[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
  CONSISTENTLY INCONSISTENT: CHALLENGES FOR SERVICE-DISABLED VETERAN-
                         OWNED SMALL BUSINESSES

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

                                HEARING

                               before the

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                      COMMITTEE ON SMALL BUSINESS

                             joint with the

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                     COMMITTEE ON VETERANS' AFFAIRS

                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             MARCH 19, 2013

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 113-006
              Available via the GPO Website: www.fdsys.gov



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                     COMMITTEE ON VETERANS' AFFAIRS

                     JEFF MILLER, Florida, Chairman
                         DOUG LAMBORN, Colorado
                       GUS M. BILIRAKIS, Florida
                        DAVID P. ROE, Tennessee
                           BILL FLORES, Texas
                        JEFF DENHAM, California
                         JON RUNYAN, New Jersey
                         DAN BENISHEK, Michigan
                         TIM HUELSKAMP, Kansas
                          MARK AMODEI, Nevada
                         MIKE COFFMAN, Colorado
                          BRAD WENSTRUP, Ohio
                         PAUL COOK, California
                        JACKIE WALORSKI, Indiana
                         MICHAEL MICHAUD, Maine
                         CORRINE BROWN, Florida
                        MARK TAKANO, California
                       JULIA BROWNLEY, California
                           DINA TITUS, Nevada
                        ANN KIRKPATRICK, Arizona
                         RAUL RUIZ, California
                   GLORIA NEGRETE McLEOD, California
                    ANN McLANE KUSTER, New Hampshire
                          BETO O'ROURKE, Texas
                          TIM WALZ, Minnesota

            Helen W. Tolar, Staff Director and Chief Counsel
                 Nancy Dolan, Democratic Staff Director


                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Richard Hanna...............................................     1
Hon. Mike Coffman................................................     2
Hon. Grace Meng..................................................     3
Hon. Ann Kirkpatrick.............................................     4

                               WITNESSES

Mr. Joseph Wynn, Special Advisor, VET-Force, Washington, DC......     6
Mr. Davy Leghorn, Assistant Director, National Economic Division, 
  American Legion, Washington, DC................................     7
Mr. Marc Goldschmitt, PMP, CEO, Goldschmitt and Associates, LLC, 
  Reston, Virginia...............................................     9
Mr. Jonathan T. Williams, Partner, PilieroMazza, PLLC, 
  Washington, DC.................................................    10
Mr. William Shear, Director, Financial Markets and Community 
  Investment, U.S. Government Accountability Office, Washington, 
  DC.............................................................    18
Mr. A. John Shoraka, Associate Administrator, Office of 
  Government Contracting and Business Development, U.S. Small 
  Business Administration, Washington, DC........................    19
Mr. Tom Leney, Executive Director, Veterans and Small Business 
  Programs, U.S. Department of Veterans Affairs, Washington, DC..    21

                                APPENDIX

Prepared Statements:
    Mr. Joseph Wynn, Special Advisor, VET-Force, Washington, DC..    34
    Mr. Davy Leghorn, Assistant Director, National Economic 
      Division, American Legion, Washington, DC..................    48
    Mr. Marc Goldschmitt, PMP, CEO, Goldschmitt and Associates, 
      LLC, Reston, Virginia......................................    58
    Mr. Jonathan T. Williams, Partner, PilieroMazza, PLLC, 
      Washington, DC.............................................    70
    Mr. William Shear, Director, Financial Markets and Community 
      Investment, U.S. Government Accountability Office, 
      Washington, DC.............................................    79
    Mr. A. John Shoraka, Associate Administrator, Office of 
      Government Contracting and Business Development, U.S. Small 
      Business Administration, Washington, DC....................    91
    Mr. Tom Leney, Executive Director, Veterans and Small 
      Business Programs, U.S. Department of Veterans Affairs, 
      Washington, DC.............................................    95
Questions and Answers for the Record:
    Joe Wynn, VET-Force..........................................   102
    Davy Leghorn, The American Legion............................   110
    Marc Goldschmitt.............................................   119
    Jonathan Williams, PilieroMazza..............................   132
    William B. Shear, Director...................................   140
    John Shoraka, Associate Administrator........................   145
    Tom Leney, Department of Veterans' Affairs...................   160
Additional Material for the Record:
    Congresswoman Herrera Beutler................................   177
    The American Legion..........................................   179
    Chairman Mike Coffman........................................   181
    Hon. Jackie Walorski.........................................   183


  CONSISTENTLY INCONSISTENT: CHALLENGES FOR SERVICE-DISABLED VETERAN-
                         OWNED SMALL BUSINESSES

                              ----------                              


                        TUESDAY, MARCH 19, 2013

                  House of Representatives,
               Committee on Small Business,
         Subcommittee on Contracting and Workforce,
                                     Joint with the
            Committee on Veterans' Affairs,
      Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The Subcommittees met, pursuant to call, at 2:00 p.m., in 
Room 2360, Rayburn House Office Building. Hon. Richard Hanna 
[chairman of the subcommittee on Contracting and Workforce] 
presiding.
    Present from Subcommittee on Contracting and Workforce: 
Representatives Hanna, Tipton, Bentivolio, Herrera Beutler, 
Meng, Clarke, and Chu.
    Present from Subcommittee on Oversight and Investigations: 
Coffman, Roe, Kirkpatrick, Takano, and Walz.
    Chairman HANNA. The hearing will come to order. I want to 
thank Chairman Coffman for working with me today on this joint 
hearing, and thank you all for being with us today. 
Additionally, several of our witnesses today are veterans, and 
I want to thank you all for your service and for taking the 
time out of your busy schedules to be here.
    The federal government has a goal of awarding 3 percent of 
all prime contracts to service-disabled veterans who own small 
businesses. Last year, this meant over $12 billion in prime 
contracts went to those firms. In helping agencies meet the 3 
percent goal, Congress created two contracting programs, one 
specifically for the Department of Veteran Affairs and 
government-wide programs run by the Small Business 
Administration.
    Whenever we have small business contracting programs, the 
government faces certain tensions. First, we have an obligation 
to ensure that only qualifying firms are receiving and 
performing on these contracts. Second, we must ensure that the 
programs themselves do not become so burdensome that they keep 
small businesses from participating. The contracting programs 
for service-disabled veteran-owned small businesses highlight 
this tension.
    The SBA program has not done enough to discourage fraud, 
while the VA program has itself become the problem for some of 
these firms. In some of cases, the differences between the two 
programs have led to opportunities for fraud and bureaucratic 
impediments to small business generation. For example, the 
surviving spouses of service-disabled veterans are allowed to 
maintain the business status for a period of time at the VA, 
but not at the SBA. In contrast, under the VA regulation, a 
service-disabled veteran in a community property state must 
convince their spouse to renounce any interest in the business 
in order to prove that the veteran controls the firm. SBA does 
not apply this restriction; instead, simply requiring that a 
firm updates its status when its ownership changes.
    The bottom-line is a legitimate firm may qualify under one 
program but not under another. If we really want to help these 
firms, we need to give them one clear set of rules to live by. 
Recent GAO reports have highlighted the problems with both the 
VA and the SBA, and many believe that legislation is required 
to create programs that have clear requirements, efficient 
processes, and transparent appellate processes.
    Over the course of this Congress, I plan to work alongside 
my colleagues on the Veterans Affairs Committee and with the 
representatives of service-disabled veterans on a solution that 
will improve the current processes by which both agencies 
operate. Small businesses have enough on their plate, and I 
hope today's hearing will provide some insight on how to best 
help disabled veterans owning small businesses deal with these 
additional burdens.
    Again, I want to thank our witnesses for being here today 
and look forward to your testimony. I now yield to the chairman 
of the Subcommittee on Oversight and Investigations for 
Veterans Affairs, Mr. Coffman, for his opening remarks.
    Chairman COFFMAN. Thank you, Chairman Hanna for yielding. 
And thank you also to your Subcommittee for holding this joint 
hearing.
    The problems with VA's service-disabled veteran-owned small 
businesses, the certification program, sadly, these are not 
new. The Veterans' Affairs Committee had several Subcommittee 
hearings during the last Congress on the issue, but 
improvements within the program seem to be slow in coming. My 
Subcommittee continues to frequently hear from SDVOSBs and 
their advocates regarding what should be a straightforward 
process for veterans attempting to do business with the VA.
    While the verification process at CVE has improved and 
helped weed out some bad actors, it is abundantly clear that 
there is still a long road ahead. One topic discussed at length 
in the 112th Congress was VA's definition of ownership and 
control of the small businesses. Despite the Committee's 
bringing this problem to VA's attention, VA's definitions 
retain some key differences from the Small Business 
Administration, and the effect of these differences has been a 
self-induced backlog of legitimate companies attempting to get 
certified through CVE and do business with the VA.
    The fact the VA has a different interpretation of what 
constitutes ownership means that an individual could be 
recognized as a veteran small business owner with one 
government agency but not with the VA, and this should raise 
everyone's eyebrows. However, that is the reality that some 
veterans face today, including service-disabled veterans. SBA 
has had common sense requirements for what constitutes an 
SDVOSB in place for a long time.
    While VA's intent may be in the right place, its regulatory 
and interpretative actions have put many eligible veterans at a 
disadvantage. We still need to get this right if we are going 
to enable our veterans, who sacrificed for this country, to do 
business with the Federal government. And if the VA is going to 
set the standard for recognizing the commitment of these same 
veterans, then a straightforward common sense process needs to 
be in place. It is my sincere hope that down the road we are 
not still discussing the same issues. The time for conversation 
has passed, and it is time to take action, fix the problem, and 
move on.
    I understand that the system will never be perfect, nor is 
there one simple answer. However, after all the years that have 
passed since this program has been set up and the resources 
that have been added to CVE, it is reasonable to expect that we 
should be further along than we are today.
    Mr. Chairman, I yield back.
    Chairman HANNA. And I yield to our ranking member, Ms. 
Meng, for her opening statement.
    Ms. MENG. Thank you, Chairman Hanna. Thank you to our 
witnesses for appearing before our Subcommittees today. And 
thank you to all the veterans, especially the ones in this room 
today for your wonderful service to our country.
    Over the last century, brave Americans have fought in 
Afghanistan, Iraq, Vietnam, Korea, and Europe, for not only our 
freedom but for the freedom of others. Over 635,000 men and 
women have died in these and many other wars. The surviving 22 
million veterans include 5.5 million who were disabled while in 
the service. These courageous individuals deserve not only our 
enduring gratitude but also the opportunity to build a new life 
after their many years of military service.
    One of the most important tools we have to accomplish this 
mission is the Service-Disabled Veteran-Owned Small Business 
Procurement Program. In 2011, this initiative awarded more than 
100,000 contracts worth over 11 billion to SDV small firms. 
However, these awards have accounted for only about 2.6 percent 
of all federal contracts, below the 3 percent statutory goal. 
Efforts have been made to increase this level but challenges 
still remain. Among the most pressing issues are the ongoing 
problems in verifying firms participating in this SDV program. 
Previously, GAO has found that non-SDV firms have won SDV 
contracts. This included front companies posing as veterans, 
pass-throughs, and outright fraud. As a result, millions of 
dollars were diverted away from legitimate service-disabled 
veteran-owned small businesses. To prevent these abuses, GAO 
recommended that a verification system be implemented, but 
given the overlapping roles of both the SBA and the VA in 
administrating this program, this reality has been slow to 
materialize. Regardless, we have to continue to make every 
effort to ensure that non-SDV firms cannot continue to steal 
these opportunities from service-disabled veteran firms.
    Given the recent sequester, it is now more important than 
ever to correct these flaws. This across-the-board cut will 
cause SDVs to lose out on more than 7,500 contracts worth more 
than $1 billion, making it critical that only eligible firms 
compete for the remaining opportunities. Addressing these 
failings and ensuring SDV procurement programs work as intended 
is long past due. With an unemployment rate of more than 11 
percent for veterans of the wars in Iraq and Afghanistan, it is 
essential that all veterans' resources are properly managed and 
overseen. Given that entrepreneurship remains a viable career 
path for many of our men and women, programs like the one this 
hearing is on today are critical to reduce the high 
unemployment rate.
    I think I can speak for all of our Subcommittee members 
here today in saying that we will do whatever it takes to help 
service-disabled veterans overcome the challenges they face in 
today's economy. As a result, I am glad that in addition to the 
federal agencies here with us today that we are hearing 
directly from our veterans' community. Thank you, and I yield 
back my time.
    Chairman HANNA. Thank you.
    I now yield to Ranking Member Ms. Kirkpatrick for her 
opening statement.
    Ms. KIRKPATRICK. Thank you, Chairman Hanna. And I want to 
thank all of the veterans who are here today because you have 
already paid the price. We now must fight for you with all our 
might, and I want you to know that we know that and we 
appreciate your being here today.
    In 1999, Congress required the Small Business 
administration to establish programs and services to help 
veterans make the transition from service member to small 
business owner by increasing federal contracting and 
subcontracting opportunities for veterans. As more veterans 
return home from Iraq and Afghanistan, our nation has the 
responsibility to help them re-enter civilian life. Some 
veterans may choose to go to school, work in the private and 
public sector, while others may choose to begin their business. 
Veterans bring with them self-discipline and a strong work 
ethic from their military service that we know will help them 
to succeed in any business.
    As we encourage veterans to enter into business with the 
Federal government, we must have the right elements in place. 
It should not be overly difficult to do business with the 
Federal government, but it should not be so easy that fraud is 
rampant and these opportunities that are set aside for veterans 
are lost. In 2010, the VA alone improperly awarded veteran set 
aside contracts valued at $500 million to ineligible 
businesses. The VA inspector general stated that it expects VA 
to improperly award $2.5 billion in contracts over the next 
five years unless oversight and verification procedures are 
strengthened. In the end, what we should seek is a good balance 
of providing smart and worthwhile verification, but we should 
not make it so difficult as to prevent veterans from doing 
business with the VA and the rest of the Federal government.
    Today's hearing will build upon the hearings from the last 
Congress as we seek to ensure that federal contracting is being 
done effectively and efficiently by the Small Business 
Administration and the Department of Veteran Affairs, 
particularly for service-disabled veterans small business 
owners. As we explore what the definition of ownership and 
control form VA and SBA, along with other concerns, we should 
not lose sight that each business is the life of a veteran and 
the opportunity for a quality life for his or her family.
    I look forward to the testimony this morning, and I want to 
thank all the witnesses for being here. And I yield back, Mr. 
Chairman.
    Chairman HANNA. Thank you.
    If additional members have any opening statements prepared 
I ask that they be submitted for the record. I would also like 
to take a moment to explain the timing to you. Five minutes. 
Four minutes, the yellow light comes on. Then the red light. 
But we will be lenient as possible. If you could try to respect 
that time limit as best as possible. But we do want to hear 
what you have to say.
    With that, we have votes. I am going to adjourn this I 
would say for 20 minutes. We should be about that long and we 
will be right back and we will continue. Thank you.
    [Recess]
    Chairman HANNA. The Committee will reconvene.
    In the interest of time I will read the witnesses and their 
short bios.
    Our first witness today is Joe Wynn, who is testifying on 
behalf of VET-Force, a coalition of over 200 organizations and 
affiliates representing veterans nationwide. In addition to his 
work on Executive Committee of VET-Force, Mr. Wynn is the 
president of Vets Group, Inc., a nonprofit organization that 
provides entrepreneurial education, federal procurement 
training, employment assistance, and other supportive services 
primarily for veterans and people with disabilities or persons 
of limited means. He is also director and legislative liaison 
for the National Association for Black Veterans. A veteran 
himself, Mr. Wynn proudly served in the United States Air 
Force, and we thank you for your service, sir.
    Our second witness today is Davy Leghorn, the assistant 
director for the Economic Division of American Legion. The 
American Legion Economic Division aims to ensure that veterans 
receive several opportunities for success upon exiting the 
military. Mr. Leghorn is a veteran, having proudly served in 
the United States Military. We thank you for your service and 
for being here today, Mr. Leghorn.
    Our third witness is Mr. Marc Goldschmitt, founder and CEO 
of Goldschmitt and Associates, LLC, a service-disabled veteran-
owned small business who has been involved with the CVE 
verification issue since its inception. Mr. Goldschmitt proudly 
served in the United States Navy. We thank you for your service 
and we thank you for your time today, Mr. Goldschmitt.
    Ms. MENG. It is my pleasure to introduce Mr. Jonathan 
Williams. Mr. Williams is a partner with PilieroMazza here in 
D.C. where he counsels businesses on a range of federal 
contracting issues, including the various small and minority 
business procurement programs. He has successfully tried cases 
at both the GAO and the Court of Federal Claims. Additionally, 
Mr. Williams has brought and defended numerous SBA protests and 
appeals pertaining to program eligibility.
    Welcome, Mr. Williams.
    Chairman HANNA. You may begin, Mr. Wynn.

