want to 
continue to explore that.
    It would strike me that even an individual company, should 
they want to go hire somebody, if they were to recommend or put 
on their employment application that they had served their 
Country, they had earned certain metals, maybe they were Purple 
Heart recipient, you would think there would be a way that they 
could go and verify that through the process, and I am unaware 
of something that would be crystal clear, simple to use, 
accurate, and swift in its processing.
    If you were going to apply for a job and you were saying 
that you had achieved certain metals or you had served in the 
military, maybe you were disabled, maybe you had a Purple 
Heart, that you could get that verified. Just like if you said 
I earned a B.A. at a certain university, you could call the 
university and get verification for that. I think it is 
inexcusable that we don't have a system in place thus far.
    You mentioned some of the companies that they had pursued, 
very few of them. What is the penalty for those that have 
actually gone through the process, the adjudication process, 
been found to be wrong? What is the penalty for 
misrepresentation?
    Mr. O'Neill. Sir, if we are lucky enough to conduct an 
investigation and get convictions, the criminal penalties can 
be years in prison for fraud, so it is depending on the charge 
that they are indicted on. Now, in terms of suspension and 
debarment, VA can, under virtue of 38 U.S.C., I think it is 
8127, can debar these companies from doing business with VA. 
Under the FAR Part 9, that debarment could be spread across 
government. And that is actually in play now with a number of 
them.
    Mr. Chaffetz. And that is just not for the companies, but 
that would be for the individuals as well associated with that, 
or is that not the case?
    Mr. O'Neill. The individuals are individually debarred, as 
well as the companies.
    Mr. Chaffetz. And how many debarments have we had so far? I 
think we said the number earlier.
    Mr. O'Neill. I don't know. In every instance where we got a 
complaint and arrest warrant, we have referred that individual 
and the company for suspension and then, upon conviction, for 
debarment. We have initiated two recently fact-based 
debarments, where there was no interest in prosecution, but we 
believe we made a compelling case for debarment.
    Mr. Chaffetz. But there are so few debarments that are 
actually happening, I think, as the Chairman pointed out, the 
discrepancy. Why is that? Mr. Hillman?
    Mr. Hillman. VA does have a debarment committee that they 
established in September 2010, and, to date, there have been 
three debarment actions involving 11 associated firms or 
individuals. There are also several proposed debarments that 
are pending.
    That is in stark contrast to the nearly 1800 firms that the 
VA has rejected from their verification program and some 70 
firms that are associated with potential fraudulent activity 
that have been referred to the VA's IG's office.
    Mr. Chaffetz. So why the discrepancy in the number? What is 
slowing them down? Do they meet once a quarter and they only 
have a half hour, or what is the problem?
    Mr. Hillman. They do meet on a regular basis. They are not 
full-time staff, they are part-time staff. The historical 
information suggests that much more could be done from an 
enforcement standpoint both by VA and the Small Business 
Administration to better ensure that there are consequences 
associated with fraudulent activity.
    Mr. Chaffetz. You have looked at this a lot closer than 
most. Why are they so slow and so inept in actually following 
through on this? Statistically, I don't think inept is a strong 
enough word. What is slowing them down? When you say they meet 
regularly, is that every week, every month, every quarter?
    Mr. Hillman. On a periodic basis, I believe at last 
monthly.
    Mr. Chaffetz. Monthly? What is slowing them down? Why 
aren't we creating this database? We are having the same 
problem overseas. This continues to be a problematic theme for 
the Department of Defense. We go through the same process with 
contractors overseas and we see billions of dollars leave our 
shores to go to people who didn't provide services that they 
were supposed to. And now we are having it happen right here. 
What else needs to be done, other than trying to do the job 
that they are already set up to do?
    Mr. O'Neill. We have 88 cases open right now on SDVOSB 
fraud. Our template is to seek prosecution first, criminal 
prosecution. If that is declined, then to seek civil 
prosecution. And then, if that is declined, to refer for 
suspension and debarment. We believe that the penalties of 
imprisonment are going to deter this behavior very effectively 
as we get more and more prosecutions, which are increasing and 
gaining traction within DOJ.
    Mr. Chaffetz. My time has expired, but, Mr. Chairman, I 
would hope and encourage them to not only pursue, there should 
be concurrent pursuit of not only criminal, but also debarment. 
We should err on the side of making sure that we are giving 
these contracts to those who truly deserve and should be 
awarded those, and I find the statistically their follow-
through on this is inadequate, at best.
    I yield back. Thank you.
    Mr. Lankford. Thank you, Mr. Chaffetz.
    I would like to recognize the Chairman of the full 
Committee, Mr. Issa, for his time of questioning.
    Mr. Issa. Thank you, Mr. Chairman. I am sorry I missed our 
first panel. Certainly, Senator Cleland would be a good example 
of somebody who has paid the price and had a hard time getting 
here and a hard time staying here. It is not easy for veterans 
anywhere, including in Congress.
    I am concerned, as Mr. Chaffetz was, that your order is 
wrong. And let me ask a series of questions, since we are one 
of the committees that could change that order.
    First of all, Mr. Hillman, this part-time debarment sort of 
question and so on, should this Committee look at reorganizing 
Government and how it does business to professionalize the 
whole question of contractors across DOD, SBA, you know, you 
name the ABCs, including veterans? Would that help if in fact 
we turned it into an efficient, effective, well staffed 
organization that in fact, like a corporate headquarters, was 
your go-to for I have a problem, their job is to quickly get 
the bad guys out?
    Mr. Hillman. I believe it is definitely a resource issue, 
and something to consolidate those resources and provide for 
the expertise to look on a government-wide basis, the 
credibility of these kinds of actions to ensure that there are 
real consequences, would be beneficial.
    Mr. Issa. Mr. O'Neill, I appreciate the order that you gave 
us. Honest testimony is always critical to a starting point of 
sometimes disagreeing. When a police officer witnesses a crime, 
he doesn't view conviction as the first step, does he? He views 
arrest as the first. Isn't suspension and debarment, and 
particularly suspension, isn't that in fact an essential first 
step when you have enough to administratively know that someone 
is a bad actor, whether or not you have the criminal?
    I mean, obviously, if you convict somebody of a felony, it 
ain't no big thing that you managed to debar them. If anything, 
when you convict somebody of a crime, the question I have for 
you is when you convict them of a crime, shame on you if you 
only get the guy that did the crime.
    What is your procedure to debar one, ten, hundreds of 
people who were not convicted, but were conspirators, 
unindicted coconspirators in the effort? In other words, the 
executive secretary, is she or he being debarred because they 
clearly had knowledge and aided and abetted it, even though 
they are not convicted?
    That would be my question to you. If you are putting 
debarment, suspension and debarment at the end, then shouldn't 
it include a broad group of people that wouldn't have been 
picked up in the first round?
    Mr. O'Neill. I think the reason for the order, sir, is 
frequently the prosecutors don't want to have to disclose 
information gained in the investigation, and some of these 
investigations are conducted under grand jury secrecy. So the 
movement towards immediate suspension and debarment of the 
individuals to be indicted presents a problem in that area. In 
terms of----
    Mr. Issa. But this Committee, just a few years ago, saw a 
fraud being perpetrated in Florida, where an individual was 
selling 30 year old, 35 year old 762 rounds to the American 
people to be put in the hands of, I think, the Afghan 
government, and thus we were giving them rounds that probably 
didn't fire. Would you have suggested that you wait until you 
finished the indictment before you stopped the shipment or the 
purchase of those?
    Mr. O'Neill. No, sir, of course not.
    Mr. Issa. So how do you stop the bad if not for suspension?
    Mr. O'Neill. Well, as----
    Mr. Issa. Do you have the tools to stop before, in fact, 
this other part, which may have significant delay? Certainly, 
Mr. Chaffetz made it pretty clear that 3 versus 1,800 sounds 
like debarment is almost an irrelevant part of your tool chest, 
based on how often you use it.
    Mr. O'Neill. Well, I believe the Department pursues 
debarment independent of us when we are not conducting the 
investigation that could lead to an indictment. So the numbers 
are in that arena, not in our 88 investigations, per se.
    Mr. Issa. Well, back to Mr. Hillman, then. Do we have the 
order right? Do we have the tools? And how do we explain so few 
suspensions and debarments?
    Mr. Hillman. On a government-wide basis----
    Mr. Issa. Well, we are sort of looking at wounded warriors 
access. You know, this is a little bit narrow in this, but go 
ahead and answer government-wide.
    Mr. Hillman. Well, on a government-wide basis for a 
service-disabled veteran-owned small businesses, the fraud 
prevention framework to help deter and detect fraud and abuse 
is woefully inadequate. We looked at prevention controls to 
help to ensure that only eligible firms for this program are 
provided with these contracting opportunities, we looked at 
monitoring and detection controls to help to ensure the 
continued eligibility of firms to be within this program, and 
we looked at the enforcement and investigative powers to help 
to ensure that there were real consequences associated with 
individuals who claimed to be eligible but were not. In each of 
these three broad areas of the fraud prevention framework, the 
government-wide service-disabled veteran-owned contracting 
program needs serious improvement.
    Mr. Issa. Well, my time has expired, but, Ms. Finn, if you 
could answer just one question or two questions. Well, I will 
answer it for you. You do not have subpoena authority.