  STATEMENTS OF JOSEPH WYNN, SPECIAL ADVISOR, VET-FORCE; DAVY 
 LEGHORN, ASSISTANT DIRECTOR, ECONOMIC DIVISION, THE AMERICAN 
LEGION; MARC GOLDSCHMITT, PMP, CEO, GOLDSCHMITT AND ASSOCIATES, 
     LLC; JONATHAN T. WILLIAMS, PARTNER, PILIEROMAZZA, PLLC

                    STATEMENT OF JOSEPH WYNN

    Mr. WYNN. Thank you. Good afternoon, Chairman Hanna, 
Chairman Coffman, Ranking Members and Subcommittee Members, 
fellow veterans, and guests. On behalf of VBA National 
President, John Rowan, its officers and members, and thousands 
of veteran business owners we represent, I thank you for taking 
the time to convene this very important hearing.
    In a recent report from the President's Interagency Task 
Force on Veterans Small Business Development, it was stated 
that ``Two of America's greatest assets are the service of our 
returning veterans and the economic dynamism of our small 
businesses.'' We recognize that entrepreneurs and small 
businesses are the engines of American innovation and economic 
prosperity, but now that we have fallen over the ``fiscal 
cliff'' due to sequestration, federal agencies will be faced 
with significant budget cuts which will also impact the hiring 
of new employees, so we will have to turn to small businesses 
and corporate sectors to pick up the slack.
    Veterans own about 2.4 million businesses or 9 percent of 
all of America's businesses. These businesses generate about 
1.2 trillion in receipts and employ nearly 5.8 million 
Americans. As highly trained professionals and leaders with 
experience in challenging environments, veterans' potential for 
success for entrepreneurship and small business ownership will 
not be fully achieved if the VA's regulations for verifying 
them as veteran business owners is allowed to become the 
standard throughout the federal marketplace.
    You would not think that the federal agency, the Department 
of Veterans Affairs, the very one created for ``those who have 
borne the battle, their widows and their orphans,'' would be 
the very agency that creates the greatest barriers and 
obstacles for thousands of veterans and business owners. Since 
the end of the Vietnam War, the VA has wrongfully denied 
thousands of veterans their claims for compensation for their 
service-connected injuries, and now since 2008, the VA has once 
again been denying thousands of veteran business owners 
contracting opportunities due to their ``consistently 
inconsistent'' interpretation of VA and SBA contracting 
regulations.
    Over the past two years, the VA has reported more than 
20,000 veteran business owners have applied for verification. 
Just over 6,000 are now approved. First, many veteran service-
disabled veteran business owners do not fully understand how 
they can be legally allowed to do business with other federal 
agencies but not with the VA.
    Second, some applicants have problems with the CVE 
verification process, and that does not mean that they are 
ignorant. I help support veterans and work with veterans, 
business owners in going through the process, and it is still 
very lengthy to get through.
    Third, veterans are subjected to multiple contracting 
program rules. Veterans, there is a self-certifying rule within 
the federal marketplace where some of those same businesses 
when it comes to doing business with the VA they may be denied.
    Fourth, an applicant may still be denied by the CVE 
reviewer based on their interpretation of sections of the 
regulations and/or the documents submitted by the application.
    Here are some of the main reasons: unconditional ownership, 
quorum restrictions, right of first refusal, community property 
laws, weighted voting requirement, dependence with other 
entities, control of strategic policy, higher officer position, 
day-to-day management, managerial experience. Basically, a 
veteran must be the majority owner, majority board member, 
majority stockholder, highest paid, hold the highest office, 
have the experience to manage the daily operations, make all 
the long-term decisions, must devote full-time to the business, 
offer no right of first refusal, do not lease your office space 
or make loans from a non-vet, and by all means, do not live in 
a community property state.
    Without absolutely proof of any one of these things, the 
veteran will likely be denied. In addition, not all veteran 
business owners are socially and economically disadvantaged, 
and definitely not all of them are women. So those two programs 
are statutorily different than the service-disabled vet 
program.
    In concluding, I just would recommend that Congress should 
amend the regulation in such a way as to eliminate multiple 
interpretations of any sections. Congress should require that 
VA develop an appeals process that is independent of the same 
office that issued the denial. Congress should not consider 
extending the provisions to all federal agencies until a survey 
or study has been done, and Congress should direct that study 
on how many legitimate businesses would also be denied if they 
used the existing CVE interpretation.
    This concludes my statement and I look forward to answering 
any questions.
    Chairman HANNA. Thank you.
    Mr. Leghorn.

                   STATEMENT OF DAVY LEGHORN

    Mr. LEGHORN. A few months ago, 20 full-time employees were 
laid off in Wisconsin when a service-disabled veteran-owned 
construction firm lost $1.7 million worth of work and the 
ability to bid on future contracts. This was due to VA's 
lengthy verification process. This is a real shame because the 
whole point of VA verification is to make these businesses 
eligible to compete for VA contracts.
    Chairman Hanna, Chairman Coffman, Ranking Member Meng, and 
Members of the Subcommittees, on behalf of our national 
commander Jim Koutz, and the 2.4 million members of The 
American Legion, we thank you for this opportunity to testify 
at this joint hearing on the challenges facing veteran-owned 
and service-disabled veteran-owned small businesses.
    The bottom-line is this. Many veterans find this process to 
be overly burdensome, distracting, and not worth the effort. 
The American Legion wants these businesses to be successful, 
not hand strung, which is why we passed an American Legion 
resolution titled Support Etherification Improvements for 
Veterans' Businesses with the Department of Affairs.
    To be clear, The American Legion supports verification. 
Government contracting officers are risk-averse. They like 
certifications and they like it when a firm has been verified. 
The American Legion has been involved with VA verification 
since the program's inception. We participate in VA's 
Verification Assistance Counseling Program and we have worked 
with plenty of small business owners who have been denied 
verification. All too often we see businesses lose vital 
contracting opportunities due to the lengthy verification 
process. In some cases, businesses lose previously awarded 
contracts resulting in layoffs and furloughs of their 
employees.
    The American Legion cannot stress enough how detrimental 
the current process can be to these veterans who lives and 
family incomes are tied to their small businesses. The main 
challenge with the verification program seems to be VA's 
inability to strike the appropriate balance between the 
requisite government oversight to protect the integrity of the 
program and the impact and costs to veteran small businesses. 
Currently, to root out bad actors who maliciously seek to 
defraud the Federal government, VA places a series of 
overzealous, bright-line rules to evaluate the applications. 
Most of these bright-line rules apply to unconditional 
ownership and control requirements, and VA has formulated 
extreme interpretations that are unrealistic.
    The American Legion agrees with the U.S. Court of Federal 
Claims and their February 14, 2013 Miles ruling where the court 
applied the bankruptcy court's pragmatic definition that did 
not burden the veteran's ownership interest. We urge VA to 
adopt this pragmatic approach to evaluate ownership and control 
as practiced by the bankruptcy courts. Neglecting to adopt this 
approach, VA will continue to make this process punitive and 
burdensome to the majority of the firms seeking verification. 
The current backlog of initial applications and appeals will 
not diminish and veteran business owners will continue wasting 
large sums of money on attorney fees.
    One of the unintended consequences of VA's overzealous 
verification process is that established small businesses are 
choosing not to participate because the process is too 
burdensome and diverts their focus from running their 
businesses. So what you end up with are nascent businesses 
getting verified because it is easier for them to contort their 
operating agreements and bylaws to suit the current 
requirements for verification. VA then complains that they end 
up with too many inexperienced veteran businesses to draw from. 
On the other hand, we identify an unfair advantage with the 
larger small businesses who have the personnel and resources to 
dedicate to the verification process. Should VA continue to 
deny the vast majority of the firms based on these control 
issues and permit the backlog to grow, The American Legion 
would certainly support a comprehensive and cooperative 
relationship between VA and SBA whereby SBA would be the final 
arbiter of appeals. Finally, as highlighted within our written 
testimony, we are adamantly opposed to the six-month penalty 
wait time.
    In closing, The American Legion will continue to work with 
the SBA and VA to improve the verification process and to 
continue providing counseling service to our veteran 
entrepreneurs. I thank you again for the opportunity to bring 
the voice of veterans to this Committee, and I am happy to 
answer any questions you might have.
    Chairman HANNA. Thank you, Mr. Leghorn.
    Mr. Goldschmitt.

                 STATEMENT OF MARC GOLDSCHMITT

    Mr. GOLDSCHMITT. Thank you. I wish to thank the 
Subcommittee Chairmen and the Ranking Members for holding this 
hearing today to address the statutory, regulatory, and 
interpretative differences between SBA's Service-Disabled 
Veteran-Owned Small Business Program and VA's Service-Disabled 
Veteran-Owned Small Business Program.
    As a verification assistance counselor and the subject 
matter expert for VET-Force and the National Veterans Small 
Business Coalition, I have gained significant insights into 
CVE's issues. As a small business owner, I have tried to 
translate these issues into the cost and impact that they have 
on the veteran-owned business community.
    As a small business providing services to the Federal 
government, the current environment provides significant 
challenges to profitability, growth, and survival. CVE's 
interpretations add additional arbitrary and unpredictable 
hurdles that make it more difficult for me to plan, finance, 
market, and operate my small business. These CVE 
interpretations tend to be more minimizing business reality and 
addressing more the extremes.
    In business risk management, the fact that an event can 
happen is always accompanied by the probability of the 
occurrence and the impact of the occurrence, be it profit, 
growth, cost, or schedule. For CVE, these impacts represent 
ownership and control. When CVE theorizes that an event might 
happen, they do a disservice to the veteran community, to the 
VA and to the taxpayers, by failing to ask a very simple 
question, ``So what?'' The net impact of those interpretations 
is as follows:
    Congress, through its laws passed for veterans, has had the 
intent to increase veteran business opportunities, is not 
served by depriving vets of everyday business practices and 
therefore putting them at competitive disadvantage. CVE's Risk 
Avoidance Program or approach has crippled legitimate veteran-
owned businesses while doing little to prevent fraud. On VA's 
website, they have four businesses, one of which pled guilty, 
three of which were indictments over a two-year period. During 
that same two-year period I estimate about 4,500 companies were 
denied, which represents more than an average of 10 for each of 
your districts that were legitimate businesses that were 
denied.
    The CVE verification program is becoming a de facto 
standard for other agencies. When I go to other agencies and I 
talk to them about small business, one of the first things they 
ask is, ``Are you CVE verified?'' When I say yes, it's, ``Tell 
me more.'' When I watch businesses that say no, the almost 
immediate response is the body language that says, ``How do I 
get out of this conversation and get onto somebody that I want 
to talk to?''
    Lastly, the documentation required by CVE is often 
considered excessive. Sometimes it is incomplete, and it is 
potentially subject to compromise. There are additional 
examples in my written testimony.
    I would like to illustrate now from some examples CVE's 
findings that undermine business building and create veteran 
paranoia and distrust with the VA. These are recent cases. Some 
of the ones that I have in my testimony have been resolved.
    For example, Bravo 1-9 Construction is a New Jersey-based 
construction business. The owner is a combat-wounded veteran 
rated 100 percent by the VA. On his 0877 application, he 
indicated that he was a veteran, not a service-disabled 
veteran, yet with his package he submitted his letter from VA 
of a determination and a rating. In spite of having clear proof 
that the individual was a service-disabled veteran, VA issued 
him with a veteran approval.
    Clauss Construction. Clauss is a California-based 
remediation services company. They do large building 
demolition, including explosive building implosion and 
collapse, which requires a variety of NAICS codes to 
demonstrate compliance with environmental and other issues. 
Clauss is a small business with less than 100 employees. Its 
primary business NAICS code is a 500 employee standard. CVE 
denied Clauss based upon a separate NAICS code, which was 
arbitrarily picked as the primary NAICS code in the SAM was 
their 500 employee NAICS code. When this error was pointed out 
to CVE, who by the way had the payroll from the company and 
could have counted the number of employees, their response was 
to refer the company to SBA for a formal size determination.
    As we look at these and other examples from my written 
testimony, we see that major corrective actions are 
interpretive and therefore can be immediately implemented. This 
will result in fewer denials and a significant reduction in 
effort and cost for both CVE and the veteran community. I 
provided some statutory, regulatory, and interpretive 
suggestions in my written testimony.
    That concludes my oral testimony, and I look forward to 
questions.
    Chairman HANNA. Thank you, Mr. Goldschmitt.
    Mr. Williams.

               STATEMENT OF JONATHAN T. WILLIAMS

    Mr. WILLIAMS. Good afternoon, Chairman Coffman, Chairman 
Hanna, other Distinguished Members of the Subcommittees. My 
name is Jonathan Williams. I am a partner with the law firm, 
PilieroMazza, which represents veterans in their dealings with 
the Small Business Administration and the VA. It is an honor to 
be here today to share my experiences representing SDVOSBs.
    I am a strong proponent of the SDVOSB programs administered 
by the SBA and the VA, and I have seen firsthand how these 
programs have benefitted many veterans. However, I have also 
seen many veterans struggle to obtain the benefits of the 
programs for a variety of preventable reasons. My testimony 
will address those problems, which I believe stem from two 
primary causes.
    First, the VA's application process is too long and 
cumbersome. Second, the rules governing the two SDVOSB programs 
are confusing and inconsistent.
    Regarding the application process at the VA, the VA 
generally takes a ``deny first, ask questions later'' approach. 
As a result, most veterans do not learn of problems with their 
application until they receive a denial letter. This approach 
forces veterans to fix the application errors and then file a 
request for reconsideration. Of the requests for 
reconsideration we have handled, more than half could have been 
avoided if the VA had notified the veteran of minor issues 
before denying the application. Not surprisingly, the VA has 
struggled to process requests for reconsideration due to 
volume.
    The VA has acknowledged that the process needs improvement, 
and recently proposed an initial screening stage to help 
veterans address simple issues before their application is 
denied. The initial screening stage is a step in the right 
direction.
    The VA could improve the application process further by 
providing all bases for denial in the initial denial letter. We 
have worked with a number of veterans who were initially denied 
for one reason, addressed that issue on reconsideration, only 
to then be denied again for new reasons the VA had not 
previously identified. Requiring veterans to endure multiple 
rounds of reconsideration is frustrating, not to mention very 
costly and time-consuming.
    Many veterans perceive the application process at the VA to 
be adversarial. These veterans believe the VA personnel are 
looking for a reason to keep them out, rather than trying to 
help them to get in. Given that the VA's program was enacted to 
assist veterans in the transition from active duty to civilian 
life, making veterans feel more welcomed into the program 
should be a priority.
    Turning to the second root cause of the challenges veterans 
have faced, the two SDVOSB programs are often inconsistent. The 
inconsistencies stem from the separate rules used by the SBA 
and the VA. Though similar, the two sets of rules differ in 
many respects and this has caused a lot of confusion amongst 
veterans, as well as government personnel.
    For example, both agencies have interpreted their rules to 
prohibit restrictions on the transfers of the veteran's 
ownership in his company. Recently, the Court of Federal Claims 
rejected the VA's interpretation and held that the VA's rules 
permit commercially reasonable transfer restrictions. This was 
an important, business-friendly ruling because transfer 
restrictions make it easier for veterans to attract investors. 
However, the court's ruling only applies to the VA's program. 
The SBA should revisit its position on transfer restrictions to 
avoid inconsistency between the two agencies on this issue.
    The two programs are also inconsistent regarding joint 
ventures. Joint ventures are a valuable tool through which 
small businesses can work together to access contracts they 
would not have been able to perform on their own. The SBA's 
rules make it easier for veterans to take advantage of joint 
ventures. The VA, on the other hand, requires veterans to go 
through a second application process for the joint venture. 
This practice requires additional time and resources that many 
veterans do not have, and it is arguably contrary to the VA's 
rules. If the VA handled joint ventures similar to the SBA, 
joint ventures would be a much more useful tool for veterans 
who work with the VA.
    Another point of confusion is over which agency should 
decide small business status. The VA's statute indicates the 
definition of a small business comes from the Small Business 
Act, which the SBA is entrusted to implement. Furthermore, the 
VA's Acquisition Regulation recognizes that all protests 
pertaining to the size of SDVOSBs should be sent to the SBA. 
Yet, the VA's rules permit the VA to deny an applicant based on 
size and affiliation concerns, even if the SBA has not been 
consulted. This trend should be stopped because it is 
inconsistent with the VA's statutory mandate and in-fringes on 
the SBA's role as the arbiter of small business status.
    To solve some of the regulatory inconsistencies in the 
short term, the VA and the SBA could change their 
interpretations of the existing rules. However, the best long-
term solution would be to consolidate the two programs into 
one, with one set of rules and one agency to interpret those 
rules. Though by no means an easy task, consolidation of the 
two programs would be much simpler and more efficient for 
veterans and the government.
    That concludes my testimony. Thank you for the opportunity 
to appear before you here today.
    Chairman HANNA. Thank you.
    I understand that the VA appellate process takes about 147 
days and is not heard by administrative judges, whereas the 
SBA's appeal process takes roughly 15 days and does result in a 
published decision from an administrative judge. Knowing that 
and knowing what we have heard today, and I know your opinion, 
Mr. Williams, I will ask the question that Mr. Williams just 
gave his opinion on. Do you believe that this should be 
consolidated into one program? And do you believe, all three of 
you, that that should be the SBA or do you have something else 
in mind?
    Mr. GOLDSCHMITT. One of the recommendations I made is that 
the programs use a common adjudication of SBA's OHA to get a 
common set of rules or at least a common set of adjudication 
and case law that can be worked from. So yes, I would agree 
with that.
    Mr. LEGHORN. The American Legion is a resolution-based 
organization. We currently do not have a resolution on this 
matter, but our resolution does state that we would like to 
streamline the process. And if it does take interference from 
SBA to be the final arbiter, we can get behind this.
    Mr. WYNN. Just a follow-up comment on that. It is our 
opinion, too, that it is getting to the point where it seems 
like SBA would probably have more experience in handling the 
appeals process. There seems to be no real appeals process at 
the VA. As I mentioned in my testimony, the same folks that are 
doing the denial are also the ones you have to go back to if 
you have a problem. So an independent body, and perhaps with 
the SBA that may be the solution. Thank you.
    Chairman HANNA. Thank you. Mr. Coffman?
    Chairman COFFMAN. Thank you. Mr. Goldschmitt, VA says that 
they do $3 billion in veteran-owned small business contracts, 
so why should they care about these issues?
    Mr. GOLDSCHMITT. Mr. Coffman, I think that there are 
several reasons they should look at that. The issues that we 
are looking at that are the adjudications by CVE create 
inefficiencies that cause a lot of cost, a lot of heartache to 
some of the small businesses. The impact of that is that there 
are fewer small businesses that can compete for business within 
the VA. Recently, they have had a number of denials of apparent 
awardees for contracts. These are the folk that made it through 
the contract program and were picked as the best, the best 
value to the government. And because of typically the rules 
that were discussed by Mr. Wynn and Mr. Leghorn about some of 
the simple things that could have been changed, they lost 
opportunities and VA lost the best of the best in those 
opportunities.
    The other is a number of successful businesses, because of 
the hurdles that are there by VA, choose to do business in 
other locations or other agencies within the government. So 
consequently, the VA does not necessarily get all of the best. 
So they are artificially limiting competition within VA, not 
getting the results in some cases based upon their evaluations.
    Chairman COFFMAN. Thank you.
    Mr. Leghorn, given The Legion's own review of some of the 
issues regarding regulations, can you speak to CVE's lack of 
the use of 13 CFR 121 and its impact on their decisions?
    Mr. LEGHORN. Currently, I think VA has not adopted or 
reconciled 38 CFR 74 with 13 CFR 121. If VA is going to move 
forward and make determinations on size eligibility, then they 
should adopt that section.
    Chairman COFFMAN. Thank you.
    Mr. Wynn, what are your recommendations for striking a 
balance between preventing continuing fraud and loosening the 
restrictions so SDVOSBs are not overburdened in the 
verification process?
    Mr. WYNN. Well, we do not want a program that is going to 
allow companies that misrepresent themselves to participate in 
that program. We definitely do not agree with that. But again, 
we still do not want a program that is so overly burdensome and 
complex that it screens out thousands of legitimate owned 
businesses. So it may be necessary to be more vigilant on the 
backend. That means after a company is admitted into the 
program, to provide more oversight and monitoring on a constant 
basis. We have had reports where companies that have been 
identified as misrepresenting themselves were allowed to still 
get additional contracts later. So hopefully more could be done 
after companies are in the program as opposed to doing so much 
more to screen them out from getting in.
    Chairman COFFMAN. Thank you. I yield back.
    Chairman HANNA. Ms. Meng. Ranking Member Meng.
    Ms. MENG. Mr. Leghorn, in your testimony you discuss how VA 
has said that 98 percent of businesses who are denied 
certification are not maliciously trying to defraud the 
government but rather there is an ignorance of the law. Do you 
believe that VA is doing enough to educate the businesses on 
the requirements for CVE verification? And how can the VA do a 
better job?
    Mr. LEGHORN. Well, I think actually VA does a very good job 
with the counseling program and everything that they have on 
their website to get the information out. But it is just a 
matter of outreach. That has to be ramped up a lot more in 
order to get the veteran entrepreneurs to know about the common 
pitfalls and how they can avoid them.
    Ms. MENG. Thank you. I yield back.
    Chairman HANNA. Mr. Takano. Do you have any questions?
    Mr. TAKANO. Thank you, Mr. Chairman.
    Mr. Williams, I want to just review some of your testimony. 
You stated that there is a ``deny first, ask questions later'' 
policy that apparently is used by this VA program. And you are 
saying also that veteran business owners do not often know how 
to correct their applications if they were told in advance and 
then even after they make the correction they often find new 
reasons. How often does this occur? I mean, I want to get a 
sense of how widespread.
    Mr. WILLIAMS. We see it very frequently. The ``deny first, 
ask questions later'' approach has been pretty consistent for 
the last year-and-a-half or so since the number of applications 
really shot up in mid-2011. I would say the vast majority of 
cases there was little or no dialogue between the VA and the 
applicant before the denial was issued. Now, we have seen some 
improvement in 2012, particularly with respect to requests for 
reconsideration, and some of those are handled by the VA's 
Office of General Counsel. And we have had good success with 
those folks in dialoguing and having a back-and-forth about 
issues and trying to reach a common ground. But, for the most 
part, when a firm comes to us and they have been denied, they 
have not had any exchange with the VA to that point, so they 
are having to confront this issue for the first time having 
already been denied from the program.
    And the second point you raised is that they do not 
necessarily have to tell you every reason they are denying you 
in that initial denial letter. So what we have started to do is 
to ask the veteran to send us all of their documents, the 
entire application, even if it was denied for one needle in the 
haystack, we ask them to send us everything. And then we do a 
full review to see what else they might be denied for three 
months from now, six months from now. And you can imagine that 
is a very time-consuming and costly exercise for veterans to go 
through, many of whom cannot afford to go through it. But that 
is a symptom of the fact that they do not have to tell you 
every reason upfront, and they will often times cite different 
reasons three or four months after you correct the initial 
reason.
    Mr. TAKANO. None of you may be able to answer this question 
but I am trying to understand what might be the explanation for 
this stance. I mean, was there something in the history of the 
VA in this program where there were cases of fraud that may 
have caused this overly cautious behavior? I mean, is there any 
speculation?
    Mr. WILLIAMS. I do not know if it is overly cautious so 
much as it is that they are not looking at everything before 
they issue the denial. I suspect that a lot of times what 
happens is you get to the first document and you see a problem 
and you put it in the ``no'' pile. And then they come back and 
they fix that but then you start to look at the rest of the 
application and you realize that there are other problems. I do 
not know that that is happening but I suspect that may have 
been part of the issue.
    Mr. TAKANO. Is it a staffing issue or a staff training 
issue? Or is it just kind of a philosophy?
    Mr. WILLIAMS. I do not know. I would imagine certainly 
there must be a resources or a staffing component to that that 
you look for the quickest way to move through some of the 
applications, and if it can be denied based on one issue that 
you spot right off the bat, you go ahead and get it moving 
through the system.
    The VA has recently indicated that they plan to institute 
an initial screening stage, so they will try to screen 
applications for these issues in corporate records that tend to 
trip people up and give the applicants an opportunity to 
correct those issues before their application is denied. And 
that is a really positive step. It is something that we have 
been hoping that they would do. You know, the proof will be the 
pudding in terms of how that works and whether or not it just 
becomes another hoop that the veterans have to jump through. 
But that should reduce the number of reconsideration requests 
and the amount of time it takes to get through the 
reconsideration process.
    Mr. TAKANO. Mr. Chairman, I yield back. Thank you, Mr. 
Williams.
    Chairman HANNA. The gentleman yields back.
    Mr. Bentivolio.
    Mr. BENTIVOLIO. Thank you, Chairman Hanna and Chairman 
Coffman. And thank you, witnesses, for being here today.
    This holds some personal significance for me. I am a small 
business owner, or was before I came to Congress, and I am also 
a service-disabled veteran. So the policy we are discussing 
today affects me directly. And that said, of course, I come 
with no selfish intent but rather to serve the interests of my 
2 million fellow service disabled veterans and their families. 
I am also a member of The American Legion and a life member of 
the VFW.
    But I just recently got this this morning, so I have dealt 
with the VA. And this is the first time I have heard that the 
VA actually will help a small businessman. I am maybe naive, 
and I have since this morning become very acquainted with this 
and some of the questions we are going to ask and some of your 
testimony I have read over. But help me walk through this 
system because I have dealt with the VA as a Vietnam veteran. I 
never wanted to go back. And then as a veteran from Iraq I 
found it was a whole different thing.
    So I would like to ask you a question. Can you walk me 
through this as how I would go about or a fellow veteran in my 
district who wants to start his own business, his first step to 
going to VA, does he have to put together a business plan or is 
the application process similar to that in the format?
    Mr. GOLDSCHMITT. The business plan is not a requirement of 
verification, but the business documentation that addresses 
governance, ownership, et cetera, is part of that process. So 
the documentation that I would put together if I am going 
through as a small business coming into the government would be 
all of the small business steps of registering with Dunn & 
Bradstreet, registering in SAM, putting my information in. And 
from a VA perspective I would be putting together my paperwork 
that addresses my service disability, which they probably have 
in their system, but I would be putting together all of the 
paperwork on my company, including all of the registration with 
the state; my operating agreement or bylaws; a variety of 
information, including licenses.
    Mr. BENTIVOLIO. So let me see if I understand this. If I 
was a veteran I would not have to come in, give you a business 
plan or a marketing plan addendum to that or give you what I 
project my next three years of income is or my expenditures; 
how I am going to do this business? I do not have to do that?
    Mr. GOLDSCHMITT. No.
    Mr. BENTIVOLIO. Okay. So the next thing is who are those 
people who actually review my application? Do they have any 
business experience or are they government clerks that 
determine that?
    Mr. GOLDSCHMITT. I do not know what business experience 
they have but it is a mix of government and contractors. I 
think that would be a better question for Mr. Leney to talk 
about. But in my experience they have not been business owners 
or business managers.
    Mr. BENTIVOLIO. Interesting. Okay. I yield back my time. 
Thank you very much.
    Chairman HANNA. The gentleman yields back.
    Mr. Walz.
    Mr. WALZ. Thank you, Mr. Chairman. And thank you all for 
coming and helping us understand this.
    These are important programs, and when they work I think 
they are important and they do work. When they do not, they are 
incredibly frustrating. This might give a heads up for that 
panel that is sitting behind you. I am going to get a little 
bit parochial here on this, but this is a letter I got last 
night. I am just going to ask you as you listen to this 
paragraph, do you think this is typical or an anomaly?
    ``We went through the recertification process last summer 
and sat through the six-week outage on the registration side. 
We then submitted the final documents immediately after the 
outage ended and we got notification that we had reached the 
determination stage. Then within a few short weeks we were 
shown on the website as certified SDVOSB. Problem solved. Then 
last Wednesday, we got the attached letter saying our 
certification expired and we are out of the program. At this 
point it appears they lost our materials and pushed us out of 
the database.''
    Typical or anomaly in your opinion as you see this?
    Mr. GOLDSCHMITT. I would not call that typical, but I would 
not call that an anomaly because I am seeing that with an 
increasing frequency.
    Mr. WALZ. Have you heard of these types of things 
happening?
    Mr. GOLDSCHMITT. Yes.
    Mr. WALZ. Now, keep in mind, this is a 20-year-old business 
that has gone through this, been all there. Why are we wasting 
time on this? Nothing has changed. They went through the 
process. They followed it. They did it. And then you told them 
and they went ahead forward. It was the folks sitting behind 
you who are going to hear this. Why would they? This is the 
frustration I feel. I mean, if the process was working and they 
got certified, we should have been able to move on and now we 
are going to deal with this one. Do you hear these stories?
    Mr. WILLIAMS. Yes, we do a lot. That e-mail sounded very 
similar.
    Mr. WALZ. Yeah. In your opinion, why did this happen?
    Mr. WILLIAMS. Well, they did have technological issues with 
the system last summer. We heard from a lot of folk who 
disappeared out of the Vet Biz database last year.
    Mr. WALZ. Well, the folks sitting behind, I am going to 
come back after these votes. It is Windsor Software. Somebody 
might get on the phone. That would be good. But yeah. So we 
hear that?
    Mr. WILLIAMS. Mm-hmm.
    Mr. WALZ. So now I have a veteran small business service-
disabled veteran following the rules, doing it, proud to have a 
symbol up on their website doing these things and they got 
booted out. What is their recourse now other than writing to me 
before they knew there was a hearing? What was their recourse 
to go back through and get back on again?
    Mr. WILLIAMS. There is an appeal process. If their 
eligibility is rescinded, they could file an appeal with the 
Agency, with the VA. Ultimately, they could go to federal 
court.
    Mr. WALZ. For a small business?
    Mr. WILLIAMS. Right.
    Mr. WALZ. Who was already certified?
    Mr. WILLIAMS. Correct.
    Mr. WALZ. Told they were. Kicked off.
    So it seems to me, and I will yield back to the chairman 
here in just a second, it seems to me that I heard you, Mr. 
Goldschmitt, you made this point about it is, is that we do 
this all too often. That the proof always lays on the veteran. 
The assumption is they are wrong. We process it from that point 
of view and we ask them to prove they are right. So now I have 
got a small business doing everything right, going to have to 
go back through this process to prove that they have been 
certified 19 times in a row, and have to get recertified.
    So the way to fix this? Anybody got a suggestion?
    Mr. WILLIAMS. Well, they extended the amount of time that 
you are eligible from before you have to re-verify from one 
year to two years, so I am not sure where this particular 
company fell in that spectrum, but perhaps extending it 
further.
    Mr. WALZ. Okay. Anybody else?
    Mr. WYNN. I would just like to say there are far too many 
businesses that have been denied for various reasons, and the 
thing about it, as you mentioned a 20-year business, a company 
that had been doing business for 20 years, we have seen a 
number of businesses that are out here doing business with 
federal agencies, perfectly legitimate businesses, only to get 
denied to do business at the VA.
    Mr. WALZ. Statistically, what is the chance that this is a 
fraudulent claim versus an error that was made on them? The 
chances are that this was an error. Am I correct? It could be a 
fraudulent claim. I do not know. I am going to find out from 
the folk behind you. But statistically, so everybody gets 
kicked out. Now they have to go back and prove that they are 
legitimate?
    Mr. WYNN. Well, it has been stated by the VA Small Business 
director and even in some of the GAO reports that less than 2 
percent of those companies that were denied were denied for 
reasons of fraud.
    Mr. WALZ. Okay. I yield back. I will wait for ht next 
panel, Mr. Chairman.
    Chairman HANNA. The gentleman yields back.
    If there are no further questions from any members of this 
panel, unfortunately, we have to go vote. So I will dismiss 
this panel. When we come back, Mr. Coffman will take over the 
gavel and handle the second panel.
    So we are going to have votes. I will reconvene in probably 
20 minutes. Thank you.
    [Recess]
    Chairman COFFMAN. The Committee is now called back to 
order.
    Our first witness on the second panel is Bill Shear, 
director of the Financial Markets and Community Investment Team 
of the Government Accountability Office. Mr. Shear frequently 
comes before both Committees, and we look forward to hearing 
your testimony again today. You are now recognized for five 
minutes.

   STATEMENTS OF BILL SHEAR, DIRECTOR, FINANCIAL MARKETS AND 
COMMUNITY INVESTMENT; A. JOHN SHORAKA, ASSOCIATE ADMINISTRATOR, 
OFFICE OF GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT, U.S. 
   SMALL BUSINESS ADMINISTRATION; THOMAS J. LENEY, EXECUTIVE 
     DIRECTOR, OFFICE OF SMALL AND DISADVANTAGED BUSINESS 
          UTILIZATION, DEPARTMENT OF VETERANS AFFAIRS

                    STATEMENT OF BILL SHEAR

    Mr. SHEAR. Chairmen Coffman and Hanna, Ranking Members Meng 
and Kirkpatrick, and Members of the Subcommittees.
    I am pleased to be here this afternoon to discuss the 
Department of Veterans Affairs' efforts to verify the 
eligibility of veteran-owned small businesses, including 
service-disabled veteran-owned small businesses to receive 
contracting preferences under VA's Veterans First Contracting 
program. This statement is based on our January 2013 report on 
VA's Verification Program.
    Given the status of VA's verification procedures and 
operations, our work focused on issues related to planning for 
and designing the verification program, and on changes in the 
program's management and operations. My testimony today 
addresses first the progress that VA has made in ensuring that 
its program verifies eligibility on a timely and consistent 
basis, and second, key operational and policy issues that VA 
will have to address if its verification program is expanded to 
support the government-wide Service-Disabled Veteran-Owned 
Small Business Contracting Program.
    In summary, the two key findings from our January 2013 
report are:
    First, VA has instituted a number of significant changes to 
its verification processes to improve and address program 
weaknesses but it continues to face challenges in its efforts 
to establish a stable and efficient program to verify firms on 
a timely and consistent basis. These challenges are directly 
related to shortcomings in strategic planning and data systems 
for the verification program.
    Second, expanding VA's Verification Program to support the 
government-wide Service Disabled Veteran-Owned Small Business 
Contracting Program would require VA to improve its 
verification process and address a number of operational and 
policy issues.
    To improve the management and oversight of VA's 
verification program, our January 2013 report made two 
recommendations addressing strategic planning and data system 
needs. VA concurred with the two recommendations and stated 
that it had actions underway that would address them.
    Chairmen Hanna and Coffman and Ranking Members Meng and 
Kirkpatrick, this concludes my prepared statement. I would be 
happy to answer any questions you may have.
    Chairman COFFMAN. Our next witness is John Shoraka, 
administer of Government Contracting and Business Development 
at the Small Business Administration. In this capacity, he is 
responsible for ensuring maximum participation by small firms 
across the federal marketplace and overseeing all government 
contract programs benefitting small businesses. Thank you for 
being with us today, and you are now recognized.