    Ms. Finn. The IG does have subpoena authority. I would have 
to go to our general counsel, but we have subpoenaed documents 
in other audits.
    Mr. Issa. Is that an effective tool for you when you are 
able to get it?
    Ms. Finn. Yes, it is an effective tool to obtain documents. 
The threat of it is also effective, that we can use a subpoena.
    Mr. Issa. Mr. Chairman, could I ask for an additional 30 
seconds?
    Mr. Lankford. Without objection.
    Mr. Issa. Could you elaborate on how effective the tool of 
threatening, in other words, the fact that you can get a 
subpoena, how often does that cause voluntary compliance at a 
sufficient level to your satisfaction?
    Ms. Finn. To be honest, sir, I don't have to use that very 
often in my work. As auditors, we are looking at internal 
controls and we identified fraud indicators and then we turn 
them over to Mr. O'Neill for investigations. But the IG has 
statutory authority to obtain information and, at the end of 
that, the IG can report, of course, to you, as Congress, that 
we can't get information. Within the Department, that generally 
is enough authority. The subpoena comes into question when we 
are dealing with people outside of the Department of Veterans 
Affairs.
    Mr. Issa. Is that the findings of all of you, that the 
power to get one is an effective tool to get compliance, in 
most cases?
    Mr. O'Neill. We find it an effective tool. Whether I would 
venture towards getting compliance, it is hard to say. It is 
very effective to use a subpoena. Of course, we don't have 
subpoenas for testimony, but for documents and so forth, it is 
very useful. And, of course, we get search warrants from the 
court to gain even more information.
    Mr. Issa. Thank you.
    Thank you, Mr. Chairman.
    Mr. Lankford. Recognize Mr. Connolly.
    Mr. Connolly. Thank you, Mr. Chairman.
    Mr. Hillman, in your exchange with my colleague from Utah, 
you cited inadequate resources as one of the problems we face 
here. Could you elaborate on that? What would it mean if you 
had more resources, I assume in the form of personnel, in terms 
of either preventing ineligibility in the first place and/or 
recovering assets given to ineligible firms in the second 
place?
    Mr. Hillman. The SBA bid protest process is one good 
example where the program itself sees itself as one of its 
primary responsibilities providing concrete information on the 
eligibility status of individuals. That is what they see as a 
material outcome from their efforts. What we are hoping to see 
is that when entities are determined to be ineligible, that 
there will be real consequences associated with those actions.
    In the SBA bid protest world there have been very limited 
to no suspensions or debarments associated with the decisions 
that they have made, and sometimes contractors are continued to 
be allowed to maintain those contracts through their 
completion. That does not sound like a system, to me, that 
affords real consequences when entities are determined to be 
ineligible.
    Mr. Connolly. Wouldn't it be fair to say that an investment 
in additional resources in this particular area actually might 
save taxpayers money?
    Mr. Hillman. Absolutely. If there is a sense that there is 
an aggressive posture within the program to ferret out the 
potential fraud, waste, and abuse, you are going to eliminate 
the interest of a lot of bad actors from entering the program. 
That is not only going to help to ensure that the honored 
service-disabled veterans are receiving the benefits that they 
are entitled to, but it will also help to ensure the overall 
control structures are operating effectively.
    Mr. Connolly. Thank you.
    Ms. Finn and Mr. O'Neill, and, Mr. O'Neill, I need you to 
speak closer to that mic, please. You are a very quiet 
Irishman. But I thank you.
    What percentage of the ineligible firms you have identified 
could fall in the error rate column versus the fraud, willful 
fraud column?
    Mr. O'Neill. We only pursue an investigation when fraud is 
indicated; errors we don't launch an investigation.
    Mr. Connolly. Okay, so 100 percent of what is on your plate 
are already in that fraud column.
    Mr. O'Neill. Yes. Then when we discover that it is an 
error, then we end the investigation.
    Mr. Connolly. Okay. And what percentage of your 
investigation ends in that kind of conclusion?
    Mr. O'Neill. Well, we have closed 25 cases to date. Twenty 
were unsubstantiated, three there was no prosecutor interested 
in pursuing it and then there were administrative remedies in 
two. So 25, and we have 88 open investigations at this time. So 
20 percent, perhaps, if the math is correct?
    But to the question earlier most of this fraud that we 
encounter because of VA's controls now focus on pass-throughs 
or rent-a-vet schemes, where the work and the money goes to a 
non-service-disabled veteran, but there is a service-disabled 
veteran fronted as having ownership and control of the company.
    Mr. Connolly. And that is willful fraud.
    Mr. O'Neill. And that is willful fraud.
    Mr. Connolly. But I guess I am trying to get at, as the 
Oversight and Government Reform subcommittee here, what is the 
extent of our problem. How much of this is error; I thought I 
qualified, VA thought we qualified, we didn't have our 
paperwork in on time, you got it wrong, versus, no, I 
deliberately set out on a scam to qualify for something I most 
certainly am not qualified for, and you caught me.
    Mr. O'Neill. I believe that Mr. Leney will testify that, if 
I am not mistaken, 1800 firms have been denied certification 
and that almost all of them are a result of perceived errors 
because they have reported the conflict----
    Mr. Connolly. But not fraud.
    Mr. O'Neill. Yes, not a fraud.
    Mr. Connolly. Right.
    Ms. Finn, Mr. O'Neill's plate is already predetermined.
    Would the Chairman indulge me one extra minute?
    Mr. Lankford. Without objection. Go ahead.
    Mr. Connolly. I thank the Chair, thank you for his 
courtesy.
    Ms. Finn, you do the presorting. What is the balance we 
ought to be thinking about in our heads about suspected willful 
fraud versus everything else at work?
    Ms. Finn. We had found 32 of our 42 businesses had issues. 
Within that 32, another 9 had circumstances that seemed 
suspicious enough for us to refer those to Mr. O'Neill's 
organization, and I believe those investigations are still 
ongoing, I am not certain.
    Mr. Connolly. But it sounds like, as the Chairman was 
pointing out in terms of suspension and debarment, and, 
frankly, what the statistics you just gave, Mr. O'Neill, in 
terms of the prosecution, it doesn't sound like a very vigorous 
effort, which one of two things is true if that is an accurate 
impression: the case was so weak as to be a judgment call or we 
are not all that aggressive in making sure that compliance is 
strictly adhered to, and when we uncover somebody who is 
deliberately gaming the system illegally, we prosecute them 
with the full extent of the law.
    Mr. O'Neill. Well, I can assure you that actually 
considerable effort is devoted to investigating these cases.
    Mr. Connolly. I know, but--Mr. Chairman, forgive me--I am 
interested in the next step, Mr. O'Neill. What happens then? 
You read off a string of statistics that was not very 
encouraging in terms of what are the penalties. You said that a 
number of people, I assume the Department of Justice, declined 
to prosecute. That suggests a weak case.
    Mr. O'Neill. I think I only said that about three cases out 
of a total of approximately 115. So the numbers of declinations 
hasn't been that high at this point, and, frankly, there is 
much more interest in Department of Justice in pursuing these 
investigations now because of three appellate decisions that 
say that the loss is the full value of the contract, which 
impacts sentencing and fines and so forth. So we actually are 
seeing it and I believe you are going to see an increasing 
number of prosecutions as early as this month.
    Mr. Connolly. Mr. Chairman, thank you for your indulgence, 
and I want to underscore what Mr. Hillman pointed out, though. 
As we are having a political talk about let's shrink the 
Federal Government by 5 percent or 10 percent in terms of 
workforce, strategic investments in certain parts of the 
Federal Government in terms of personnel can have huge return 
on those investments for the taxpayer. This is one example.
    I thank the Chair.
    Mr. Lankford. Thank you, Mr. Connolly.
    I now recognize Mr. Meehan.
    Mr. Meehan. Thank you, Mr. Chairman.
    And thank you for the work of the panel not only preparing 
here today, but the very important work you do on this issue, 
which I think is important to many.
    Mr. O'Neill, I am interested in following up a little bit 
on the practice that we currently see with regard to your 
investigations and the numbers of declinations. As a former 
Federal prosecutor, I appreciate the reality that there are 
many cases out there that oftentimes merit some measure of 
prosecution, but the reality is limited resources and so often 
the declination guidelines are quite high, and it is very 
frustrating for organizations like your own.
    Can you explain to me where you see those declination 
guidelines right now, what the shortcomings are in having 
prosecutors evaluate these cases and actually find some way to 
consolidate, perhaps, a group of them and make some kind of 
inroad in this area?
    Mr. O'Neill. Well, in each case we find that we are 
educating a prosecutor who is maybe new to this particular type 
of set-aside fraud, but we are getting a lot of traction 
because in October of last year DOJ sent guidance to the 
supervisory AUSAs and the U.S. attorneys themselves about the 
issue of the full losses, the contract itself, and that helped 
gain a lot of interest.
    If we had a separate group of prosecutors, say, like 
antitrust, that would be certainly, perhaps, easier in some 
way, because we wouldn't have to go through the education 
process that we do when a prosecutor first encounters one of 
these types of investigations.
    Mr. Meehan. May I make a suggestion? There may be something 
that ought to be done. I think, as with anything, communication 
on this, in the Winston Churchill mode, to make a point and 
then make it again and make it again, and to pound it in an 
institution. There is an organization called the Attorney 
Generals Advisory Committee. It is comprised of about 16 
sitting United States attorneys. They meet at least on a 
monthly basis and they go back and they consider policy of the 
Department of Justice and then they take a role in implementing 
it.