                  STATEMENT OF A. JOHN SHORAKA

    Mr. SHORAKA. Thank you, Chairman.
    Chairmen Coffman and Hanna, Ranking Members Kirkpatrick and 
Meng, and Members of the Subcommittees, thank you for inviting 
me to testify before you today. The SBA plays a pivotal role in 
helping veteran-owned small businesses and service-disabled 
veteran-owned small businesses or SDVOs obtain access to 
federal contracts.
    As you know, veteran-owned businesses are an integral part 
of our nation's economy and its ongoing recovery. Veterans own 
2.4 million, or 9 percent, of U.S. businesses. These businesses 
generate about 1.2 trillion in receipts and employ nearly 6 
million Americans. One key sector of the veterans small 
business economy is government contracting, where SBA and its 
SDVO program play a critical role.
    Our SDVO provides Federal procuring agencies with the 
authority to set acquisitions aside for exclusive competition 
by SDVOs. The program also gives procuring agencies the 
authority to make sole source awards to SDVOs if certain 
conditions are met.
    SBA's government-wide program, along with the VA's Veterans 
First contracting program, are intended to assist the Federal 
government in meeting the statutorily-established annual 
agency-wide goal of awarding at least 3 percent of the total 
value of contract dollars to SDVOs. In fiscal year 2011, over 
$11.8 billion in contracts went to SDVOs, up by 3.8 percent 
over the previous year.
    To qualify as an SDVO under SBA statutory guidelines, a 
firm must meet four conditions through a self-certification 
process. First, the firm must be at least 51 percent owned by 
one or more service-disabled veterans. Second, the firm's 
management must be controlled by one or more service-disabled 
veterans, or in the case of a veteran with a permanent and 
severe disability, by the spouse or the permanent caregiver of 
the disabled veteran. Third, the first must meet the small 
business size standard for any federal contract they bid on. 
And fourth, the firm must self-represent their disabled veteran 
status.
    Currently, there are approximately 12,000 self-certified 
SDVOs in the System for Award Management, which is the 
government-wide contracting database.
    In terms of a participant's status as a veteran with a 
service-connected disability, the owner-operator of an SDVO 
must be able to produce official documentation that he or she 
has a service-connected disability in the event of a 
``protest.'' A protest occurs when a competing bidder or other 
interested party challenges the winning firm's eligibility as 
an SDVO. The initial decision on a protest is made by my 
office. The determination of a protest may be appealed to SBA's 
Office of Hearings and Appeals (OHA).
    OHA provides independent administrative appellate review of 
SBA program determinations, including the initial SDVO 
determinations made by my office. OHA decisions, in turn, may 
be appealed to the Federal courts. Currently, OHA is staffed by 
eight full-time employees, including two administrative judges, 
who decide appeals of the Office of Government Contracting's 
initial SDVO determinations. In fiscal year 2012, OHA decided 
eight SDVO appeals, roughly 20 percent of GCBD's 41 initial 
determinations that year.
    We use the protest process to help root out fraud, waste, 
and abuse in our small business programs by referring 
questionable firms to our General Counsel Debarment Official or 
SBA's Inspector General for further investigation. In fiscal 
year 2012, SBA suspended, proposed for debarment, or debarred 
30 firms or individuals involved in procurement-related 
misconduct.
    The SBA and VA mutually recognize the importance of the 
SDVO communities to the American economy. SBA and VA have 
collaborated to compare our programs in an effort to bring them 
into closer alignment and provide better service to the 
veterans' community. While there are similarities, there are 
also key differences. For instance, VA's Veteran First program 
is a certification program very similar to SBA's 8(a) Business 
Development Program, while the government-wide SDVO program 
uses self-certification. In order to meet the requirements of a 
certification program, a firm must provide more initial 
information and work through the certification process to meet 
eligibility requirements.
    Another difference between the SBA and VA programs is in 
the timing of requests for documentation and review of 
documentation to demonstrate program eligibility. In a protest-
based self-certification program, the requests for additional 
documentations are submitted in response to a protest that is 
filed after a firm has been identified as an apparent 
successful offeror. Once the documentation is received, a 
determination of eligibility is made. The VA certification 
process requires that documentation be submitted and a 
determination be made before an offer can be submitted or a 
contract be awarded.
    Our collaboration with the VA has been productive in 
identifying other areas of potential coordination and best 
practice sharing. I would be happy to discuss these efforts or 
any of the topics the Subcommittees wish to explore during the 
question-and-answer portion of the hearing today.
    Thank you once again for your support of our work in this 
area and for the opportunity for me to appear in front of you 
today.
    Chairman COFFMAN. Our final witness is Tom Leney, executive 
director for Small and Veteran Business Programs within the 
Office of Small and Disadvantaged Business Utilization at the 
Department of Veterans Affairs. In this capacity he is 
responsible for promoting small business participation at VA 
with a particular focus on service-disabled veteran-owned small 
businesses and veteran-owned small disabled businesses. As we 
have noted several times today, many of our distinguished 
witnesses are veterans, including Mr. Leney, who proudly served 
in the United States Army. We thank you for your service and 
look forward to your testimony. You are now recognized for five 
minutes.

                  STATEMENT OF THOMAS J. LENEY

    Mr. LENEY. Thank you, Mr. Chairman and Chairman Coffman, 
Members of the Subcommittee. Thank you for inviting me to 
testify.
    Last year, the VA Veterans First Program enabled veteran-
owned small businesses to receive contract awards totaling more 
than $3.8 billion from the VA. Since its inception, the VA 
Verification Program has faced challenges balancing the need to 
prevent ineligible firms from taking improper advantage of the 
Veterans First program with our desire to make the process 
easier and faster for legitimate veteran-owned small 
businesses. The VA has made substantial progress on both 
fronts.
    In the aftermath of reports in 2011 from the VA Inspector 
General and the Government Accountability Office, our 
imperative was to ensure that all firms in the program have 
been properly verified as meeting the standards laid out in 38 
CFR 74. We have addressed all the recommendations in these 
reports. Indeed, in its latest report the GAO acknowledged, as 
Bill did here today, Mr. Shear did here today, improvements. As 
we improve the verification process, however, we realize that 
many of the remaining issues are associated with the rules 
themselves. Although the regulation that governs VA's 
Verification Program was derived from the SBA regulations that 
cover the government-wide SDVOSB program and the Section 8(a) 
Business Development Program, there has existed in the 
stakeholder community a widespread misconception that there are 
major differences between the VA and the SBA regulations.
    To understand what differences truly exist, VA collaborated 
with the SBA over the last several months to conduct a thorough 
comparison of the ownership and control portions of our 
respective regulations. Our analysis revealed two statutory 
differences and two regulatory differences. We also compared 
VA's interpretation of the regulation to the SBA 
interpretations as reflected in the SBA status protests and in 
the OHA decisions over the past two years and found a single 
instance where our interpretation differed from the SBA's and 
we are changing our interpretation to match theirs.
    Although VA seeks to align its interpretation with the SBA, 
we have determined that transfer restrictions on ownership that 
are part of normal commercial dealings, such as the right of 
first refusal, do not materially affect the ability of a 
veteran to unconditionally own or control the business. 
Therefore, VA will no longer interpret the current regulation 
to mean that such restrictions constitute a reason for denying 
eligibility.
    Since many rule issues cannot be resolved by 
reinterpretation, VA has initiated a formal process to consider 
changes based on lessons learned and outreach to a broad range 
of veteran stakeholders. We received a number of 
recommendations worthy of consideration. However, in view of 
the current alignment with SBA rules, any consideration of 
changes to the VA Verification Program will involve 
coordination with the SBA. Our goal is to increase 
opportunities for veteran businesses. Our analysis has revealed 
that most applicants fail because they do not fully understand 
the regulations. To address this problem we will expand our 
Verification Assistance Program by adding pre-application 
workshops to the three existing elements, which consist of an 
online self-assessment tool that walks the veteran through 
every element of the regulation, verification assistance 
briefs, 11 of which are on our website and cover about 85 
percent of the reasons for denial, and partnerships to provide 
counseling services to applicants. Three of our counselors were 
present in the first panel. Only one was not a counselor, we do 
not allow for-profit organizations to partner with us on 
counseling.
    In May, we will adopt a practice of contacting an applicant 
with preliminary findings where there are issues of 
noncompliance that can be easily and quickly corrected. We will 
allow applicants to make corrections prior to initial 
determination. We are currently running some limited pilots to 
validate the process and to train the CVE staff.
    The most recent GAO report found that the management 
information system supporting verification is woefully 
inadequate for our purposes. To solve this problem, VA has a 
Next Generation System under development. We expect to award a 
contract for the new system in May with an initial operational 
capability in October 2013.
    In conclusion, we have overcome many of the challenges and 
vulnerabilities that were raised by the GAO and OIG reports and 
improved processes have reduced the average time to initial 
determination from more than 130 days during the summer of 2011 
to fewer than 40 days for those applications that were 
completed last month. We continue to improve our processes and 
will revise our regulation in coordination with the SBA to 
achieve a program that enables real veterans to gain expanded 
access to real opportunities with the Department of Veteran 
Affairs.
    Mr. Chairman, members of the Subcommittees, this concludes 
my statement. I am pleased to answer any questions you may 
have.
    Chairman COFFMAN. Thank you.
    Mr. Shoraka, how could the Veterans Administration better 
apply the interpretive standards of 121 to ensure they are in 
sync with the Small Business Administration?
    Mr. SHORAKA. With regards to size, the SBA is the agency 
that makes determinations on size on any given one contract, on 
contract-specific determinations. So when there is a protest at 
a time when there is a contract being awarded, the SBA is the 
agency that will make that determination. What we often find 
that happens, since the determination at the VA is made during 
the certification process, the primary NAICS code for that 
entity is used to determine size and their eligibility to the 
program. However, if it is contract specific, the contract 
NAICS code will be used and that is where you will have a 
divergence in an entity being found small at certification and 
potentially other than small in a protest situation.
    Chairman HANNA. Mr. Shear, why was the Government 
Accounting Office able to determine whether the recent changes 
have been effective?
    Mr. SHEAR. Part of the reason why we stepped back and 
looked at strategic planning is that we observed that there was 
not a stable process in place where we could do testing and 
evaluate how well the process was working. So the progress, or 
in this case the lack of progress at VA, affected very much 
what our audit work included. One of the things that we have 
recommended, which we think is very important going forward for 
VA, is that part of the strategic planning should include some 
type of a feedback mechanism and performance metrics--that is 
developing metrics based on its audits of its own 
determinations to see basically how good those verification 
determinations were. VA started collecting some information on 
the quality of its determinations last fall but really VA needs 
a system in place. And VA needs a system in place to try to 
test how well its process is working.
    Chairman COFFMAN. So you do not have a feel right now as to 
whether or not they are working together as the program was 
intended?
    Mr. SHEAR. We do not have evidence that the process is 
working as intended. And among other things, we have heard 
similar types of concerns raised by the first panel. We reached 
out to these constituencies that represent service-disabled 
veterans, and we know there are a lot of concerns out there and 
there is a lack of metrics to really evaluate how well VA's 
current process is working with the changes that have recently 
been made.
    Chairman COFFMAN. We will do a second round of questions.
    Mr. Shear, I suggest to you that we have plenty of evidence 
that it is not working. We had a panel just before that gave us 
a litany of examples, and I am sure they have many more.
    Mr. Shoraka, in the GAO report you discussed today you 
mentioned a statutory, procedural, and interpretive differences 
between the SBA and the VA programs. Just so we are all on the 
same page, can you explain what these perceived differences are 
specifically; the key differences in your interpretation rather 
than that more or less subjective phrase?
    Mr. SHORAKA. Sure. I mean, when you compare the rules and 
the regulations, there are some specific minor differences. And 
I think Mr. Leney mentioned, or someone today mentioned with 
regards to spouses of deceased service-disabled service members 
being able to control and run the company after the passing. 
That is one difference. But where we see significant sort of 
divergence is not necessarily in the rules themselves but in 
the interpretations. The SBA does not have bright-line 
determinations or bright-line guidelines with respect to, as an 
example, board control. We look at the entirety of the case to 
determine where control and ownership resides. If you look at 
board control as an example, state by state there's different 
rules and regulations around how the board determines quorum, 
et cetera. Those have to be taken into consideration to 
determine if indeed the veteran-owned small business or the 
veteran owns and controls the firm.
    Another area I think that was mentioned was rights of 
transfer. That is not a bright-line for us. Depending on what 
the common business practice is, that has to be evaluated based 
on the totality of the circumstances to determine if it indeed 
affects ownership and control of the firm.
    Chairman HANNA. Thank you.
    Mr. Leney, you run the Center for Veterans Enterprise and 
the Office of Small and Disadvantaged Business Utilization at 
the VA. Given that, section 15(k) of the Small Business act 
specifically directs that director of the Office of Small and 
Disadvantaged Business Utilization shall carry out exclusively 
the duties enumerated in this act and shall, while the 
director, not hold any other title, position, or 
responsibility, except as necessary to carry out 
responsibilities under section 15(k). How do you comply with 
that Small Business Act? Can you be the advocate for service-
disabled veteran-owned small business at the same time your 
tasked with verification, with all due respect?
    Mr. LENEY. Yes, sir. I can do both because the act of 
verifying veteran-owned small businesses enabled 5,400 veteran-
owned small businesses to participate in a program that has 
distributed more than $3.8 billion in procurement dollars to 
veteran-owned small businesses. So I think that this program 
that the VA has established has created a gold standard. In the 
Federal government, when people know that a firm has been 
verified by the VA, they can take it to the bank. And the 
results, this is real money to real vets, and it is a program 
that benefits veterans. And there are 5,400 firms in this 
program that get those benefits. So I personally do not have 
any issue with a conflict of interest because we are helping 
vets.
    Chairman HANNA. Can you show us where in the statute it is 
permitted? Maybe you can get back to us.
    Mr. LENEY. I think that is an important question and to 
give you a complete answer let me provide that for the record.
    Chairman HANNA. Sure. I appreciate that.
    Mr. Shoraka, has it ever occurred to you that beyond 
verification of the veterans you do not need the VA; that you 
are perfectly capable as the Small Business Administration of 
doing this as you do everywhere in the country?
    Mr. SHORAKA. Sure.
    Chairman HANNA. Well, I know you do not have the budget for 
it but the VA does; right? Thirty million dollars? What do you 
think of that.
    Mr. SHORAKA. Well, statutorily the AV has an important 
program to make sure that a portion of their contracts, their 
Vet First contracts go specifically to the service-disabled 
community. I think that is an important program that has helped 
us meet our goals. Or I should not say meet our goals; get 
closer and closer to our goals over the years. As I mentioned, 
we had an improvement of 3.8 percent from 2010 to 2011. What I 
can say is that our self-certification program for the service-
disabled community for the rest of the Federal government in 
our view has been effective in self-policing itself. Over the 
last three years we have had more suspensions and debarments 
than the previous decade. It has been a system where interested 
parties including other vendors or even the contracting officer 
can initiate a protest in which case we get involved to make 
sure the firm is indeed service-disabled.
    Chairman HANNA. It just seems like so many of the problems 
are a function of disagreements and interpretation that if 
everything went in one place and when you look at the way you 
are organized and how much more efficient, relatively efficient 
you seem to be, at least historically, I hope you appreciate it 
is a fair question.
    I yield back, Chairman.
    Chairman COFFMAN. Mr. Walz, you have five minutes.
    Mr. WALZ. Thank you, Mr. Chairman.
    And I would like to first thank both the chairman and the 
ranking members on this. It is not often that we combine areas 
of jurisdiction together, and we will oftentimes sit in our 
Committee and criticize the lack of collaboration between 
agencies while we are not collaborating. They did not make that 
mistake when they brought you here, and I thank that.
    Mr. Leney, I would also like to publicly thank you and your 
staff for addressing the concern of my constituent in a timely, 
professional manner that allows us to give an answer. And I am 
grateful for that. The next time I will just come to you so I 
do not have to do it publicly. So I appreciate it and apologize 
to you for that, but I am grateful for it.
    Mr. Shear, maybe you can help me with this. It is not 
incompatible, is it, for us to figure out how to streamline 
this process and still keep the checks and balances on fraud in 
place? Would it be your opinion we can do both?
    Mr. SHEAR. There is a tradeoff and the two have to be 
balanced. And I think VA is still searching for a balance in 
terms of its policies and procedures. When we look at internal 
controls, we look at whether there is reasonable assurance that 
only eligible firms will participate. And VA should come up 
with rules and procedures that can help to fight fraud while 
still allowing legitimate firms to participate in this 
marketplace.
    Mr. WALZ. I was at that hearing in 2011. We did it. And I 
think we should acknowledge progress has been made. But I still 
think we are trying to fight this. And I struggle with this one 
always, whether it was the Department of Labor and vets jobs 
issues with the VA. I am somewhat biased where I tend to fall 
on the VA side of things as one stop shopping but I also 
recognize the expertise that is here. Does it make sense that 
these two agencies should partner in your opinion? Is that the 
best way to ensure delivery of services to these veteran-owned 
businesses and protect against fraud?
    Mr. SHEAR. As to the collaboration and cooperation that we 
have observed recently between the two agencies, we view it in 
a very positive sense. We view it in a positive sense in the 
broader picture that the president has identified a 
crosscutting priority goal to serve small businesses and 
entrepreneurs. We see it in that framework. We see it in a more 
detailed framework in terms of what these agencies can bring to 
each other. For example, SBA has been working for roughly the 
last two or three years in developing a new data system to 
manage its 8(a) and its HUBZone programs. And now there is 
starting to be some collaboration between the agencies to see 
how could this system could help inform or even directly help 
VA deal with what is a very huge challenge. That is, it has to 
have a data verification system that really can work for what 
its mission is.
    Mr. WALZ. Mr. Leney, this is not a turf battle-type of 
thing, is it? You are trying to find the best balance on this. 
Is that the solution of working together, best practices, the 
two agencies? Because I recognize the two of you could go and 
do anything else anywhere else. You have chosen to be here for 
a reason. You believe in this program. You want to make it 
work. And if we do not get it right, the critics will be proven 
correct. And that means we can lose programs like this. So are 
we moving in the right direction your opinion?
    Mr. LENEY. Congressman Walz, there is no turf battle here. 
I would be happy if the SBA were to take this burden on. It 
would save me about 30 hours a week mostly in the evening. I 
talk to veteran business people every night, so if John would 
like to take that task on, that's fine.
    Mr. WALZ. But they need you, don't they? This idea of one-
stop-shopping is my internal bias towards the VA on veterans 
issues I think comes out of practice and effectiveness.
    Mr. LENEY. I think it is important to understand, 
Congressman, there is a fundamental difference here. Last year, 
we made determinations on 5,900 firms. The SBA did 37 status 
protests. We did 436 requests for reconsideration. They have 
two administrative judges in OHA. And I would note that our 
request for reconsideration is not an appeal process. If they 
need to appeal, they come to me and say, ``We think a mistake 
has been made.'' Our Office of General Counsel makes a 
determination was a mistake made?
    If we determine that there was no mistake, and in less than 
2 percent of the cases was there a mistake, we then allow them 
to do what I call a Second Chance Program. Request for 
reconsideration is the ability to, if you were found 
noncompliant and you were truly noncompliant, you can correct 
it. We have worked very closely with the SBA. We are taking a 
leaf out of the 8(a) book where we have initiated; we are doing 
pilots as we speak. On 1 May we will be initiating the 
Predetermination Findings Program where prior to a 
determination we will be reaching out to the veteran. We will 
be giving them a preliminary finding of all the things we found 
wrong. And I will tell you, we try very hard to find it all the 
first time. I have eight pages of metrics and statistics. We 
track a lot of things. And one of the things we track is how 
many times do we have an incomplete determination. Nine 
percent. Nine percent of the time is the numbers that we have. 
So yes, we try to make those corrections, but we are doing this 
predetermination findings process so that we do not have to get 
to a denial determination. They get a chance to fix it. We are 
doing the same thing the 8(a) program has been doing, learning 
their lessons and adopting their best practice. Reaching out, 
having the conversation. As many of the people on the first 
panel mentioned, there has not been that kind of a dialogue. So 
we are trying to take advantage of things that other people are 
doing to make the progress better.
    And I would note, we did 569 determinations in February. 
The average time was 34 days. The regulation gives us 60. In 
June of 2011 it was over 130 days. So I think we made some 
progress.
    Mr. WALZ. And we certainly need to acknowledge it when we 
do that. There are a lot of folk working hard to make that 
happen. I yield back.
    Chairman COFFMAN. Thank you, Mr. Walz.
    Ms. Meng, from the State of New York.
    Ms. MENG. Thank you, Mr. Chairman.
    The VA has indicated that it wishes to collaborate with SBA 
in its efforts to develop a new data system. Mr. Shoraka, SBA 
has been developing a new data system to manage its 8(a) and 
HUBZone program. What attributes of the data system SBA is 
currently developing hold the most promise for providing a 
model for completion of a VA data system?
    Mr. SHORAKA. Thank you, Congresswoman.
    As Mr. Leney mentioned, we have been working together to 
share best practices, not only around processes and metrics but 
on systems as well. We are in the process and we have been over 
the last year in implementing what we call One Track, which 
will be the system for our 8(a) and our HUBZone program. The 
process is well on its way where at this point it would be 
difficult to adjust the system to accommodate the specific 
necessities or requirements of the veteran program. But what we 
have committed to do is share system requirements, to share 
statements of work, to make sure that the frontend level of 
work that the VA would have to go through in getting a new 
system up and running could be minimized as much as possible.
    Ms. MENG. Thank you. I yield back.
    Chairman COFFMAN. Thank you, Ms. Meng.
    Let's see. Mr. Bentivolio.
    Mr. BENTIVOLIO. Thank you very much, Mr. Chairman.
    Let us see if I understand this correctly. Correct me if I 
am wrong. If I want to be certified VA, I go through SBA to get 
certified first and then go to him? Or go just to him? Is that 
right?
    Mr. SHORAKA. So if you are a veteran-owned service-disabled 
small business and you want to work with the rest of the 
Federal government and not the VA, you can self-certify 
yourself in the system for award management.
    Now, where the SBA gets involved in that process is if 
there is a protest on a specific bid that you may have bid on. 
Any interested party can protest that award. The VA system is a 
frontend certification program, very similar to our 8(a) 
program where the firm goes through a certification and 
documentation process which can take a period of time before 
any award is made. But that is when the firm is actually 
certified into the program. And in the case of the SDVOSB for 
the VA, that program is to do contracting with the Veterans 
Administration.
    Mr. BENTIVOLIO. Okay. So I guess what I am leading to is 
when I came home from Iraq I was considering getting a 
government job. I eventually got it but it was a different type 
than I expected. And the application process was very 
expensive. But when I applied for that government job there was 
a space where all I had to do was click that I was a veteran. 
And then I had to click another spot for the application if I 
was a disabled veteran.
    Now, it would seem to me that you and you are both looking 
for, first of all, qualified contractors to do government work. 
You are specifically VA. But you have some of the same criteria 
he does except yours is you have to have a DD Form 214 prove 
that you are a veteran and I have to have certification that I 
have to submit from the VA to, well, to prove that I am a 
disabled veteran; correct? I understand there are some 
regulation differences, but would it not be simpler for me, as 
a veteran, just to come to you and say, hey, I need this 
certification; that I am a disabled veteran and I need a DD 
Form 214 sent to him, official copy, and you label me as a 
disabled veteran that owns a business with the other additional 
requirements--51 percent owned, one or more vets. And I missed 
number three. I did not understand here and I did not 
understand four.
    Mr. SHORAKA. With regards to the documentation, in the case 
of a protest that documentation, which is either received from 
the VA, or the Department of Defense, or in some cases the 
Federal government or other agencies, that documentation is 
necessary for us as well but only in the case of a protest. Not 
on the frontend.
    Mr. BENTIVOLIO. But it would seem to be less troublesome if 
I just went to the SBA and just handed you my--or you got an 
official copy. I mean, does that not make sense or am I missing 
something here?
    Mr. LENEY. Congressman, it is always less troublesome to 
self-certify. It is always more troublesome when somebody 
checks. And at the VA, we check.
    Mr. BENTIVOLIO. Well, you check that I am a disabled vet; 
right?
    Mr. LENEY. We do.
    Mr. BENTIVOLIO. And you check that I am a veteran. You have 
a copy of my DD Form 214; correct?
    Mr. LENEY. Yes.
    Mr. BENTIVOLIO. All right. So if I was applying for a 
government job and I have to verify that I have a college 
degree, I have to send an official transcript from my school. I 
do not, the school does, to an employer or another school for 
instance. Why cannot the same happen from you, a certified copy 
from VA goes directly to SBA?
    Mr. LENEY. In fact, one of the things that we have been 
doing in this collaborative effort is looking at where we can 
have a single portal sharing information. As we looked at the 
technology platforms that support the 8(a) and the HUBZone 
programs and the technology platform that supports our Veterans 
First Program, that is one of the things we are looking at. Can 
we create a system whereby a person enters his data one time 
and it is used by multiple programs?
    Mr. BENTIVOLIO. Yeah. And it seems to me that SBA has more 
experience in business and VA is more experienced in veterans. 
They could simply send over to you official documents to the VA 
to meet these other requirements, you verify it, and it is 
done. Done deal. It seems rather simple to me.
    Mr. SHORAKA. The only thing that I would add is that 
obviously statutorily the VA program is a full certification 
frontend program that certifies not only the status but also 
that the firm is indeed small, where our program, again, is a 
self-certification program that under protest we will determine 
status and size.
    Mr. BENTIVOLIO. I understand. So we need to change the 
regulations. Okay, good. I will do what I can.
    I yield back. Thank you.
    Chairman COFFMAN. Ms. Chu, California. You have five 
minutes.
    Ms. CHU. Thank you.
    Mr. Leney, the GAO report released earlier this month noted 
that the VA had not shared their comprehensive long-term 
strategic plan with key stakeholders such as veteran-support 
organizations and congressional staff and committees. Moving 
forward I think there are many of us on the Small Business 
Committee that would like to be more engaged on this issue with 
the VA. What steps have you taken or are planning to take to 
ensure that key stakeholders are involved in the VA 
Verification Program's plans and priorities?
    Mr. LENEY. That is an excellent question. We have reached 
out to many of the stakeholders. In fact, all the people on the 
first panel are part of our outreach effort, and I think 
particularly with respect to the rules, with respect to a long-
range plan. When I came to the VA the secretary looked at me 
and he had a two-word mission statement, ``Fix Verification.'' 
We had the kind of problems that did not need to be looking 
through a five-year crystal ball. The problems were in the 
trench with us.
    Now that we have cleared many of those problems, we now 
have a five-year plan that has gone through a rigorous review 
process. The secretary last summer established a SES Review 
Taskforce to look at verification. That plan has been briefed 
to this taskforce. It will be briefed next month to the Office 
of the Secretary and then we will be sharing it with the 
stakeholder community and would be happy to share it with the 
members of this Committee. We have no secrets.
    But when the enemy is in the trench with you, you deal with 
the enemy in the trench first because we had a lot of small 
businesses that were being tremendously disadvantaged when you 
have a process that takes 130 days on average. Now we are at a 
process that took 34 days last month, so we are in a position 
to think long term.
    Ms. CHU. So all this outreach took place since the GAO 
report; is that what you are saying?
    Mr. LENEY. No, ma'am. We have been conducting outreach 
since--I can speak personally--since April 2011.
    Ms. CHU. And why is it that the GAO report said that there 
had not been the sharing?
    Mr. LENEY. What they spoke about has not been the sharing 
of a five-year strategic plan. What their report referred to 
was a specific document, which is a five-year plan. We had 
strategic planning documents. Many of those issues have been 
shared with stakeholders, but we did not have a comprehensive 
five-year plan. That is what they were referring to.
    Ms. CHU. Well, I wanted to ask about the appeal process 
next. Mr. Shoraka, the appeal process in the SBA Office of 
Hearings and Appeals is about 15 days. Of course, the GAO 
report said 130 days but now you are saying 34 days as of last 
month. But nonetheless, the appeal process at SBA is still 
faster than what it is at the VA. So what more could the VA do 
to be similar to the SBA in speeding up the review process?
    Mr. SHORAKA. With regard to the process at the SBA, as I 
mentioned earlier in my testimony, my office makes the initial 
determination with regard to status. The firm or entity has the 
opportunity to appeal it to the Office of Hearings and Appeals, 
which is an independent body which can make a determination as 
to the facts of the case. And that process helps to ensure 
consistency in the programs, having that outside review and 
determination. But it is an independent process that takes 
place at the SBA, separate and apart from my office.
    Ms. CHU. Well, some on the earlier panel were suggesting 
that the SBA handle the appeals and I am wondering whether the 
SBA would have the capability of handling the appeals process 
for the VA
    Mr. SHORAKA. So, I know that that has been a discussion and 
we have heard that discussion. I think obviously it may have 
certain impacts that may not have been studied yet. I think the 
entirety of the various impacts that initiating an OHA appeal 
process for the VA determination or status determination 
process, there could be impacts to their program. There could 
be impacts to our program. Obviously, I think there is a 
resource question. As we have heard here today, they have a 
significant number of determinations they make every year. As I 
mentioned in my testimony, we are sort of resource-limited in 
our Office of Hearings and Appeals, so those types of things, 
the impacts and the resources, would certainly have to be 
studied before any sort of recommendation I think should be 
made.
    Ms. CHU. Okay, thank you. I yield back.
    Chairman COFFMAN. Thank you, Ms. Chu.
    Mr. Leney, CVE's effort to balance verification with fraud 
is due in part to our criticism over the past two years. But 
you swung hard in the opposite direction. Do you have a long-
term strategic plan to find a balance in verification? GAO says 
you do not have a plan.
    Mr. LENEY. Yes, sir. We have a long-term strategic plan. We 
did swing hard, in part in response to the urging of this panel 
and this Committee to make sure that no ineligible firm was 
able to take advantage of the program that you created for 
veteran-owned small businesses. So our first priority was to 
make sure that that did not happen. Our second priority was to 
make sure we then streamline the process in order that eligible 
firms and legitimate firms could get through the process 
quickly, and we have done that. Our third priority was to look 
at the rules. We had a mature rule. We had a mature set of 
interpretations. And now that we have looked at the process and 
we are now looking at the rule and we have made changes. As I 
said, as of Friday, transfer restrictions are not an 
interpretation that will cause a firm to be ineligible.
    But we had to do a lot of fixing. People have made comments 
about the staff of CVE. I will note that 60 percent of the 
staff of CVE have audit background, 33 percent have IG 
experience, 33 percent are lawyers, 53 percent have a business 
degree, and 40 percent are former small business owners. So we 
have brought a different staff together. That staff is almost 
entirely new over the last 14 months to make sure we put 
together the kind of expertise that enables us to have a 
program that meets the objectives that have been set for us.
    Chairman COFFMAN. Mr. Leney, CVE has forgotten how to 
fulfill the advocacy role that was mandated. In lieu of 
verification, how will you find further balance there?
    Mr. LENEY. That role has not been forgotten; as Chairman 
Hanna mentioned, it is part of the OSDBU mission that remains 
part of my mission. We are pulling in a new program called VE 
Transfer, which is about capacity building for budding veteran 
entrepreneurs. It is just that the Center for Veteran 
Enterprise, its mission has changed. You are correct, sir, 
dramatically. Its full-time focus now is to ensure that firms 
can gain access to the Veteran First Program and to ensure that 
only eligible firms gain access.
    Chairman COFFMAN. Mr. Leney, SBA's Office of Hearings and 
Appeals noted 14 size appeal decisions in connection with SDVO 
set asides that reflected poorly on CVE's determinations. Can 
you explain the use of the Office of General Counsel for CVE 
approval given this issue?
    Mr. LENEY. First, it is important to note that we do not do 
size determinations in the VA. Our policy is all size 
determinations are referred to the SBA. CFR 121 is about the 
determination of size. We do not match up to 121 because we do 
not determine size. We defer to the SBA on that subject. I 
believe the statistic you are referring to in those cases, the 
Office of Hearings and Appeals determined that we should have 
made a size request to the SBA and we did not.
    We look at ownership and control. If a firm is eligible in 
any of its NAICS codes, we do not deny their eligibility. If we 
believe the firm is a large business in all of the NAICS codes 
that it references, then we refer them to the SBA.
    Chairman COFFMAN. Follow-up last question.
    All SBA decisions can be appealed to the Office of Hearings 
and Appeals, which has independent administrative judges and is 
bound by precedent and publishes its decisions, but VA's OGC 
handles appeals for CVE. Is it VA's belief that their appeals 
process is as complete and transparent as SBA's?
    Mr. LENEY. Just a point of fact. The Office of General 
Counsel does not handle appeals. The Office of General Counsel, 
we utilize in our request for reconsideration. And I want to be 
very clear that that is not an appeals process. That is a 
second chance process. Actually, appeals come to me. I have no 
objection to making the results of those appeals public. We 
have not in the past, but the issue that we found, sir, is not 
so much the need for appeal; it is the need for speedy action.
    Chairman COFFMAN. Speedy action, but I really, boy, not 
making those results public, and then instead of calling it an 
appeal you call it a second chance, are the two different? I 
mean, that is just not a transparent process that could be 
deemed objective I think by any standard. Would you commit here 
today to make the process public?
    Mr. LENEY. I have no objection to making the process 
public, sir.
    Chairman COFFMAN. Very well. I will watch for that.
    Mr. Hanna. Chairman Hanna.
    Chairman HANNA. Thank you. It is my understanding that at 
one time the SBA and the VA discussed having SBA conduct 
verifications on VA's behalf. Where is that going? What have 
you done with those negotiations? Are they ongoing?
    Mr. LENEY. We have not pursued it because it was too 
expensive. They wanted a million dollars to do 40. We do 5,600.
    Chairman HANNA. So the 30 million you get would not help.
    Mr. LENEY. The 30 million we get, if my multiplication is 
correct, would not get us to the 5,400. It would only get me to 
1,200.
    Chairman HANNA. Thank you. Would you like to comment on 
that, Mr. Shoraka?
    Mr. SHORAKA. Yes. So I believe those discussions were held 
before my time at the agency. I am not necessarily aware of the 
quote of a million dollars, but what I will say is that 
obviously it is a resource question. Obviously, even when we 
talk about the process of OHA as the congresswoman mentioned 
with respect to the SBA taking over the OHA responsibilities 
for the VA and allowing an appeals process as a resource 
question. And as I mentioned again, the impact on the various 
programs. Statutorily, it is a full certification program. How 
would that impact those requirements and how can we study those 
impacts?
    Chairman HANNA. Thank you. How much do you spend verifying 
the program? The 8(a) program?
    Mr. SHORAKA. I do not know if I have the statistics on the 
8(a) program. I can tell you that in our certification program, 
as you probably know, the 8(a) program is not just a 
contracting program. It is a business development program. It 
is a nine-year program where the firm receives technical 
assistance to be able after the nine years to be competitive on 
the free and open market. But what I would mention is that we 
have approximately 19 of our staff involved in the 
certification process at the SBA. I do not have an exact dollar 
number on what those 19 cost, but I can certainly get that 
information for you.
    Chairman HANNA. We have perhaps as many as a million vets, 
many of whom will apply for this. Are you both prepared to 
handle that load? And it is going to increase. How is that?
    Mr. SHORAKA. So our 8(a) program allows somewhere between 
600 and 800 firms into the program annually. Our acceptance 
rate is somewhere between 50 and 60 percent. So you can imagine 
that we probably review about double that, 1,600-1,800 
applications annually. Obviously, I think if you are looking at 
a certification frontend program, that has significant resource 
allocation questions.
    Chairman HANNA. Thank you very much.
    No further questions, Chairman.
    Chairman COFFMAN. Our thanks to the panel. You are now 
excused. I yield to Chairman Hanna for his closing remarks.
    Chairman HANNA. I want to join Chairman Coffman in 
extending my tanks to all of our witnesses. I think this 
hearing has helped us better understand the problems our 
service-disabled veterans are facing when they seek to do 
business with the Federal government. I look forward to working 
with my colleagues on the Veterans Affairs Committee to see how 
we can do a better job of serving all those who have served us 
so well.
    I ask unanimous consent that the members have five 
legislative days to submit statements and supporting materials 
for the record. Without objection, so ordered.
    Thank you. This hearing is now concluded.
    [Whereupon, at 5:12 p.m., the Subcommittees were 
adjourned.]
                            A P P E N D I X