    Now, you have 16 of the top United States attorneys sitting 
at a table, along with the leadership, the Department of 
Justice. They will generally meet for about two days, maybe 
even longer, and there is a window of time to request to get on 
their agenda. I think something that would be helpful, 
notwithstanding the guidance they send out to the field 
because, as a recipient of that guidance, we would get tons of 
materials each day from main justice, and somebody would take 
it and press it down. Making your case to this group about the 
importance of looking at these cases, and then the opportunity 
to do something else. The Department will consolidate cases 
from around the Country and then try to make a statement by 
doing a number that are coordinated and effectively done at the 
same time.
    It is not my place to tell DOJ what to do, but I, having 
been there, believe that you could be effective at making this 
internally appreciated and then also effective at perhaps 
advocating for one of those in which you have already done the 
investigations. You have the materials sitting on the desks of 
these prosecutors. It is not a big reach to go back and look 
for the best of those cases.
    Can I ask one other question of the panel? Why is the 
Department of Veterans Affairs doing a fairly decent job of at 
last meeting their goal, 3 percent, and some of the other 
critical agencies, HHS and others, sort of so woefully behind? 
What do they do well that the other agencies don't do to meet 
their 3 percent requirement?
    Ms. Finn. I think the issue is focus. When we were looking 
at the Department's Implementation of Recovery Act's contracts, 
the Department had about a billion dollars to spend. They 
really, really focused on completing those contracts, which was 
a departure, but that is another hearing, and also making 
awards to service-disabled veteran-owned businesses. So it was 
a big focus and I think that is the key difference.
    Mr. Hillman. I would also add that the focus on the part of 
the Department has been tremendous in helping to ensure that 
the goal is being met or exceeded. I would also say, though, 
that congressional support to help to ensure that the agencies 
are making progress in this area is essential. The Veterans 
Affairs Committee required the VA Department to establish goals 
that were higher than the government-wide goal and to exceed 
that goal, and with the congressional attention in that area VA 
has stepped up to the plate, continued aggressive oversight of 
agencies' actions in this area will also hopefully help the 
rest of the Federal agencies to increase their focus.
    Mr. Meehan. Thank you, Mr. Chairman. My time has expired.
    Mr. Lankford. Thank you.
    Mr. Farenthold.
    Mr. Farenthold. Thank you very much, Mr. Chairman.
    I would like to ask our panel, first, we have talked a lot 
about the U.S. attorney and the Federal Government 
investigating and processing. Is there a way we can streamline 
this to where the private sector can do more or the veterans 
themselves can do more? It is my understanding that in most 
cases outside the VA, at least, violation of these provisions, 
basically, your only option is a bid challenge.
    Is there any way we can take this off of a plate of the 
Federal Government and effectively enforce these provisions? 
And I will open that up to anybody who wants to answer it.
    Mr. Hillman. Well, from a government-wide service-disabled 
veteran-owned small business program standpoint, you are 
absolutely right, the only major control is SBA's bid protest 
process, where eligible individuals can protest a decision that 
has been made. We found, though, that that process is woefully 
inadequate and ineffective in having real consequences 
associated with individuals who are found to be ineligible.
    One of the critical areas that I believe could help to 
ensure that the SDVOSB program has reduced amounts of 
vulnerability to fraud and abuse would be, in addition to 
looking at the opportunities in the investigations and 
prosecution areas, to look more at the preventative controls to 
help to ensure that ineligible firms do not enter the program 
in the first place. And the best preventative control that 
exists today are the processes underway and under development 
and being implemented within VA to verify the eligibility of 
firms' participation in this program.
    Mr. Farenthold. I am a little bit concerned about the speed 
at which the VA operates within any of their programs. In South 
Texas we are really facing a situation where veterans are 
having problems just getting the basic medical benefits with 
payment delays to providers of up to a year now, millions of 
dollars owed to providers. And we hear overall how the VA is 
trying to streamline this and streamline that, and I know, Mr. 
Hillman, you have looked at some of this from a past basis and 
our other witnesses are directly involved.
    I ask again the big broad question, What is missing there? 
The people who work for the VA ought to get up every morning 
proud that they are serving the people who served us and be 
just working their tails off to get this taken care of, but all 
we hear out of the VA is tale of delay after delay in problems 
getting these programs implemented. Would anybody like to 
comment on that? I didn't mean to editorialize here, but I just 
get frustrated sometimes with this.
    Mr. Hillman. Well, you are absolutely right that the 
program, Congressman Johnson just testified in the first panel 
that it is far from perfect. There is a lot that the VA has 
been doing to help to improve its processes and there are a lot 
more that needs to be done. One of the major areas that we have 
seen is in human capital, the extent to which the Department 
has the resources, both full-time VA employees as well as the 
expertise through contractor resources, to deliver on the 
promises that they are making in establishing a verification 
program.
    We also see a need for more emphasis to help to ensure that 
once firms are verified, that they remain eligible for the 
program, and that additional steps need to be taken there on 
the part of VA to help to ensure the reverification of firms 
that were previously----
    Mr. Farenthold. Is it just personnel? Are we not 
implementing technology effectively or rapidly enough to help 
with some of these tasks?
    Mr. Hillman. Technology is a big area as well. We 
currently, within GAO, have an engagement underway to look into 
the technological capabilities of the VA. They have improved a 
lot of the manual entry activities in the past, but more needs 
to be done.
    Mr. Farenthold. Does anybody else wish to comment?
    Ms. Finn. The VA has used some technology to obtain 
documentation from veterans as part of the verification 
process. Unfortunately, what we found as we visited these 
businesses is it is very easy to make your documentation appear 
that the veteran owns the business. That is not a problem. But 
you have to be in the business there to really figure out that 
the veteran's name is on the paperwork and his name is on the 
door, but he hasn't been in that office since the business 
started.
    Mr. Farenthold. Shame on businesses that do that. Thank you 
very much.
    I yield back.
    Mr. Lankford. Thank you.
    I recognize Mr. Walberg.
    Mr. Walberg. Thank you, Mr. Chairman. I would be delighted 
to yield time to you, Mr. Chairman, for further questions.
    Mr. Lankford. Thank you. Let me just do some follow-up and 
some closing questions for us as well. And thank you, Mr. 
Walberg, for yielding in that.
    This is one of those things that is an idea that is a great 
idea, how do we come alongside companies run by service-
disabled veterans. I think it is a great thing for our Nation 
to do and I am proud that we are doing it. It is the 
implementation where we are having the struggle.
    If we have a company that puts a service-disabled veteran 
on the list, provides documents and says this is where they are 
in leadership, this is where their name should be on the door, 
but you actually get to the company and find out that is not 
true. That is intentional, willful fraud that is putting a 
person's name out there and then trying to deceive to be able 
to get a contract.
    If you have a person that is not a veteran that is stealing 
the valor and going through some other agency and they're self-
certifying, but it is not being checked and verified, once the 
word gets out you can get these contracts and the self-
certification is not checked, it just starts ramping up with 
the bad actors in the process. So we have to figure out how to 
go from idea to implementation.
    This doesn't seem to be as much of a manpower issue as it 
is a connect the dots issue, if you will allow me to make that 
illustration on it, in trying to figure out how do we connect 
the dots. So my calling on this would be for our CIO of the 
Federal Government, for OMB to start working on some 
coordination to how do we start coordinating these different 
agencies in technology and to find out how we can take the 
information that VA uniquely has and get that certification 
out.
    But the challenge comes to VA to say how do we certify 
people without making it such a high standard that the good 
folks can't get in, or they wouldn't bother to say I would love 
to apply for all those, but the red tape is so long I am not 
going to mess with it, it is not worth it. So then it is only 
the bad actors that jump in, that have the processes to be able 
to jump in and get it.
    I know that is a unique balance that you all are going to 
have to be able to work through the process on so that we do 
have legitimate service-disabled veteran-owned companies to be 
able to get involved in this, but we do keep the bad actors 
out. As we are already finding out, there are folks that are 
getting through the cracks at this point.
    Debarment and suspension I think is a good first step. I 
think that is something that we should engage as fast as 
possible. That begins to exclude people quickly because that 
gets out to all agencies. While an investigation may take quite 
a while to happen, they are still continuing to pick up 
contracts in other agencies to get the word out.
    So we have to have some way to be able to get that message 
out to all agencies. That has been suspension and debarment 
through our system. So we have to figure out a way to be able 
to flip this system. I know as they are investigating they 
don't want to leak out all the investigations that are going on 
before they are done, but there has to be some intermediate 
step so that we can get the information out and start slowing 
the movement of all these individuals to it.
    So this is going to take some coordination that we are 
going to count on OMB, we are going to count on other 
individuals from GAO and others that will come together and say 
let's start taking some of these recommendations that have been 
made, and the good work that you all are doing at VA, and thank 
you for your service for all of you in this process and to 
figure out how to be able to move it from here.
    One quick statement, though. And this is just for anyone to 
be able to make a comment on. There have been several steps 
that have been made and you had mentioned earlier, Ms. Finn, 
about VA is taking steps to improve the verification process on 
that. I look forward to reading through some of those steps and 
seeing where that ends.