[GRAPHIC] [TIFF OMITTED] T0170.000

                           EXECUTIVE SUMMARY


    During these difficult economic times in our Nation, some 
of those most impacted have been our military veterans and 
their families. The unemployment rate among veterans is high 
and among younger veterans and those in the National Guard and 
Reserves since 9/11 it's higher than the national average. The 
U.S. Veterans Employment Initiative is an aggressive plan to 
put veterans back to work.

    Over the next 5 years, over one million more service 
members are projected to leave the military. The goal of this 
initiative is to ensure that work is available, accessible and 
in demand for our veterans and that these service members leave 
the military with the proper training and preparation they need 
to transition back into the civilian workforce. But now that we 
have fallen over the `fiscal cliff' due to sequestration, 
federal agencies will be faced with significant budget cuts 
which will also impact the hiring of new employees. So we will 
have to turn to the small business and corporate sectors to 
help pick up the slack.

    In a recent report from the President's Interagency 
Taskforce on Veterans Small Business Development, it was stated 
that `Two of America's greatest assets are the service of our 
returning veterans and the economic dynamism of our small 
businesses.' We recognize that entrepreneurs and small 
businesses are the engines of American innovation and economic 
prosperity. SBA reports that our nation's 28 million small 
firms employ 60 million Americans, or half of the private 
sector workforce, and they are responsible for creating 2 out 
of 3 net new private sector jobs across the country.

    Already, veterans own about 2.4 million businesses or 9 
percent of all of America's businesses. These businesses 
generate about $1.2 trillion in receipts and employ nearly 5.8 
million Americans. As highly trained professionals and leaders 
with experience in challenging environments, veterans' 
potential for successful entrepreneurship and small business 
ownership will not be fully achieved if the VA's regulations 
for verifying them as veteran business owners is allowed to 
become the standard throughout the federal marketplace.

    You would not think that the federal agency, the Department 
of Veterans Affairs, the very one created for `those who have 
borne the battle, their widows and their orphans,' would be the 
very agency that creates the greatest barriers and obstacles 
for thousands of veterans and veteran business owners. Since 
the end of the Vietnam War, the VA has wrongfully denied 
thousands of veterans their claims for compensation for their 
service connected injuries and now since 2008, the VA has once 
again been denying thousands of veteran business owners 
contracting opportunities due to their `Consistently 
Inconsistent' interpretations of VA and SBA contracting 
regulations.

    The Vietnam Veterans of America call on Congress to direct 
the VA's Secretary, Deputy Secretary and Chief of Staff to STOP 
administering regulations, policies and procedures that are 
overly burdensome, far too restrictive, and discriminatory 
towards veteran and service disabled veteran business owners. 
Our Veterans deserve far better support for their service.

    INTRO:

    Good morning, Chairman Hanna, (HSBC - SCW), Chairman 
Coffman (HVAC - SOI), members of the subcommittees, and fellow 
veterans. On behalf of VVA National President John Rowan and 
all of our officers and members we thank you for the 
opportunity for Vietnam Veterans of America (VVA) to appear 
before you today to share our views on the ``Challenges Facing 
Small Businesses Owners and Controlled by Service-Disabled 
Veterans Seeking Federal Contracts using both the SBA and VA 
contracting program.'' I ask that you enter our full statement 
in the record, and I will briefly summarize the most important 
points of our statement.

    Though my time of service was many years ago, as a veteran 
of the US Air Force with the 66th Strategic Missile Squadron, I 
still have very vivid memories of my military experience. And 
having served as an Advisor to the Vietnam Veterans of America 
and Legislative Liaison for the National Association for Black 
Veterans for the past 12 years, I also remember quite well the 
history of the Veterans Federal Small Business Development 
Movement in America from 1999 to today.

    We all know that Congress passed Public Law (PL) 109-461, 
the Veterans Benefits, Health Care, and Information Technology 
Act of 2006 which included Title V, Sections 502 and 503 that 
authorized a unique ``Veterans First'' approach to VA 
contracting. This approach changed the priorities for 
contracting preferences within the Department of Veterans 
Affairs (VA), by placing Service-Disabled Veteran Owned Small 
Businesses (SDVOSBs) and Veteran Owned Small Businesses (VOSBs) 
first and second, respectively, in satisfying VA's acquisition 
requirements.

    Those 2 sections of the law, which many if not all of our 
Veteran Service Organizations (VSOs) advocated for, has been 
hailed as a great accomplishment for the veteran community. But 
the subsequent regulation (38 CFR 74) that was published to 
guide implementation of the law has now adversely affected 
thousands of veterans business owners.

    Over the past 2 years, the VA has reported that of the more 
than 20,000 veteran business owners that have applied for 
verification through CVE, only 5,520 are now approved. From 
previous Congressional hearings, GAO reports, and statements 
from the VA Small Business Director, we have been told that 
less than 2% of those denied were for reasons of fraud or 
intentional misrepresentation. Instead, the greatest percentage 
of denials were due to CVE's narrow interpretation of the 
regulation's sections pertaining to ownership and control.

    History of the Movement

    It was Public Law 106-50, the Veterans Entrepreneurship and 
Small Business Development Act of 1999 that laid the foundation 
for veterans interested in starting or expanding their own 
small businesses to get federal assistance. Congress even 
stated in its findings of PL 106-50 that America had not done 
nearly enough to `assist veterans, particularly service-
disabled veterans, in playing a greater role in the economy of 
the United States by forming and expanding small business 
enterprises.'

    PL 106-50 called for the creation of new entities and the 
restructuring of existing ones in order to assist veterans in 
pursuit of entrepreneurship. Under this law, the Office of 
Veterans Business Development (under SBA), the Center for 
Veterans Enterprise (under VA), and the National Veterans 
Business Development Corporation (quasi independent), were 
created. It also established a 3% procurement goal for federal 
agencies and large Prime contractors to purchase goods and 
services from service-disabled veteran owned businesses. But 
agencies did not pay much attention until 2003 when Public Law 
108-183 made the 3% minimum MANDATORY.

    And even then, it took a Presidential Executive Order (13-
360) in October 2004 to really get agencies to carry out the 
law. Under the Order, agencies were instructed to designate a 
senior-level official to be held accountable for submitting a 
strategic plan showing how and when they would achieve the 3% 
contracting goal for service-disabled veteran owned businesses. 
But with no oversight and penalties associated with non-
compliance, after a few years the effort diminished.

    So Congress took another direction in 2006 and passed 
Public Law 109-461 which authorized ONLY the VA to implement a 
unique ``Veterans First'' approach to VA contracting. This 
approach would change the priorities for contracting 
preferences within the Department of Veterans Affairs (VA), by 
placing Service-Disabled Veteran Owned Small Businesses 
(SDVOSBs) and Veteran Owned Small Businesses (VOSBs) first and 
second, respectively, in satisfying VA's acquisition 
requirements.

    Since federal agencies choose not to follow the guidance 
provided in EO 13-360, veterans advocates called upon leaders 
of the House Veterans Affairs Committee, to use the Dept. of 
Veteran Affairs as the model agency to show the rest of the 
federal government could really increase contracting 
opportunities to Veteran and Service Disabled Veteran Owned 
Businesses. Afterall, the VA is the primary federal agency 
created to provide support and assistance to veterans.

    So Congress passed Public Law (PL) 109-461, the Veterans 
Benefits, Health Care, and Information Technology Act of 2006. 
While this legislation provided a number of benefits for 
veterans; what's of particular importance for the purposes of 
this hearing today, is that Title V, Section 502 and 503 of 
this legislation, authorized a unique ``Veterans First'' 
approach to VA contracting. This approach changed the 
priorities for contracting preferences within the Department of 
Veterans Affairs (VA), by placing Service-Disabled Veteran 
Owned Small Businesses (SDVOSBs) and Veteran Owned Small 
Businesses (VOSBs) first and second, respectively, in 
satisfying VA's acquisition requirements.

    Public Law (PL 109-461) was implemented in two regulations:

    (1) 48 Code of Federal Regulations (CFR) Parts 802, 804, 
808, 810, 813, 815, 817, 819, 828 and 852 amended on December 
8, 2009 to define the acquisition rules for the program within 
the VA; and

    (2) 38 Code of Federal Regulations (CFR) Part 74, published 
on February 8, 2010 and clarified on January 19, 2011 to define 
the requirements for verification as a Veteran or Service 
Disabled Veteran Owned Business.

    These regulations require that certain conditions must be 
met. All SDVOSBs and VOSBs, must register in the VA's Vendor 
Information Pages (VIP), aka Veterans Small Business Database, 
available at www.VetBiz.gov, and be `VERIFIED' by the VA's 
Center for Veterans Enterprise (CVE), to be eligible for award 
of a contract exclusively within the Department of Veterans 
Affairs. Once registered in the database, the veterans' status, 
ownership, and control would be verified and penalties would be 
assessed for misrepresentation.

    Unfortunately, it's this regulation 38 CFR 74 and CVE's 
subsequent interpretations within their Verification Process 
established by the VA that is being used to determine a 
Veteran's status, ownership and control of their company that 
is literally causing thousands of veteran and service-disabled 
veteran business owners to be deprived of millions of dollars 
in contracting opportunities that could benefit them, their 
families, veterans seeking employment and other members of our 
communities.

    HERE'S THE MAJOR ISSUES

    First many VOBs/SDVOBs do not fully understand how they can 
be legally allowed to do business with other federal agencies 
but not with the VA. Representatives of the VA have now taken 
the position that their VA regulations are nearly identical to 
the SBA's regulations. If that in fact is true, then VA's 
interpretation of the rules must be much different than SBA's 
or either SBA is not doing it right. In the past 3 years, no 
other small business preference program participants (8a, 
Hubzone, WOSB, SDB) have exhibited public dissatisfaction to 
the extent where there have been repeated Congressional 
hearings, GAO reports and IG investigations of those programs.

    According to SBA regulations, a veteran owned business is 
allowed to `Self Certify' as a VOB or SDVOB. However, such 
businesses must still be legally formed and the majority 
owner(s) must be veteran(s) or service disabled veteran(s). 
Owners of such businesses may be required to submit specific 
documentation to verify their status and ownership.

    Second, some applicants have problems with the CVE 
verification process, but that doesn't mean they are ignorant. 
As a VA-CVE Volunteer Verification Assistance Counselor, I have 
been participating in the verification process training 
workshops. And even though CVE has provided a great deal of 
information via its website on how to navigate the application 
process, it still requires an extensive amount of time to even 
review all of the preliminary information and sample scenarios. 
It is expected that those applicants who take the time to 
review all of the verification information, utilize the 
assistance of the veterans verification counselors, and are 
willing to make the necessary changes to their organizing 
documents are far more likely to be approved after 90 days.

    Third, Veterans are Subjected to Multiple Contracting 
Program Rules. Both the SBA and the VA operate procurement 
programs for SDVOSBs. The SBA program applies to procurements 
at all agencies other than VA, whereas the VA program applies 
only to VA contracts. While both programs apply nearly 
identical statutory definitions of a SDVOSB, the same veteran 
business owner may be eligible to compete for contracts at 
other federal agencies except the VA. And now some federal 
agency departments are denying veteran business owners 
contracting opportunities if they have not been verified by the 
VA, which is contrary to the PL 108-183.

    Fourth, an applicant may still be denied by the CVE 
reviewer based on their interpretation of sections of the 
regulation (38 CFR 74) and/or of the documents submitted by the 
applicant. I will identify the reasons for denial by the VA 
that have been most problematic below:

    I. The Verification Criteria - Determining Veteran Status, 
Ownership and Control

    Veterans Status. Verifying the status of the veteran seems 
to be the easiest part; particularly since the VA already 
maintains or has access to the records of veteran and service 
disabled veterans. The documents needed are to verify that the 
business owner is a veteran who was discharged under conditions 
other than dishonorable or is a service disabled veteran who 
possess either a disability rating letter issued by DOD or the 
VA.

    Additional documents are needed to establish if the 
veteran(s) or service disabled veteran(s), or in the case of a 
veteran with a permanent or severe disability, the spouse or 
permanent caregiver of such veteran, meet the majority 
Ownership requirement, and that they have Control of the 
company and participate in the Day-to-Day operations.

    Verifying Ownership. Verifying Ownership is somewhat more 
challenging because CVE must verify if the Ownership is direct 
and unconditional (74.3). Not hard to verify if the type of 
Ownership is that of a Partnership, Limited Liability Company, 
or a Corporation; and if stock is involve, it must verify the 
stock options' effect on the Ownership. But there's the matter 
of Transfer Restrictions and determining Ownership interests 
when an owner resides in any of the community property States 
or territories of the United States.

    Verifying Control (where the real issues come out). 
According to 38 CFR 74.4 Control is not the same as Ownership, 
even though both may reside in the same person. Control means 
management of the Day-to-Day operations and long-term decision 
making authority. CVE must verify that the service disabled 
veteran or veteran business owner has both. But where this gets 
more involved, is when control is sometimes contingent on who 
has the expertise or licenses to run the operation. An owner 
who is a computer engineer may not be the best CEO. But 
according to CVE's verification requirements, the owner must 
hold the highest officer position in the company.

    Then there is also the somewhat conflicting view that 
owners need not work in the company full-time but must show 
sustained and significant time invested in the business. There 
is also the requirement that one or more veteran or service 
disabled veterans who manage the company must devote full-time 
to the business during normal working hours. And even though 
the veteran owner has an unexercised right to cause a change in 
the management quickly or easily, use of a non-veteran manager 
may disqualify the company as being controlled by the majority 
veteran owner.

    In addition, all of these control issues have to be 
verified in the context of the type of company - Partnership, 
Limited Liability Company, or Corporation. And it must be 
determined to what extent do non-veterans have the power to 
influence or control the company - either directly or 
indirectly via critical financial or bonding support, Board 
actions, office or equipment leases, or private loans, etc.

    II. Verification of Only One Company per Owner. A number of 
veterans have questioned CVE's position to verify only one 
company per veteran business owner. This ruling is not clearly 
listed in 38 CFR Part 74. All throughout the Nation, there are 
people who own more than one company. It seems to be CVE's view 
that verifying only one company per owner would prevent the VA 
from potential harm that could be caused by a veteran or 
service disabled veteran business under performing or 
defaulting on a contract.

    III. Misperception of CVE's `VERIFIED' status. Many if not 
all federal agency contracting personnel believe that SDVOSBs 
and VOSBs must or soon will have to first be registered in the 
VA's Veteran Small Business Database and produce a document 
stamped with a ``VERIFIED'' seal of approval by CVE in order to 
be recognized as a genuine SDVOSB or VOSB. And it's not hard to 
determine how this misperception came about.

    For several years now, CVE, other organizations, including 
the VET-Force, have been encouraging veteran business owners to 
register in the Veterans Small Business Database and for 
federal agencies and Large Primes to use the Veterans Small 
Business Database as the `Authoritative Place' to locate 
capable and qualified veteran business owners. However, this 
was before PL 111-275 directed the VA through CVE to enhance 
their verification standards and procedures.

    According to Public Law 108-183, the Veterans Federal 
Procurement Program, a veteran is only required to SELF-CERTIFY 
as a SDVOSB, in order to do business under this small business 
preference group. There is no formal certification by SBA or 
any other entity required. However, under Public Law 109-461, 
in order to do business with the VA, a veteran or service 
disabled veteran owned business must successfully complete VA's 
verification process and register in the same database that's 
open for use by all federal agencies, Large Primes, and the 
public.

    IV. Community Property Rights Issue - Section 74.3f

    If a veteran business owner resides in any of the community 
property states, CVE considers applicable State community 
property laws. What this means to CVE is that all property or 
income acquired by either spouse during marriage is considered 
equally owned by both spouses for purposes of the division of 
the property upon death or divorce or for purposes of business 
transacted by either spouse. A transfer or relinquishment of 
interest by the non-veteran spouse may be necessary in some 
cases to establish eligibility.

    So according to CVE, in the event of a divorce, a non-
Veteran spouse would be entitled to half of the Veteran owner's 
interest in the company. Therefore, the veteran who is the 
majority business owner according to the business' organizing 
documents cannot pass the test of unconditional ownership. 
However, there is a work-around to this dilemma if the non-
veteran spouse will agree to transfer at least 2% of their 
property rights to the veteran business owner. This solution is 
still contrary to CVE's view that the non-veteran spouse must 
transfer all of their property rights.

    V. Top 10 Reasons for Denials at VA

    While the issues listed above are some of the major ones 
creating controversy about the VA's Veterans Verification 
Process, there are others considered to be equally as 
important. Here's a list of the top 10 Reasons for Denial in 
Jan 2013:

    1. Quorum Restriction - Unconditional Ownership

    2. Transfer Restriction - Unconditional Ownership

          a. Right of First Refusal

    Right of First Refusal - Should not prevent a veteran 
business owner from doing business with the VA. See recent US 
Court of Federal Claims recent decision in the case of Miles 
Construction wherein the judge found that the current VA rules 
do not prohibit transfer restrictions that are a ``normal 
commercial practice.''

          b. Community Property Laws (see narrative above)

    3. Weighted Voting Requirement

    4. Dependence with Other Entities

    5. Control of Strategic Policy

    6. 51% of Annual Distributions

    7. Management of Daily Business -

    8. Higher Officer Position

    9. Day to Day Management

    10. Managerial Experience

    VI. Not all Veteran Business Owners are Women or Socially 
and Economically Disadvantaged

    VA has now taken the position that is regulations used for 
verifying VOBs/SDVOBs are not much different from SBA's small 
business regulations. This appears to be true when looking at 
the regulations for SBA's 8(a) business development program and 
the Women Owned Small Business Program (WOSB). In fact, many of 
the sections of 38CFR74 for VA Veterans Small Business 
Verification are nearly identical to sections of SBA's 13CFR124 
for Disadvantaged Small Businesses and 13CFR127 for the Women-
Owned Small Business Federal Contract Assistance Procedures. 
However, it should be noted that the 8a and WOSB programs have 
different statutory purposes than the SDVOSB program 
administered by the VA.

    VII. 8(a) Business Development Program - Socially 
Disadvantaged and Economically Disadvantaged Based on Income

    In order to help small, disadvantaged businesses with 
limited income compete in the marketplace, the SBA created the 
8(a) Business Development Program that offers a broad scope of 
assistance to firms that are owned and controlled at least 51% 
by socially and economically disadvantaged individuals.

    The 8(a) Program is an essential instrument for helping 
socially and economically disadvantaged entrepreneurs gain 
access to the economic mainstream of American society. The 
program helps thousands of aspiring entrepreneurs to gain a 
foothold in government contracting.

    The 8a Program, uses objective criteria to determine 
economic disadvantage based on personal income and total 
assets. Applicants to the program must demonstrate economic 
disadvantage based on the following criteria:

     Adjusted Net Worth must not exceed $250,000 for 
initial eligibility or $750,000 for continuing eligibility.

     Personal Income must not exceed $250,000 (averaged 
over three years) for initial eligibility or $350,000 for 
continuing eligibility.

     Total Assets must not exceed $4 million for 
initial eligibility and $6 million for continued eligibility 
(allows for growth during the 9-year term).

    Other unique features of the 8a Program: (1) 9-year Limit 
of Participation; (2) Certain types of Joint Ventures without 
violating the Affiliation Rule; (3) Opportunity to participate 
in SBA Mentor-Protege Program.

    See comparative language from the 8a and VA's program 
regulations below:

    Section 124.106: Control is not the same as ownership, 
although both may reside in the same person. SBA regards 
control as including both the strategic policy setting 
exercised by boards of directors and the day-to-day management 
and administration of business operations.

    Section 74.4: Control is not the same as ownership, 
although both may reside in the same person. CVE regards 
control as including both the strategic policy setting 
exercised by boards of directors and the day-to-day management 
and administration of business operations.

    Section 124.106: An applicant or Participant's management 
and daily business operations must be conducted by one or more 
disadvantaged individuals.

    Section 74.4: An applicant or Participant's management and 
daily business operations must be conducted by one or more 
veterans or service disabled veterans.

    Section 124.106: Disadvantaged individuals managing the 
concern must have managerial experience of the extent and 
complexity needed to run the concern.

    Section 74.4: Veteran or service disabled veteran 
individuals managing the concern must have managerial 
experience of the extent and complexity needed to run the 
concern.

    Section 124.106: A disadvantaged individual need not have 
the technical expertise or possess a required license to be 
found to control an applicant or Participant if he or she can 
demonstrate that he or she has ultimate managerial and 
supervisory control over those who possess the required 
licenses or technical expertise.

    Section 74.4: A veteran or service disabled veteran 
individual need not have the technical expertise or possess a 
required license to be found to control an applicant or 
Participant if he or she can demonstrate that he or she has 
ultimate managerial and supervisory control over those who 
possess the required licenses or technical expertise.

    Section 124.106: However, where a critical license is held 
by a non-disadvantaged individual having an equity interest in 
the applicant or Participant firm, the non-disadvantaged 
individual may be found to control the firm.

    Section 74.4: However, where a critical license is held by 
a veteran or service disabled veteran individual having an 
equity interest in the applicant or Participant firm, the non-
veteran individual may be found to control the firm.

    Section 124.106: An applicant or Participant must be 
managed on a full-time basis by one or more disadvantaged 
individuals who possess requisite management capabilities.

    Section 74.4: An applicant or Participant must be managed 
on a full-time basis by one or more veteran or service disabled 
veteran individuals who possess requisite management 
capabilities.

    Section 124.106: A disadvantaged full-time manager must 
hold the highest officer position (usually President or Chief 
Executive Officer) in the applicant or Participant.

    Section 74.4: A veteran or service disabled veteran full-
time manager must hold the highest officer position (usually 
President or Chief Executive Officer) in the applicant or 
Participant.

    Section 124.106: One or more disadvantaged individuals who 
manage the applicant or Participant must devote full-time to 
the business during the normal working hours of firms in the 
same or similar line of business. (Note: Any outside employment 
will have to be approved by SBA prior to employment.)

    Section 74.4: One or more veteran or service disabled 
veteran individuals who manage the applicant or Participant 
must devote full-time to the business during the normal working 
hours of firms in the same or similar line of business. (Note: 
Any outside employment will have to be explained and justified 
to CVE.)

    VIII. Women Owned Small Business Program and Economically 
Disadvantaged Women Owned Small Business Program

    The WOSB Program is a program that authorizes contracting 
officers to specifically limit, or set aside, certain 
requirements for competition solely amongst women-owned small 
businesses (WOSBs) or economically disadvantaged women-owned 
small businesses (EDWOSBs).

    IX. Intent of the laws

    (PL 109-461)

    To increase contracting opportunities for Veteran and 
Service Disabled Veteran Owned Businesses within the VA by 
granting VA contracting officials the authority to use 
contracting mechanisms to meet or exceed the VA Secretary's 
established contracting goals for these types of businesses.

    It was not intended to discriminate against legitimate, 
capable and qualified veteran business owners nor to subject 
them to overly burdensome and excessive procedures in an 
attempt to prevent the VA from being embarrassed by approving 
one or two non-qualified business owners.

    (PL 108-183)

    PL 108-183 created a program to increase contracting 
opportunities for Service Disabled Veteran Owned Businesses 
within the federal marketplace by granting federal agency 
contracting officials the authority to use contracting 
mechanisms to meet or exceed the federal contracting goals for 
these types of businesses.

    Neither of the laws that created contracting programs for 
veteran business owners in the VA nor the Federal Marketplace 
called for asset, net worth, or personal income limitations.

    X. Recommendations to Address the Major Issues

    1. Congress should amend 38CFR74 in such a way that will 
eliminate multiple interpretations of any sections. Each 
section of the regulation should be explicit.

    2. Veterans should not be denied the opportunity to 
participate in the Vets First Contracting program based on the 
following reasons:

          a. Failure to participate in the Day-to-Day 
        Operations;

          b. Failure to devote full-time to the business;

          c. Majority owner, married and resident of a 
        community property state;

          d. Failure to be the highest paid employee;

          e. Failure to have the requisite managerial 
        experience;

          f. Making substantial loans from non-veterans;

          g. Utilizing equipment, property, or office space 
        from a non-veteran

    3. Stick to a verification process only and not 
certification. Verify Veteran Status Only and continue Self-
Certification of Ownership as allowed under Public Laws 106-50 
and PL 108-183. Once the status has been verified, it does not 
have to be re-verified ever. The status will likely not change.

    4. Verification of Control should only be to the extent 
necessary to support the Ownership and to ensure that the 
company is not being used as a `Rent-A-Vet' or a pass through 
company.

    5. Allow the verification of more than one company owned by 
the same veteran(s). Entrepreneurship should not be stifled for 
the sake of convenience. Each company should be evaluated and 
verified on its own merit. Any agency will always have the 
right to determine the select criteria to satisfy contract 
requirements.

    6. Immediately direct the SBA and the VA to conduct 
promotional campaigns to inform all federal agencies, including 
all military departments, Large Primes, and the public about 
the VA's Verification Process being exclusively for contracting 
with the VA.

    7. Congress should not consider extending the provisions of 
38CFR74 to all Federal agencies and the DOD military 
departments until a thorough comparative analysis has been done 
between all SBA small business certified programs, i.e. 8a, 
Hubzone, SDB, WOSB.

    8. Congress should direct the VA to stop discriminating 
against Veteran Business Owners by imposing a different set of 
criteria on veteran owned businesses than is used to verify 
other types of small business owners. After determining the 
status of the owner as 8a, Hubzone, WOSB, SDB, etc, the rules 
regarding control should be applied the same to all small 
businesses.

    9. Congress should direct a study to determine how many 
legitimate small businesses would be denied if they were all 
verified using CVE's interpretations of control as referenced 
in 38CFR74.

    10. Congress should direct the VA to revise its overly 
burdensome and intrusive verification process.

    This concludes my statement.
                      VIETNAM VETERANS OF AMERICA


                           Funding Statement


                             March 7, 2013


    The national organization Vietnam Veterans of America (VVA) 
is a non-profit veterans' membership organization registered as 
a 501(c)(19) with the Internal Revenue Service. VVA is also 
appropriately registered with the Secretary of the Senate and 
the Clerk of the House of Representatives in compliance with 
the Lobbying Disclosure Act of 1995.

    VVA is not currently in receipt of any federal grant or 
contract, other than the routine allocation of office space and 
associated resources in VA Regional Offices for outreach and 
direct services through its Veterans Benefits Program (Service 
Representatives). This is also true of the previous two fiscal 
year.

    For Further Information, Contact:

    Executive Director for Policy and Government Affairs

    (301) 585-4000 extension 127

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                     8STATEMENT OF THOMAS J. LENEY


                           EXECUTIVE DIRECTOR


     OFFICE OF SMALL AND DISADVANTAGED BUSINESS UTILIZATION (OSDBU)


                     DEPARTMENT OF VETERANS AFFAIRS


                               BEFORE THE


                   HOUSE COMMITTEE ON SMALL BUSINESS


           SUBCOMMITTEE ON CONTRACTING AND THE WORKFORCE and


                  HOUSE COMMITTEE ON VETERANS' AFFAIRS


              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS


                             MARCH 19, 2013


    Chairman Hanna, Chairman Coffman, Ranking Member Meng, 
Ranking Member Kirkpatrick, and Members of the Subcommittees, 
thank you for inviting me to testify on statutory, regulatory 
and interpretive differences between the Small Business 
Administration (SBA) and Department of Veterans Affairs (VA) 
contracting programs for small businesses owned and controlled 
by service-disabled Veterans.

    Overview

    Since its inception, the VA Verification program has faced 
challenges balancing the need to prevent ineligible firms from 
taking improper advantage of VA's ``Veterans First'' program, 
while making it easier and faster for legitimate Veteran-owned 
small businesses (VOSB) and service-disabled Veteran-owned 
small businesses (SDVOSB) to gain greater access to VA 
procurement opportunities. VA has made substantial progress on 
both fronts in our effort to implement 38 Code of Federal 
Regulations (CFR) Part 74, the regulation governing 
verification. As we improved the verification process we 
realized that most of the remaining issues were associated with 
the rule itself. To better understand the regulatory issues, VA 
reached out to stakeholders and as a result of their feedback, 
VA has initiated a formal rule change process in accordance 
with the Regulatory Flexibility Act and Executive Order 13272 
(Proper Consideration of Small Entities in Agency Rulemaking).

    In the aftermath of both VA's Office of the Inspector 
General (OIG) report dated July 25, 2011, and the Government 
Accountability Office (GAO) report dated October 26, 2011, our 
imperative was to ensure all firms listed as eligible in the VA 
program had been properly verified as meeting the standards 
laid out in 38 CFR Part 74. Both VA OIG and GAO made 
recommendations for improvement. We have addressed all of the 
recommendations identified in the 2011 reports. In its latest 
report, GAO-13-95 Planning and Data System for VA's 
Verification Program Need Improvement, January 14, 2013, GAO 
acknowledges improvement by stating: ``Since December 2011, VA 
has instituted a number of significant operational changes, 
including revising standard operating procedures and enhancing 
quality assurance protocols.'' Based on the report 
recommendations, VA made changes to its verification processes 
and policies. These changes include increased fraud awareness 
training for all VA Center for Veterans Enterprise (CVE) staff 
as well as support contractors, the development of better 
education tools to help applicants through our Verification 
Assistance Program, and reduction of fraud risk through a post-
verification audit process.

    CVE initiated the post-verification audit process to ensure 
that verified companies continued to be in compliance with 
program eligibility rules throughout the tenure of their two-
year verification term. This process chooses firms based on 
both random and risk basis. This process was launched in May 
2012; CVE has performed 158 random audits and 112 risk-based 
audits in the fiscal year 2013 to date, resulting in ten 
cancellations.

    Comparison of Rules Governing Verification Program

    We believe the most significant difference between VA and 
SBA's programs lies in the volume of status determinations made 
by each program. By statute, a VOSB and an SDVOSB must provide 
documentation to VA to demonstrate its status and VA must 
verify this information before the firm can do business with VA 
as an SDVOSB. As SBA notes, this process is inherently more 
labor-intensive than a protest-based self-certification 
program. This statutory requirement resulted in VA making more 
than 4,500 status determinations in FY 2012 alone. Because SBA 
only determines SDVOSB status and only when a protest is filed, 
the SBA made only 40 status determinations over the past two 
fiscal years.

    Despite this statutorily-driven difference in the way the 
programs are run, there has existed in the stakeholder 
community a widespread concern that there are major differences 
between the VA and SBA regulations, even though the regulation 
that governs VA's Verification program, 38 CFR Part 74, was 
derived in large part from the ownership and control portions 
of the SBA regulations that cover the Government-wide SDVOSB 
program in 13 CFR Part 125, as well as the regulation that 
covers the section 8(a) business development program, 13 CFR 
Part 124. In response to that concern, VA, in collaboration 
with SBA, conducted a thorough comparison of the ownership and 
control portions of the regulations. In addition to comparing 
regulatory language, we also looked at every SDVOSB status 
protest considered by SBA and all of the SBA Office of Hearings 
and Appeals decisions on SDVOSB cases for the last two fiscal 
years to identify any differences in interpretation.

    While we are in the process of discussing our findings with 
SBA, our tentative conclusion is that there are only a few 
differences in the regulation and interpretation of them and we 
are fully committed to working with SBA and conducting 
stakeholder outreach to help address these differences.

    There are two statutory differences between the programs 
due to the provisions of Public Law (P.L.) 109-461, as codified 
in 38 United States Code (U.S.C.) Sections 8127 and 8128. The 
two statutory differences are:

          1. Application to Veteran-Owned Small Businesses: 
        Section 8127(f) states: ``Database of Veteran-Owned 
        Businesses. - (1) Subject to paragraphs (2) through 
        (6), the Secretary shall maintain a database of small 
        business concerns owned and controlled by veterans and 
        the veteran owners of such business concerns.'' VA's 
        authority includes both SDVOSBs and VOSBs; whereas the 
        government-wide SBA program only addresses SDVOSBs.