    What is your perception of how we start coordinating multi-
agency on this, taking the certifications happening with VA and 
the steps that you are doing to improve that, and then to be 
able to move it? Because as we mentioned with suspension and 
debarment, it is not a high standard. You don't have to prove 
criminal intent to even get to a suspension and debarment; you 
can do that quickly and start getting the word out and work on 
the criminal side of it.
    But it is not just the certification, but it is all of 
this, getting the suspension and debarments out there, getting 
the investigations, getting the certifications. What is the 
best way that you see to start coordinating these things?
    Ms. Finn. I think the best first step is to do whatever 
needs to be done, whether it is legislation or coordination 
through OMB, to be able to share VA's VIP database and 
information on verified businesses with the rest of the Federal 
Government. Right now, as we have all said, the rest of the 
Federal Government is trusting on the business to self-certify 
their status, and that doesn't work.
    Mr. Lankford. Right. We need to verify with our trust.
    Ms. Finn. Yes.
    Mr. Lankford. Other comments there?
    Mr. Hillman. It is clear that the government-wide program 
lacks preventative controls, lacks detection controls, lacks 
enforcement and investigative controls. These three combine to 
make the program a real candidate for bad actors. The VA, SBA, 
and OFPP have gotten together to look at the possibility of 
expanding the VetBiz program on a government-wide basis. They 
say they need legislative authority to do so. Moving the VetBiz 
program on a government-wide basis is likely the best solution 
available today to ensure that eligible firms are included in 
the program.
    Mr. Lankford. Thank you for that. We will continue to 
progress with that. And, again, thank you for the work that you 
are doing and not only for this hearing, but the work you are 
doing all the time, when the cameras are off as well. So we 
very much appreciate your dedication to service for our Nation.
    With that, I would like to take a short break as we reset 
for our third panel.
    [Recess.]
    Mr. Lankford. We will now welcome our third panel. 
Gentlemen, are you ready? Terrific.
    Mr. Weidman is Executive Director of the Vietnam Veterans 
Association representing VET-Force, a coalition representing 
service-disabled veterans.
    Mr. Andre Gudger is Director of the Office of Small 
Business Programs in the Office of the Undersecretary of 
Defense for Acquisition, Technology and Logistics
    Mr. Thomas Leney is the Executive Director of Small and 
Veteran Owned Business Programs at the Department of Veterans 
Affairs.
    Mr. William Puopolo is the President of Verissimo Global 
Incorporated, a service-disabled veteran-owned small business.
    Pursuant to Committee rules, all witnesses will be sworn in 
before they testify. If you would please rise and raise your 
right hands. Thank you, gentlemen.
    Do you solemnly swear or affirm the testimony you are about 
to give this Committee is the truth, the whole truth, and 
nothing but the truth, so help you God?
    [Witnesses respond in the affirmative.]
    Mr. Lankford. Thank you. Let the record reflect that all 
witnesses answered in the affirmative.
    You may be seated.
    In order to allow time for discussion, please limit your 
testimony to five minutes. Of course, your entire written 
statement will be made part of the record.
    Mr. Weidman, we would be honored to be able to receive your 
testimony at this time.

                   STATEMENT OF RICK WEIDMAN

    Mr. Weidman. Thank you, Mr. Chairman, and thank you for 
your leadership in holding this hearing. Senator Cleland put it 
right on the money, that the nexus, the central watershed event 
of the readjustment process for veterans, particularly combat 
veterans, is helping people get to the point where they can 
obtain and sustain meaningful work at a living wage. For many, 
and the greater the disability the more likely it is that it is 
the only opportunity, is to become self-employed or start a 
micro business, for a variety of reasons. So the need for small 
business is apparent.
    It is also true that there is a direct inverse relationship 
between percentage of disability and unemployment, if in fact 
people are participating in the labor market at all. And beyond 
60 percent the majority of veterans are out of the labor force. 
That is not because they choose by choice to live on $10,000 a 
year; it is because they can't find work and they become a 
whole new thing of discouraged workers.
    We believe strongly at Vietnam Veterans of American, and 
have for a long time, in small business and small business 
development, and that led, in 1999, to work with former member 
of Congress and Chair of the Small Business Committee in this 
distinguished body, Jim Talent of Missouri, to work with him on 
developing the bill that became 10650, and it was virtually all 
the military service organizations and veteran service 
organizations and private business owners that came together 
and to push that.
    Almost everything that has happened since that time, 
including two Executive Orders and several additional laws, 
have all been directed to try and properly implement that 
original law, and that is the problem. What we need is 
consistent political will at every level.
    Roughly 2006, several of us in VET-Force and VVA went to 
talk to then-Deputy Secretary Gordon Mansfield, and we 
explained to him that we had tried over and over and over again 
to reach the vision directors. The entire medical system of VA 
is 85 percent plus of all of their procurement, and there are 
21 individuals and all the hospitals are controlled by those 21 
individuals, effectively. And we asked that it be put in their 
performance evaluation.
    We were stuck at 1.8 percent contracts going to service-
disabled veterans at that point at VA. It got put into the 
evaluations and I can assure you that some of them were not 
necessarily pleased, but Gordon is a great American and has 
stuck to his guns. We went, in six months, from 1.8 percent to 
well over 4 percent, and it is my understanding that DOD is 
considering and, in fact, has already partially implemented the 
same strategy, and I would suggest that that needs to be done 
in every agency and department across the Government.
    There is renewed interest in the OMB and in cabinet 
meetings, apparently. One of the last things that Mr. Daley did 
before he stepped down as Cabinet Secretary was to go around 
the room in a cabinet meeting and ask the head of each agency 
who sits on the Cabinet where are you at in regard to reaching 
the minimum of 3 percent for service-disabled veteran-owned 
businesses.
    That leads us to the concern that we have. We need an 
accountability/quality control mechanism to make sure that 
people are who they say they are. But I will say that that 
sword has cut both ways and it has cut many legitimate 
businesses, some of whom have literally been put of business 
for reasons that we consider specious and arbitrary.
    For someone, as an example, from Nebraska who is a service-
disabled Marine officer who is medically discharged, who has 
been successfully running their business for 12 years, for them 
to find that she doesn't have the managerial experience to run 
this business, this is nuts. These are people who have never 
even worked in the private sector, and certainly never tried to 
run a business.
    So the friendly fire, when you know you have friendly fire 
raining in, yes, you need to do something about the frauds that 
are encroaching, but when you know that your folks are getting 
wiped out by that friendly artillery, so-called friendly 
artillery, stop firing for effect and readjust to make sure you 
have the right coordinators. And that is the stage we are at 
now. We don't see any adjustment, no matter how much we try and 
deal with the leadership of VA at every level.
    That process needs retooling, it needs better quality 
assurance, it needs clear rules that are published so veterans 
know what the rules are. They have changed dramatically over 
the course of the past year and a half. And what we need is 
assistance in getting to that point.
    It should be VA's responsibility, probably in the Veterans 
Benefits Administration under the Deputy Undersecretary for 
Economic Opportunity, to have a unit that assists veterans in 
bringing their business up to speed to be able to do business 
with the Federal Government.
    Lastly, I have noted in my written statement some 
additional tools that we would find extremely useful, and I 
look forward to answering questions about that.
    And once again I want to thank you for this hearing.
    [Prepared statement of Mr. Weidman follows:]





    
    Mr. Lankford. Thank you.
    Mr. Gudger.

                   STATEMENT OF ANDRE GUDGER

    Mr. Gudger. Chairman Lankford, thank you for allowing me 
the opportunity to speak today and introduce Department of 
Defense service-disabled veteran subcontracting that we have.
    My role at the Department of Defense is the Director of 
Office of Small Business Programs and to advise the Secretary 
of Defense on all matters small business. That includes policy, 
oversight, and regulation.
    When I think about the Department of Defense posture on 
contracting with service-disabled veterans, it is a very 
encouraging one. In 2003, when we first started this program, 
and look at where we are now, we started with about $300 
million in contracts for service-disabled veteran-owned 
businesses, and last year we ended almost $6 billion. Since I 
took office, we increased our fiscal year 2010 number over into 
fiscal year 2011 about $600 million in one year. So when I look 
at that, although it is very encouraging, the trend, we haven't 
relaxed our efforts.
    Secretary Panetta, when he joined the Department as the 
Secretary of Defense, he issued a memo as one of his first 
courses of action and, to show his commitment to the 
Department. He did that while he was on vacation. He took it 
that serious. And other members of the Department of Defense 
also issued similar memos encouraging the acquisition workforce 
to continue to look for opportunities for small business and 
reinforce the Department's commitment for service-disabled 
veteran-owned contracting. So that was very encouraging.
    But it didn't start with Secretary Panetta; it did start 
with Secretary Gates. So it is one good example of going from 
great to great and it is a pleasure of mine to talk about a lot 
of the initiatives that we started in fiscal year 2011 and 
built upon from in prior years.
    When I think about the Department of Defense, most people 
say, well, the Department of Defense hasn't met its 3 percent 
goal, but we have had some major success stories. In fiscal 
year 2011, although the number hasn't quite settled, we had 7 
of our 24 agencies meet the 3 percent and we had, out of our 
major commands under those services and agencies, we have had 
almost half, about 22 out of the 47, meet the 3 percent goal.
    So there is a strong commitment. And when I look at the 
trend it is constantly going up. It is the only socioeconomic 
category where we have never seen a decline. So that shows a 
commitment to the Department.
    And I think further on, looking at our partnerships and 
looking at our collaboration that we have with industry, we 
have reinforced and we have taken the extra step, quantum leap 
in the right direction in working with groups like VET-Force 
and National Veteran Small Business Coalition and gaining some 
of the best practices and ideas from industry, not just within, 
and, as a result of that, those groups have relayed messages to 
their folks behind them to help them strengthen their 
capabilities because we know that vets are very talented and we 
know that talented group of people have a unique ability to 
continue to create capabilities to align with the Department's 
buying and its future urgent needs. So those are very 
encouraging trends for us.
    But one of the things that we have done that I think is 
probably the most beneficial thing we have done in a very long 
time was to accelerate payments to all small businesses, which 
we call accelerated payments, which is where service-disabled 
veteran-owned businesses were a huge beneficiary. So we pay 
businesses one-third faster than they would normally get paid, 
and we know, as a result now, that they have put that back into 
creating jobs, creating additional capability, allow them to 
respond to request for proposals quicker and faster and put 
more resources towards that. So these things are very 
encouraging trends.
    So although we have no data to say that the numbers will 
definitely go up, it is a good trend and is a good behavior, 
and we are sharing this throughout my monthly meetings with all 
of the directors and members of the acquisition community in 
Department of Defense, but we are sharing best practices with 
each other and how to do more with veteran business and 
service-disabled businesses. So it is very encouraging to me.
    I would like to wrap up by pointing out a few success 
stories based on talking to VET-Force and talking to National 
Veterans Small Business Coalition, attending the National 
Veterans Conference that the VA put on, attending the 
conference in Reno for the National Veterans Coalition. These 
things are very beneficial to me and allow me to go back and 
meet with the directors of DLA and the acquisition executives
    For example, DLA, as a result, in fiscal year 2011, they 
looked for their national stock numbers, which were about 
3,500, of things that they buy, products, and a set-aside for 
service-disabled and veteran-owned businesses, and in fiscal 
year 2012 they are going to 1,400 more. These are quantum leaps 
in the right direction.
    Our Defense Security Cooperation Agency had a 26 percent 
service-disabled veteran-owned business contracting, a goal 
that they met, and also the Department of Army awarded over $3 
billion, which allowed them to meet the 3 percent.
    So there is positive. And they are sharing that with each 
other, with the other 21.
    So, in conclusion, I would like to thank you and the panel 
for allowing me to testify today. We know that the veterans 
hold a special place in all of our hearts and it is true for 
me, too, and I would like to welcome any questions you may 
have.
    [Prepared statement of Mr. Gudger follows:]





    
    Mr. Lankford. Thank you, Mr. Gudger.
    Mr. Leney.

                   STATEMENT OF THOMAS LENEY

    Mr. Leney. Chairman Lankford, thank you for inviting me to 
testify on the implementation of the VA's Veteran Owned Small 
Business Program. The goal of the VA's Small and Veteran Owned 
Business Program is to help small businesses, in particular 
veteran-owned and service-disabled veteran-owned small 
businesses, to add value to the important mission of the VA in 
support of all veterans.
    As a veteran who came directly out of the small business 
community, I am particularly sensitive to the challenges faced 
by veteran-owned small businesses, and at the direction of the 
Secretary have focused my attention over the past eight months 
on improving opportunities for small businesses to add value to 
the VA, while improving the integrity of our preference 
policies.
    The VA has demonstrated its commitment to veterans by far 
exceeding the government-wide goal of 3 percent procurement to 
service-disabled veteran-owned small businesses. To promote 
strong support to veteran businesses, Secretary Shinseki 
established additional procurement goals within the VA of 12 
percent for veteran businesses. In fiscal year 2011, with a 
contracting base of about $17 billion, $3.5 billion went to 
veteran businesses. Overall, in 2011, VA provided more than 28 
percent of the total Federal procurement to service-disabled 
veteran-owned small businesses.
    The VA succeeded largely due to the Secretary's strong 
commitment to promoting veteran businesses. Performance on 
small business goals is reviewed personally by the Secretary 
and the Deputy Secretary as an integral part of the 
Department's monthly performance review.
    In addition to strong leadership, VA has instituted a 
number of programs that contribute to our success. We have 
increased direct access of veteran small businesses to the 
Department's procurement decision makers. That program began in 
2011 with the National Veterans Small Business Conference 
hosted by the VA in New Orleans. This was the largest veterans 
business event in the Country, with more than 4,300 
participants. The 2011 conference was groundbreaking in that 
the VA alone brought more than 250 program and acquisition 
managers to meet with small businesses.
    The VA is building on the success of this direct connection 
model piloted in New Orleans by expanding that small business 
conference to be held this year in Detroit in June. We will be 
bringing more decision makers from the VA, as well as 
encouraging other departments and agencies to bring procurement 
decision makers in order to expand veteran business 
opportunities and to help our sister agencies meet their SDVOSB 
goals.
    In addition to the National Veterans Small Business 
Conference, VA will sponsor focused opportunity showcases 
throughout the Country in order to enhance access for vendors 
who have difficulty participating in the large events.
    To improve veteran business capacity, we have established a 
mentor protege program to provide developmental assistance to 
veteran businesses. The program began in 2010 with 25 firms. We 
added 26 in 2011 and will be adding another 50 this year.
    We have joined with other agencies to address the challenge 
that small businesses have of finding and understanding all of 
the programs that are out there in the Federal Government to 
support them, so we have joined with other agencies on the 
Business USA platform that was established by the 
Administration to consolidate information and services from 
across the Government into a single integrated network for 
American business owners and entrepreneurs.
    Subcontracting opportunities provide a valuable option for 
many veteran small businesses. The VA has established a 
subcontracting compliance review program that conducts audits 
and assesses prime contractors for compliance with their 
subcontracting commitments.
    An important part of the small business mission is to 
verify the eligibility of veteran-owned small businesses to 
participate in the VA's VetsFirst program that provides 
procurement preferences to those businesses. The verification 
program ensures that these preferences go only to legitimate 
small businesses. Over the past six months, CVE has made major 
strides to address the issues raised by the Office of Inspector 
General and the General Accounting Office, who spoke before we 
did, as well as to make the process easier to navigate. We 
moved aggressively against the relatively small number of firms 
who would misrepresent their status in order to obtain benefit 
from our program for which they are not eligible.
    In summary, we have made major strides in improving access 
by veteran businesses to opportunities to add value to the work 
of the VA. Our journey is not complete, but progress is clear 
and significant. Much has been done, but there is much left to 
do, and we are committed to getting it done.
    As a result of the efforts of program and acquisition 
managers, and with the strong support of senior leadership, we 
far exceeded our procurement goals and will continue to do so. 
At the same time, we will ensure that only those who are 
eligible under Public Law 109-461 get the benefits of 
participating in these preference programs.
    Mr. Chairman, I am pleased to answer questions you may 
have.
    [Prepared statement of Mr. Leney follows:]





    
    Mr. Lankford. Thank you.
    Mr. Puopolo.

                  STATEMENT OF WILLIAM PUOPOLO

    Mr. Puopolo. Sir, I want to thank the Committee for taking 
the time to address the service-disabled veteran-owned business 
programs. We, as a community, are encouraged that we are having 
this discussion to improve opportunities for service-disabled 
veterans in Federal contracting.
    The service-disabled vet community is made up of men and 
women from all races, religions, and creeds. We view ourselves 
as we did in uniform: one is judged by rank but, more 
importantly, character. Our GWOT veterans are returning home 
with a sense of empowerment brought on by the many successful 
missions they have accomplished in some of the harshest 
environments in the world.
    We want to deliver the message that service-disabled 
veteran-owned small businesses are capable, ethical, faster, 
and cheaper; that we want to hire our fellow brothers and 
sisters in arms who have sacrificed so much from Vietnam to the 
global war on terrorism. We have banded together to say this 
program was not designed for 20 SDVOSBs to succeed and 
thousands to fail.
    The approximate .45 to 1 percent of our population that has 
taken on the burden of the global war on terrorism over the 
last decade are by no means victims. We still see many 
returning service-disabled veterans maintaining the 
entrepreneurial spirit and starting up companies. They want to 
identify themselves as soldiers and vetrepreneurs.
    The Service-Disabled Veteran-Owned Business program is 
facing immense hurdles. Our disabled veterans have returned 
home with a drive to improve the economic and moral situation 
of the Country they love and defend. Many disabled veterans 
must overcome their disabilities first, and then overcome the 
challenges of entrepreneurship. They have the fortitude to 
enter an unfamiliar business world, learn quickly, and embrace 
the vision that they will be successful.
    I served at Abu Ghraib Prison, and in April of 2005 there 
was a coordinated attack launched on the base. I thought that 
would be the hardest thing I ever did in my life. I had no idea 
that becoming a vetrepreneur would be an even tougher fight.
    Unfortunately, I believe that the current SDVOSB program 
designed to help disabled veterans is hurting them due to 
hurdles, lack of accountability, and unnecessary bureaucracy 
within the Federal Government contracting system. There has 
been a disconnect between the program's intentions and 
execution. Our service-disabled vets have heard thousands of 
reasons why they can't do business with the Government or 
corporate America, and now simply want to hear one way they 
can.
    A few of the major hurdles we are facing are contract 
bundling, no level playing field between SDVOSBs and 8(a)s, 
double counting of contract awards, credit for SDVOSB awards 
that were actually granted through 8(a) or HUBZone vehicles, 
and a CVE certification process that has set the bar too high 
or too low and is not certifying legitimate SDVOSBs.
    The SDVOSB program is complex, and no one action will 
overcome the hurdles and issues we face. The SDVOSB community 
is prepared not only to identify the problems, but provide 
solutions. The two overarching measures that we need to take 
are close legislative loopholes that allow the SDVOSB program 
to not be on a level playing field with other small businesses 
and, more importantly, we must gain the will of the Federal 
departments and agencies in word and deed to take down the 
hurdles, work with SDVOSBs, and to find innovative and concrete 
solutions and make their SDVOSB programs inclusive, not 
exclusive.
    Today I have addressed only a fraction of the hurdles that 
we face in the SDVOSB community, but I have met so many great 
people in this movement that I feel honored just to stand next 
to them. The SDVOSB community will work to ensure that those 
service-disabled veterans who have the will to continue to 
contribute to our national defense and infrastructure will have 
ample assistance and opportunity. We hope the Federal 
departments and agencies and large prime contractors will do 
the same.
    Mr. Chairman, thank you for your time, and I can answer any 
questions.
    [Prepared statement of Mr. Puopolo follows:]





    
    Mr. Lankford. Thank you. I yield to myself as much time as 
I desire, apparently.
    Let's talk for a moment about some of this and let's try to 
clear up all that we can. Gentlemen, thank you for being here 
and thanks for your service to the Nation and what you are 
doing. And being here, I know that it is an intimidating thing 
to come and prepare a statement and be able to do this. Let's 
just have a conversation about this, shall we?
    Let's see what we can do to be able to solve, because I 
want to identify as much as we can what is stopping this, what 
is in the way. I appreciate some of the success stories, I 
really do. But let's find the things that are in the way and 
let's try to figure out how do we start resolving this. 
Otherwise, ten years from now, someone else is going to do a 
hearing and we will still be talking about this same issue.
    Mr. Puopolo, you mentioned there were some hurdles there. 
In your statement, thousands of reasons why we can't do 
business. You just want to know a few ways that we can on it. 
And you identified some of those hurdles. If I got your top two 
there, you listed several: closing the legislative loopholes, 
which that is being pursued right now and we will continue to 
work on that, looking at the Senate legislation that is coming 
over and other options that are here; and the second one, the 
will of the agencies to do it.
    I found that very interesting. Can you illuminate that more 
for me?
    Mr. Puopolo. Yes, sir. I think the message we got from the 
last hearing in December from the VA was that we are fighting 
for the crumbs off the table and that is where we are going to 
be because it seems like there is an unwillingness to really 
embrace the VetsFirst law and implement that.
    Mr. Lankford. Are the service-disabled veterans doing 
lesser work, and so they are, down the table, saying, well, if 
we have to use them, we will? Or are you saying they are both 
great companies, these are two people, we have a higher 
platform because we have that 3 percent on it? Which one would 
you say it is? Are you doing lesser work or doing equal or 
better work?
    Mr. Puopolo. Well, sir, I think the disconnect is we have 
thousands of service-disabled veterans marketing to the VA and 
going to the VA and saying we are here. Unfortunately, the 
message you hear back from the VA is that we can't find these 
capable service-disabled vets. And myself and others in the 
community have approached these agencies and said, well, why 
don't you come to us and we will work with you? And that kind 
of falls on deaf ears. I don't know if it is because of 
bureaucracy or just lack of will that they don't want to work 
with us. I wish I could get a candid answer of why, when we 
come to them and say we will help you meet your goals or we 
will help you find capable SDVOSBs, that they are unwilling to 
work with us.
    Mr. Lankford. Okay. That is interesting.
    Mr. Leney, I have a question. Thank you, as well, for 
connecting the small business side and for doing the training 
and the coordination and the reach-out on it. I find a couple 
things very interesting in this. One is the goals that we were 
talking about before.
    In the previous testimony, it sounds like you disagree on 
some of the testimony that was given earlier, and let me give 
you a highlight on that. You talk about the progress of small--
we have had progress in these areas and the small numbers of 
firms that don't qualify. They are giving numbers as high as 76 
percent.
    You are saying, no, there is a smaller number that don't 
qualify; the majority do. Can you give me a feeling of where 
you land on that? Because it sounds like you are saying, no, I 
think you disagree with the IG's report on that.
    Mr. Leney. It is not so much that I disagree, but I think 
we have to distinguish eligibility for a particular government 
program, in this case the Veterans First program, and the 
commitment of fraud. I have personally reviewed hundreds of 
applications for verification.
    In 2011, we denied 60 percent of all applicants, and in 
reviewing those denials over the last eight months, it is my 
judgment that the vast majority of the firms that we are unable 
to declare eligible are not committing fraud; they are not 
willfully misrepresenting their status.
    Nobody goes to the police station and tells the cop, hi, I 
am here and I want to show you the documentation that shows you 
I am committing a felony. Ninety-eight percent of the people 
that we identify to be ineligible self-report. To me, that is a 
very powerful statement. And I think one of the disservices 
that we have done to the thousands of veteran business owners 
that are out there operating with integrity is to imply that 
lack of eligibility for a VA program equates to fraud.
    When we find someone we think is willfully misrepresenting 
or has consciously misrepresented, we refer them to the IG, as 
you heard from the previous panel. If we think they are 
conducting themselves in a way that is worthy of debarment, we 
have referred them to the debarment committee.
    I will tell you, in respect to the previous panel, we have 
focused more on identifying those where we believe there is 
fraud, pushing them over to the IG for further investigation, 
because my organization is not in the business of criminal 
investigation.
    Mr. Lankford. Right.
    Mr. Leney. But I think it is--yes, we deny a lot of firms, 
but they are not fraudulent; they just have a business model 
that does not fit the requirements of Veterans First.
    Mr. Lankford. Then I guess I will ask the question how do 
we resolve that, then? Because either the word is not getting 
out to them, they are applying and going through a process 
without the clear stipulations, because it is fairly clear to 
me you have to have 51 percent, you have to be in the executive 
office here, you have to lead that company; you have to have 51 
percent ownership; you have to have the majority of how you are 
putting out your subs. That is pretty clear. You have to be a 
service-disabled veteran.
    So the standards seem to be pretty clear. Why are we 
getting so many people that are applying for something that the 
standards seem to be not clear? Or is it the hurdles of going 
through the process that you don't have the right paperwork? 
Which is it?
    Mr. Leney. I think there is a degree of ignorance regarding 
what the standards mean and translating the standards of the 
regulation to their individual company. You have heard 
anecdotal evidence where a person says I have been running this 
business for 12 years, but they don't meet the requirements of 
the regulation to demonstrate that they have 100 percent 
control of the business. And that is the kind of thing we 
encounter.
    The good news is we have spent some time and energy over 
the last few months publishing what we call a verification 
assistance brief, identifying those things that have precluded 
firms from becoming verified, trying to explain them in plain 
language to help firms that are going through the process or 
getting ready to go through the process to understand does my 
business model fit. So what we have seen is a reduction. In 
2011, as I said, we denied 61 percent of the firms that we 
evaluated. So far, this year, we are at about 48 percent 
denials or more than half now we are verifying.
    Mr. Lankford. All right, you are talking about a simple 
two-step process? It sounds like you are putting the 
information out, but are you suggesting something is a two-
stage process from VA that, when they are going through 
certification, if they express an interest, instead of getting 
this big, fat packet saying, fill out all of this, they get a 
simple sheet that says here are the standard criteria, check 
off if you apply to all of this, if all of these apply to you, 
a simple page, then we will send you the big, fat packet? Is 
that what you are recommending there?
    Mr. Leney. Well, we don't send them a big, fat packet, we 
ask them to send us a big, fat packet.
    Mr. Lankford. Right. But they have a big set of 
instructions saying if you are going to qualify, here is all 
the stuff; you have to prove you are a manager, you have to 
prove you are qualified, you have to prove your ownership, send 
us your SEC reports, send us everything. There is an enormous 
amount of information that has to be sent back.
    Mr. Leney. What we have determined is because of, as we 
evaluated failures to be verified, we have tried to go out with 
these simple little briefs, and I think currently our 
verification assistance brief probably covers 95 percent of the 
reasons for denial. I think we have to be clear. Very seldom do 
we have a situation where the person is not a vet. All of those 
people have gone away, at least from our program.
    Mr. Lankford. Now, that is VA only, that is not necessarily 
saying other agencies?
    Mr. Leney. I can only speak to VA, sir.
    Mr. Lankford. Right.
    Mr. Leney. I am only speaking to the VA, the VetsFirst 
program, our responsibilities. There was that issue before; now 
people have gotten the message you are not going to be 
verified, you are going to be investigated if you come in and 
say you are a vet when you are not.
    Secondly, ownership. A very small number of firms are 
denied because of ownership. Most people can add up to 51 
percent.
    The major issue comes as an issue of control, and the 
requirements of the regulation are for 100 percent control by 
the veteran-owner or the veteran-owners. And that is a high 
standard.
    Mr. Lankford. So you are saying currently the standard is 
51 percent ownership, but 100 percent control.
    Mr. Leney. Owner. One hundred percent control.
    Mr. Lankford. So you have to have somebody that is 49 
percent fairly compliant with your company with you. They don't 
care if you control everything, but they actually own 49 
percent.
    Mr. Leney. That means somebody who is 49 percent doesn't 
care how you control the company. That means if someone has an 
equity stake in your company, they have given you their money 
with no influence over what you do with it. That is a very high 
standard. And I don't know very many people in this room that 
would invest a million dollars in a company and have no control 
over, but that is the standard of the regulation.
    Mr. Lankford. Okay. How are we trying to verify that? How 
are we verifying currently? What documents are we using to show 
that you have 51 percent ownership and 100 percent control? How 
are we making them prove that?
    Mr. Leney. One of the tremendous improvements that has 
occurred in the verification program was as a result of what 
the Congress did in the passage of Public Law 111-275, which 
gave the Secretary the authority to call in the documents that 
were necessary to determine if a firm was actually owned and 
controlled, and that has made a huge difference.
    Mr. Lankford. That has become the hurdle, as well, as we 
discussed before, the big, fat packet of information coming 
back in. Now it is such an enormous amount of information that 
you have to be able to bring to bear on it. I am trying to weed 
through this on this.
    Are you saying that is a benefit or that is a detriment? 
Because all that documentation now makes it prove that then you 
are also disqualified because you can't prove 100 percent 
control of a company you only own 51 percent of.
    Mr. Leney. Well, to the 7,900 firms that are currently 
verified, it is a huge benefit. To the contracting officials 
who are expected to ensure that, when they are setting business 
aside for veteran-owned firms, that those firms are in fact 
owned and controlled by veterans, it is a huge benefit.
    You heard the GAO, you heard the IG. I am pleased to report 
that the kind of issues that they laid out in their reports we 
have dealt with, and I am very comfortable that they will not 
find firms that are ineligible for the Veterans First program, 
not if, but when they come back, because we have made great 
strides in ensuring that that doesn't happen.
    The price of that is diligence. We have gone from 147 site 
visits in 2010 to over 1,000 in 2011. Is that a hurdle? It 
certainly is a hurdle for those firms that we determine are not 
in fact eligible. And sometimes that is what it takes, is a 
site visit.
    Mr. Lankford. Give me a quick statement; I know we have to 
move on. But just give me a ballpark. To fill out the forms to 
go through all that, to gather the data to be able to send it 
back in for certification, how many man-hours do you think it 
takes to complete that, the process? Take it for a small 
business. A medium to large business, where everything is in a 
filing cabinet, it is easy to pull. For a small business.
    Mr. Leney. Actually, the difference, Mr. Chairman, is a 
function of the complexity of the business. For a two-person 
business it is relatively straightforward and, as a result, 
those businesses get verified pretty quickly. For more complex 
businesses, where an owner is an owner of more than one 
business, he is living in one State, he is doing operations in 
another State, that becomes increasingly complex. But it is 
substantial; you don't do it in 20 minutes, absolutely.
    Mr. Lankford. So give me a ballpark, how much time?
    Mr. Leney. Well, when I sat down and did it myself, it took 
me about 9 hours.
    Mr. Lankford. I would assume veterans get a tremendous 
amount of mail in their box related to just about everything. 
Is there anything going to a recent veteran, as they are 
leaving out from Iraq or Afghanistan, wherever it may be, as 
they are stepping away, are they getting mail saying if you 
want to start a business, we will help you do that? Here are 
the standards that you need to do.
    We are doing preferences in every single agency. If you 
have an interest in any of these items and would like to start 
your own business, call us, and we will go through the process. 
Who is sending that piece of mail to them? Mr. Puopolo?
    Mr. Puopolo. Sir, I guess during the demobilization 
process, the guys coming back, they get briefings and they hear 
this, but I think the main marketing tool they are getting is 
from either the VA in their benefits package or sometimes an 
SBA rep will reach out during a mobilization process.
    The unfortunate part, and this is why I say this program is 
hurting people right now, is because they are being told that 
the Government has a 3 percent goal and they are not meeting 
that. So in the mind of the veteran is if I can work hard and 
really start a capable company, I have more than ample 
opportunity to build a business, hire veterans, become 
financially stable.
    The problem is the Federal Government doesn't care to meet 
that goal, and that is why we are having the problem, so that 
is why it is hurting people. And to start a small business it 
takes a lot of time and financing, and you are away from your 
family and it is a sacrifice that is supposedly going to pay 
off later, but because of the system there is really no payoff 
the way we have it set up now.
    So my fear, and I am sure other people at the table would 
disagree with me, is unless we are going to fix it, then stop 
it for our younger vets coming back, because some of them are 
in bad places looking to improve their life, and if we throw 
them into a program that is broken and bureaucratic and just 
going to get them broke and depressed, then we shouldn't be 
doing that.
    Mr. Lankford. No, let's fix it.
    Anyone else want to make a comment about that? Mr. Weidman?
    Mr. Weidman. The SBA is supposed to be part, and is part, 
of the Transition Assistance Program, or TAP, but there isn't 
anything from VA because, frankly, there is no place where it 
is veteran friendly. CVE, now known as the Center for 
Verification and Evaluation, three years ago was the Center for 
Veterans Enterprise under Secretary Principe. It was known as a 
place where you went for help.
    Nobody goes to CVE now for help. And with all due respect, 
the directions that are on the website and with the 
application, I printed them all out, it was 40-some-odd pages. 
It was not clear even to me, and I participated in the process 
for the last 15 years. So there isn't what we would call in the 
military a simple, straightforward, by the numbers direction. 
If you put that in, you wouldn't have the high failure rate.
    If I am a teacher, and I have taught in my life when I 
first came back from Vietnam, and 60 percent of my kids fail, 
am I a bad teacher or are they bad kids? I would suggest that I 
am a lousy teacher. And it is not that I need to make the test 
easier; I need to make the directions more clear. I need to 
help them find the next rung on the ladder in order to climb up 
that ladder, and that doesn't exist right now.
    Mr. Lankford. Any other comments on that?
    Mr. Leney. I would like to mention, as part of the 
Transition Assistance Program currently there is very little 
emphasis on entrepreneurship. However, Mr. Gudger and I sit on 
the Interagency Task Force on Veteran Employment that was 
directed by the President back in September and we have 
proposed the addition of a two-day program as part of the 
Transition Assistance Program that will introduce all departing 
service members to veteran entrepreneurship, and we will be 
piloting that program in June in Detroit with recent veterans 
who are reaching out to participate.
    Mr. Lankford. Mr. Gudger?
    Mr. Gudger. Yes, I would like to build on Mr. Leney's 
comment. I personally sit on the SBA-led Interagency Task 
Force, as well as the DOD-VA Joint Task Force for Veteran 
employment; I co-lead the entrepreneurship track of what we are 
going to introduce. In addition to that, I also am on the 
Business USA Task Force. And I mention all that to talk about 
the Department's commitment to connecting the dots. We have 
been very aggressive. I met with VET-Force, Rick, Bob, Joe, 
Scott, and got information from them about the things that they 
would recommend that we should do, and we are implementing a 
lot of those things as part of our recommendation.
    So I think that, again, we are taking a quantum leap in the 
right direction. Time will show that. But when we look at what 
do the veterans get when they return, it is more important now 
than ever, with the young men and women coming back from 
Afghanistan and Iraq, to put even more emphasis on it, and we 
have taken our efforts that we did in fiscal year 2011 and now 
we are even making them even greater, and it is so visible that 
the front office of the Department is looking at this biweekly, 
saying what are we doing and what are we doing to make it 
easier for veterans not only to transition back into good jobs 
because they are very talented, but to transition into being 
successful entrepreneurs.
    Mr. Lankford. I am sure you all know very well the fastest 
growing segment of the job market is going to be brand new 
start-up businesses.
    Mr. Gudger. Correct.
    Mr. Lankford. Brand new start-up businesses, they hire new 
people, they expend capital, they take off much more than a 
large business does. So both economically and also just doing 
the right thing for our veterans, it is a great thing to be 
able to encourage veterans coming back to say start a company. 
You saved us as a Nation, you saved freedom for what is 
happening; come home and save our economy. As you start a new 
business and you hire a couple of your brothers there, you are 
reestablishing a stable economy back in the United States as 
well as you do that.
    Now, we should do everything that we can to clear the path 
in front of them, rather than to add hurdles into the middle of 
it, and obviously we have been talking about already what do we 
do with agencies that slow-walk this process. So we have to 
find where we are missing here. I see a couple elements on it, 
but as each agency looks up and says what are we going to do, 
but I think one of the elements is we need to sit in front of 
veterans, as they are coming home, start a company; you have 
great skills.
    I mentioned earlier in my opening statement that companies 
in Oklahoma love hiring veterans because they don't know when 
to quit. They don't know how to work a 40-hour week. That is 
not an issue for them. In fact, if you come to Oklahoma, I will 
show you companies that do energy drilling that they want to 
hire former tank drivers to run their drill rigs because they 
know how to run things blind. They know how to look at the 
scope and be able to operate it, and they have the patience to 
be able to do it well.
    And they will go hire as many former tank drivers as they 
can find to be able to do their drilling equipment because they 
are good at it. Well, those are skills that are transferrable 
both in that job market, but also in every single aspect of 
what they have done.
    So if we can do anything as a Nation, as well, to be able 
to tell returning vets start a company and we will help you, 
and it actually, as Mr. Puopolo mentioned before, they actually 
get to do it, rather than just start a company and it becomes a 
false hope, if they get to start a company and know here are 
all the places of engagement and they can do it both in the 
public sector and the private sector, I think it is a great 
asset to be able to come back.
    Mr. Gudger.
    Mr. Gudger. I agree with you. As a matter of fact, myself 
and Tom and Farouk, who is behind me, we believe that 
encouraging the young men and women to become entrepreneurs 
start prior to them coming back, it starts when they almost 
first go in, we are looking at things that we can do to get 
them information in the hand earlier to make that assessment 
and have them aspire to be more so.
    One of the studies I commissioned when I first became the 
Director in this job was a study on service-disabled veteran-
owned business barrier reduction, to figure out how we can 
reduce the barriers. I came from industry. I am the first 
director in DOD to come from industry, so I was very familiar 
with a lot of the barriers. I reached out in my second week to 
all of our directors, small business directors and specialists, 
many of them are here before me today to show their support and 
their commitment to veterans as well. I took all of that 
feedback, said here is what we need to do to start reducing the 
red tape and barriers, and we moved out on that pretty quick.
    By June of last year I signed a joint memo for the first 
time, myself and the head of the Defense Procurement and 
Acquisition Policy, to encourage market research. Market 
research, we believe, is the cornerstone of creating 
competition. Competition opens the doors for service-disabled 
veteran-owned businesses to compete on future opportunities.
    Then, in addition to that, we had a peer review process 
where all of the directors, out of my office we do a billion or 
more, and then the rest of the directors do the services and 
component agencies at 500 million or more. They sit on every 
single peer review before any plan acquisition to look for 
opportunities for small business, whether we require set-asides 
and subcontracting agreements or we look at pieces that can be 
broken out for them as prime contractors. And that is an 
aggressive move we are doing as a Department and we are fully 
committed to that.
    Mr. Lankford. Great. You realize if you can do this well 
you will be a good example for a lot of other agencies. So we 
hope for your success on that one, so continue pressing 
forward. Yes, sir.
    Mr. Weidman. Mr. Chairman, we need a mechanism that works 
for verification of SDVOSBs, but we also need a verification 
and evaluation process of large primes. Most of the large 
primes do not do the things that are contained in their 
boilerplate. They do not list a Vets 100 report; they do not 
make any effort to go out and hire any of the protected groups, 
principally disabled veterans and wartime veterans. If they do, 
it is quite separate and apart from that requirement in the law 
of all Federal contractors; and they do not do the 
subcontracting aggressively that they say they are going to do. 
The situation now is it is a let's not and say we did of here 
is our subcontracting plan, but nobody comes back and checks 
it.
    Mr. Lankford. Whose responsibility is that to check that?
    Mr. Weidman. The agency.
    Mr. Lankford. So it is left to the contracting officer; it 
is somebody else after that. Correct or not correct on that?
    Mr. Weidman. I don't know.
    Mr. Leney. I can speak for the VA. The VA established, in 
late 2011, a subcontracting compliance review program where the 
chief acquisition officer is taking on the responsibility to 
look at prime contractors who have subcontracting plans, and we 
have begun doing audits, site visits of those prime contracts 
to determine whether or not they are in fact delivering on 
their promises, because, yes, historically that has been a 
challenge.
    And for contracting officers it has been a particular 
challenge to unravel that at a time when what they are focused 
on is completing the contract, it is a standard, getting the 
medical center built on time, on budget. So we have, at the VA, 
just initiated a program that just started this year, where we 
are going out and assisting them by auditing these prime 
contractors.
    Mr. Gudger. Yes, I would like to speak. So in the 
Department of Defense, this is a good example, Chairman 
Lankford, of reducing barriers. We decided not to solve this 
problem with people, but with technology. In our past 
performance or our source selection criteria, we are no longer, 
on many of our acquisitions, putting out a goal in 
subcontracting; it has become a requirement as a part of our 
response.
    We track that through our performance database, and large 
companies who do not meet what they say they are going to 
deliver to us, as we are tracking it going forward, if all 
things remain equal in a future competition, we do take that in 
consideration, have they met their small business goals.
    Mr. Lankford. So in the previous contracts, if they meet 
the small business goals; if they didn't, then they are marked 
down for the next contract.
    Mr. Gudger. Correct. That is a way of accountability and 
adding more visibility into, one, do we get what we are buying 
and, two, are the companies doing the right things for our 
economy and spending taxpayer dollars correctly. So I think 
those are steps we have taken in the Department in fiscal year 
2011, and we are going to continue those in fiscal year 2012.
    Mr. Lankford. Okay. Thank you.
    Mr. Puopolo, do you want to make a final statement?
    Mr. Puopolo. Yes, sir. Thank you. To that point, we hear a 
lot of this talk and hopefully it will become a reality, but we 
still see that a lot of the contracts are coming out bundled, a 
lot of them are not going to small business. And it is a small 
business problem.
    Mr. Lankford. You are saying the contractor is giving it to 
one company that handles a lot of the other subs, rather than 
going through a company that would be a service-disabled 
veteran that would take it at that point?
    Mr. Puopolo. Yes, sir. And the Air Force has NETCENTS 
contracts that are billions of dollars that lock everybody out, 
and this is the message that the veterans get when they do talk 
to the SBA or they do talk to the VA, is the Government buys 
everything, which is pretty much true, they buy everything from 
pencils to airplanes. What they don't tell you is how they buy 
it. And when you look at how the Government buys it, it buys it 
through bundled contracts, national acquisition contracts.
    I sat down with a VA contracting officer that told me he 
was forced to buy off a national acquisition contract and he 
bought trash bags that cost more and didn't fit his trash cans. 
So that just was apparent to me that this system is not 
working.
    So from the veteran community, we would like to see that 
broken down more small businesses----
    Mr. Lankford. So are you getting instructions that all of 
that, okay, if you are not getting the prime contract, how to 
get the sub? And is there any follow-up on that?
    Mr. Puopolo. Yes, sir, but we face the same hurdles. We 
approach large businesses and they go to these conventions and 
they say, oh, we want to increase spending with veterans, we 
want to do more. When you approach them, you go through their 
small business people, it is a gatekeeper; you don't hear back 
from them, they tell you to follow up, you send emails and 
calls and calls and calls upon calls, and you never hear back.
    Mr. Lankford. Right. But that means some agency is not 
following up on them. We are back to that.
    Mr. Gudger?
    Mr. Gudger. Yes. In the example of NETCENTS, not only do we 
have a large business component, it is a multiple work contract 
for multiple winners, one portion of it is a small business 
set-aside multiple work contract and the other is large. In 
addition to the large business side, they have a requirement in 
their portion of it of over 30 percent, roughly, small business 
subcontracting they must do, and it will be a highly weighted 
factor for that particular opportunity.
    So we are doing things in the Department. In 2011, 
together, our prime and subcontracting dollars was the highest 
it has ever been in small business on both sides. It didn't 
increase, it was the highest number in our history. So I think 
we are making a quantum leap in the right direction.
    Mr. Lankford. Well, gentlemen, thank you.
    Mr. Weidman, did you have another comment?
    Mr. Weidman. Yes, a last point, if I may. We have talked a 
lot about enforcement of the law today and about the sanctions 
in one way or another, either on individuals or on the agency. 
But one of the most effective things at DOD prior, and, 
incidentally, Andre has been a breath of fresh air over there 
since he got there.
    But there were folks in the previous administration, Dr. 
James Findley in particular, who was terrific on SDVOSB, and 
under his guidance they started an awards program. 
Unfortunately, 2008 was the last year that was done, and it 
focused attention within DOD on the positive aspects and 
recognizing both the Federal workers who had gone above and 
beyond, companies, private and large contractors that had gone 
above and beyond, and outstanding small service-disabled 
veteran businesses who had materially contributed to innovation 
and products that will better serve our men and women in the 
field. That is something that can be done in virtually every 
agency.
    Last is a concern, and I was glad to see Chairman Johnson 
here this morning, but we have been talking with the Veterans 
Affairs Committee and with Chairman Graves' people, and one of 
the things that we need to look at very hard is standardization 
of definitions between what SBA defines as control, what SBA 
defines as a small business, and what VA does.
    Frankly, it is on this control issue where we have had all 
the problems and there has been discussion, and I think 
Chairman Graves thinks that the control issue ought to be moved 
back to SBA because it is settled law, including case law, over 
at SBA and it is not anywhere near settled over at the VA yet. 
So it is an area where a good deal of cooperation between the 
three jurisdictions and in-house can really lead to a 
productive solution.
    Mr. Lankford. Terrific. I am only slightly past my five 
minutes of questioning time, but I do appreciate very much the 
conversation on it. This allows us to have a dialogue to be 
able to work through and try to get this stuff in the record.
    As you know well, we will have staff that will go through 
this and start trying to determine, okay, which direction can 
we go with this and which agency do we do the follow-up 
questions on. So getting these things in the record and getting 
this kind of colloquy is very helpful to us in the days to come 
as we do the follow-up on it.
    I appreciate, again, your service and your work, and for 
staying here even a little bit longer to be able to go through 
this.
    With that, this hearing is adjourned.
    [Whereupon, at 12:26 p.m., the subcommittee was adjourned.]

                                 
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