          2. Surviving Spouse: Section 8127(h): ``Treatment of 
        Businesses After Death of Veteran-Owner. - (1) Subject 
        to paragraph (3), if the death of a veteran causes a 
        small business concern to be less than 51 percent owned 
        by one or more veterans, the surviving spouse of such 
        veteran who acquires ownership rights in such small 
        business concern shall, for the period described in 
        paragraph (2), be treated as if the surviving spouse 
        were that veteran for the purpose of maintaining the 
        status of the small business concern as a small 
        business concern owned and controlled by veterans.'' 
        This currently applies to Veterans that were 100 
        percent service-disabled or who died as a result of a 
        service-connected disability. SBA's program has no 
        surviving spouse exception.

    Since there were only two major statutory differences. VA 
derived its regulation mainly from 13 CFR Part 125, which 
implements the government-wide SDVOSB set-aside program 
established by 15 U.S.C. 657f, and 13 CFR Part 124.105 and 
124.106. Where 13 CFR Part 125 was silent, VA considered 
language from 13 CFR Part 124. In addition, in our examination 
of SBA status protest decisions and SBA Office of Hearings and 
Appeals (OHA) decisions, as well as discussions directly with 
representatives from SBA, we found that in most cases where 
SBA's SDVOSB regulation is silent, SBA applies the provisions 
of the 8(a) regulation. For example, in its decision SBA No. 
VET-102 (2005), SBA OHA's decision states: ``OHA has recognized 
that the regulations regarding control of 8(a) Business 
Development and Small Disadvantaged Business program 
participants can provide guidance in interpreting the control 
requirement of SDVO SBC eligibility.''

    Our comparison of the regulations revealed three 
differences between VA's Verification regulation and SBA's 
SDVOSB regulation.

          1. VA added a requirement for a VOSB to notify the 
        CVE of a change of ownership in 38 CFR 74.3(e). 
        Although this requirement is noted in 13 CFR 
        124.105(i), this requirement is moot in the SBA SDVOSB 
        regulation due to the self-certification nature of the 
        program.

          2. VA added a provision when the final rule was 
        published, based on public comments, which is specific 
        to Employee Stock Ownership Plans (ESOP) that does not 
        appear in either the SDVOSB or the 8(a) regulations. VA 
        included a provision that would consider certain ESOP's 
        to meet the requirements of direct ownership by the 
        Veteran(s).

    Differences in Interpretation

    Once we determined what actual language differences existed 
between the regulations, we looked for differences in the 
interpretation of the rules. We compared VA's interpretations 
to the SBA status protests and OHA decisions rendered over the 
last two fiscal years to see where any differences occurred. 
While VA is not bound by the SBA decisions, due to the 
similarities of the SDVOSB programs, VA finds the SBA case law 
can be persuasive authority. We could find only two clear cases 
where the VA interpretation differed from the SBA 
interpretation.

    In both 38 CFR 74.4(f) and 13 CFR 125.10(e)(1), the 
regulations state ``[n]o single veteran owns 51 percent of all 
voting stock but multiple veterans in combination do own at 
least 51 percent of all voting stock, each such veteran is on 
the board of directors, no supermajority voting requirements 
exist, and the veteran shareholders can demonstrate that they 
have made enforceable arrangements to permit one of them to 
vote the stock of all as a block without a shareholder meeting. 
Where the concern has supermajority voting requirements, the 
Veteran shareholders must own at least that percentage of 
voting stock needed to overcome any such supermajority 
ownership requirements.''

    If we look at a sample situation where two Veterans own at 
least 51 percent of the voting stock of a company and a non-
Veteran also owns voting stock, VA interprets this language 
that a non-Veteran has the power to control the decision of the 
board of directors if the Veteran shareholders split their vote 
and the non-Veteran casts the deciding vote. The SBA 
interpretation of this situation is that the non-Veteran must 
vote with a Veteran to win the decision. VA is prepared to 
alter its interpretation to align with SBA in this case.

    Although VA seeks to align its interpretations with SBA, 
based on stakeholder discussions and feedback, we have 
determined that transfer restrictions that are part of normal 
commercial dealings, such as the right of first refusal, do not 
materially affect the ability of a Veteran to unconditionally 
own or control the business. Therefore, effective March 6, 
2013, VA will no longer interpret the current regulation to 
mean that such restrictions constitute a reason for denying 
eligibility.

    Potential Rule Change

    VA has initiated stakeholder outreach as part of a process 
to identify potential changes to the rules based on the lessons 
learned from the implementation of the current verification 
regulation. We have reached out informally to a broad range of 
stakeholders as part of this process, and received a number of 
recommendations worthy of consideration. As part of this 
process we expect to publish an Advanced Notice of Proposed 
Rule Making in the Federal Register that will provide all 
stakeholders a formal method of providing feedback and input 
that will be used to draft proposed rule changes governing VA 
VOSB Verification.

    Given the current alignment with the SBA's programs, any 
consideration of changes to VA verification rules will involve 
discussion with the SBA as we week to keep the two programs 
aligned.

    Process

    In view of the long history of small business certification 
programs in the SBA, VA also reviewed the processes and metrics 
used in the SBA 8(a) certification program to determine lessons 
learned and best practices that we could apply to the VA 
verification program. As a result of this review, we have 
adopted two practices:

          1. We noted that when SBA contacts an applicant, it 
        uses emails followed up by a phone call to confirm 
        receipt of the communication. CVE has added a phone 
        call to confirm that an applicant received email 
        communications where any type of documentation is 
        requested, or if a firm receiving a Preliminary 
        Findings letter has not responded to CVE within 48 
        hours.

          2. We also noted that SBA followed a practice of 
        contacting an applicant with preliminary findings where 
        there are issues of non-compliance that can easily and 
        quickly be corrected and allowing them to correct those 
        issues prior to a determination. Through an analysis of 
        the most frequent reasons for which firms are being 
        denied, CVE identified a set of issues that will not 
        require a full re-evaluation and can be quickly 
        corrected. These issues occur in more than 50 percent 
        of our current denials. Applicants that could be denied 
        for these issues will be provided a Preliminary 
        Findings letter extending the opportunity to make 
        correction or withdraw, prior to a determination. For 
        more complicated issues that would require a full re-
        evaluation, firms will be notified and will have the 
        option to withdraw their application and re-submit 
        without receiving a determination.

    We are currently running a series of limited pilots to 
validate this proposed process and train CVE staff on 
procedures for engagement with applicants. The program is 
targeted for a full launch on May 1, 2013.

    Program Improvements

    One of the major findings of the recent GAO report was that 
the Management Information System that supports verification is 
woefully inadequate for our purposes. VA agrees that our 
current information system is the biggest obstacle to meeting 
our verification objectives, and we have taken steps to fix it. 
The next generation Verification Case Management System (VCMS) 
is currently under development, and we expect to award a 
contract for a new system in May 2013. This will be a phased 
program with initial operational capability expected in October 
2013.

    While we have been aggressively pursuing the development of 
a new system, we discovered that SBA is also developing a new 
system for their 8(a) program. We have reached out to SBA to 
compare technical requirements. We are currently determining if 
the new SBA system, which is further along in its development, 
could be applied to both programs.

    GAO acknowledged that VA has made improvements to the 
program, and as a result of a number of process improvements, 
we have reduced the average time to initial determination from 
more than 130 days during the summer of 2011 to an average of 
46 days for those applications completed last month. We still 
have a challenge in reducing the time for achieving final 
determinations in response to requests for reconsideration, a 
process that offers a ``second chance'' to firms found to be 
non-compliant. The process of reaching a final determination 
took an average of 128 days for firms receiving decisions in 
February 2013. While we are working to reduce the time 
required, we recognize that the best method to do so is to 
reduce the number of applications that are declared ineligible. 
Our analysis of initial denials revealed that most denials 
occur because the applicant does not understand the regulation 
or how it applies to their business model.

    As a result, our efforts to reduce the time and difficulty 
of achieving eligibility have focused on educating applicants 
regarding the application of the regulation and helping them 
understand what their business model needs to be to fit the 
requirements of the program. Our Verification Assistance 
Program currently consists of three elements:

          1. An online self assessment tool that takes a 
        Veteran through each section of the regulation and all 
        the required documents and explains how they relate to 
        the regulation.

          2. A series of 17 Verification Assistance Briefs that 
        explain the requirements and give examples of why firms 
        are denied. These briefs address issues that cause more 
        than 70 percent of all denials.

          3. Realizing some applicants need extra assistance, 
        we established a counseling program in partnership with 
        non-profit organizations to provide counseling services 
        to Veterans preparing to apply for verification. The 
        program was piloted in June 2012, and we continue to 
        develop and improve it. All counselors now receive the 
        exact same qualification training that our examiners, 
        evaluators, and site visitors receive. To ensure 
        transparency and consistency in interpretation, we have 
        integrated our counselors into the same qualification 
        training and testing that our examiners, evaluators and 
        site visitors receive.

    In addition to the current program elements we will launch 
a fourth dimension to the program with the pilot of our first 
Pre-Application workshop for Veterans on March 13, 2013, at an 
event hosted by the SDVOSB Council in Virginia. This workshop 
will outline what a Veteran needs to know and do to put 
together a successful verification application.

    Conclusion

    In conclusion, VA has made significant progress in its VOSB 
verification program. We have overcome many of the challenges 
and vulnerabilities that were raised by the GAO and OIG reports 
but we week continuous improvement, and in coordination with 
SBA, we seek to revise our regulation to achieve balanced 
objectives.

    Mr. Chairman and Members of the Subcommittees, this 
concludes my statement. I am pleased to answer any questions 
you may have.
    Subcommittee on Contracting and Workforce, Committee on 
Small Business
    Subcommittee on Oversight and Investigations, Committee on 
Veterans' Affairs
    Hearing: ``Consistently Inconsistent: Challenges for 
Service-Disabled Veteran-owned Small Businesses,'' March 19, 
2013.

    Questions for the Record - Joe Wynn, VET-Force

    1. If you had to provide one particularly egregious example 
of VA failing to certify a firm, what would it be?

    Answer 1. I spoke with a veteran business owner who 
reported that he was denied because of his age. He was told by 
a reviewer at CVE that he could not possibly manage the company 
because he was 92 years old. The veteran had to obtain a letter 
from his physician stating that he was in excellent health and 
fully aware of his faculties; and reference letters from staff 
and associates attesting to the fact that the veteran despite 
his age was fully in charge of commanding the operations of the 
company.

    2. What suggestions for aligning regulations between VA and 
SBA are most necessary?

    Answer 2. In my view, it appears that the regulations 
between the VA and SBA are nearly identical. I would also 
include in both, VA's rule on the surviving spouse of a service 
disabled veteran taking over the business. But what appears to 
be more of a concern is the apparent differences in how SBA and 
VA are interpreting the regulations when much of the wording is 
the same.

    3. Do you think that VA should be relying, in part, on 
SBA's 8(a) regulations as the basis for it verification 
program?

    Answer 3. I do not think that the VA should be relying on 
SBA's 8(a) regulations because not all VOBs and SDVOBs are 
socially and economically disadvantaged. While some veteran 
owned businesses may be just starting out in business and are 
struggling to increase capacity and gain contracting 
experience; may have been in business for years and some are 
even successful graduates of the 8a program.

    By regulating all VOBs and SDVOBs from the perspective of 
the 8a program profile CVE reviewers tend to make the 
assumption that a veteran business owner does not possess the 
requisite skills and capabilities to do contracting on the 
federal level without supportive assistance.

    4. One statutory difference between the VA and SBA program 
deals with the treatment of surviving spouses. If we were to 
try to reconcile these programs, how do you think we should 
address surviving spouses of service-disabled veterans?

    Answer 4. Because under the SBA program the status of the 
veteran owned business ends when the veteran business owner 
dies, there may not be sufficient time to develop an 
appropriate exit strategy that will prevent the other owners, 
staff and/or family members from suffering a severe adverse 
economic impact as a result. But under the VA program, the 
surviving spouse of a service disabled veteran business owner 
may continue the operation of the business for up to 10 years 
if the veteran owner was 100% service disabled and died as a 
result of their service connected condition.

    The SBA rule should be the same as the VA rule. In 
addition, under both programs, the rule should be revised to 
allow 3 to 5 years of continual operations by the surviving 
spouse, caregiver, or next majority owner thereby giving 
sufficient time for the orderly termination of the business.

    I think that we should be mindful of the fact that these 
preference programs for SDVOBs are a means to benefit not only 
the veteran, but the veterans family and their community. So we 
should not want to abruptly end the veterans family when the 
veteran dies.

    5. I understand that being verified by VA is increasingly 
important--not only is it required for VA contracts, but other 
agencies seem to be placing importance on verification, even 
though the statute doesn't require it. For example, FAA's 
regulations now require VA verification, and an Air Force 
contract recently required VA verification. I understand that 
other agencies see it as a credential, and that prime 
contractors and states are now also requiring VA verification. 
Please address the challenge that poses to firms that operate 
under SBA's governmentwide program?

    Answer 5. Veterans operating businesses in the federal 
marketplace are now facing unlawful discrimination as a result 
of the misperception by many agencies and large Primes that a 
veteran owned business is not legitimate if they have not been 
verified by the VA. Over the past few years, we are seeing more 
evidence of this occurrence. As a result, because of CVE's 
interpretation of the rules, many legitimate veteran owned 
businesses are being denied the opportunity to do business at 
the VA and with other agencies and/or large Primes as well.

    In addition, CVE's interpretation and application of the 
rules places an additional burden on veteran business owners 
that is not placed on other non-veteran small business owners.

    6. During the March 19 hearing, Tom Leney stated ``I think 
that this program that the VA has established has created a 
gold standard.'' Do you believe this is correct? If not, in 
what sense is it incorrect?

    Answer 6. The VA's program for verifying veteran small 
business owners should not be the gold standard because far too 
many legitimate veteran owned businesses are being denied. Just 
recently 60% of the firms applying for verification were 
denied. And Tom Leney, himself has admitted on several 
occasions that less than 2% of the denials were based on fraud 
or misrepresentation by the veteran business owner.

    7. At the same time, Mr. Leney stated ``In the federal 
government, when people know that a firm has been verified by 
the VA, they can take it to the bank. And the results, this is 
real money to real vets, and it is a program that benefits 
veterans.'' This seems to suggest that VA expects its 
certification to be given deference at agencies other than VA, 
despite the fact that the government-wide program does not 
require VA certification. Is VA doing enough to make it clear 
to other agencies that the VA certification is to be used for 
VA contracts only?

    Answer 7. Despite statements from VA and CVE personnel that 
its veteran small business verification program only applies to 
veterans seeking to do business with the VA, it's obvious that 
not enough is being done to dissuade other agencies and large 
Primes from thinking otherwise. And when the VA OSDBU makes 
public states that the VA's verification program for veteran 
small businesses is the Gold Standard for small business 
verification it only leads other agencies and large Primes to 
believe that they can do less due diligence of veteran business 
owners by simply relying on VA's results.

    Unfortunately, contracting officers from other agencies 
have also been pushed in the direction of relying on VA's `good 
seal of approval' of veteran businesses because of recent GAO 
and VA IG reports that identified some business owners in the 
federal marketplace who had misrepresented themselves as 
legitimate veteran business owners. Thus, agencies are looking 
for some other agency they can point to should they award a 
contract to an inappropriate veteran owned business.

    8. What effect does the lengthy and inadequate appeals 
process currently in place at VA have on small businesses' 
ability to compete for contracts?

    Answer 8. We are often hearing from veteran business owners 
who have stated that during the period of time (6 months to a 
year) that they have waited for VA approval that they have lost 
opportunities to do contracting with the VA. This delay also 
causes some veteran business owners to miss opportunities with 
other agencies too because some agencies look for veteran 
business owners to first be certified by the VA.

    Actually, there is no fair and objective appeals process 
with the VA. When an applicant is denied, they have to wait a 
minimum of 6 months before they can reapply. In order to 
dispute the denial, a veteran business owner may only have the 
option to request reconsideration or to request a review from 
the VA or CVE Director. There is no independent body that 
handles appeals from veterans who have issues with their being 
denied by VA.

    9. VA's request for reconsideration takes 147 days and 
isn't heard by administrative judges, whereas SBA's appeals 
process takes 15 days and does result in a published decision 
from an administrative judge. The following questions relate to 
that disparity:

          a. How do you think the appellate process should 
        function?

          b. Would published decisions be an improvement?

          c. Is there a reason to use administrative judges who 
        are independent of the verification process?

    Answer 9. Because of the very reasons I referenced in my 
answer to questions #8, there needs to be an appellate process. 
That process could be handled by administrative judges and 
those decisions should be published.

    10. If 48 percent of VA's requests for reconsideration are 
granted, does that indicate a problem with the initial 
determination process?

    Answer 10. In the past year or two, it has been reported 
that over 60% of all veterans applying for VA business 
verification were denied. So even if 48% of VA's requests for 
reconsideration are being granted, its still shows that far too 
many veterans are having to undergo additional reviews in order 
to obtain approval. CVE has reported that there are 10 major 
reasons why applications are denied. Hopefully, now under CVE's 
new pilot program to make a pre-determination of the 
applicant's information prior to the completion of the process 
will reduce the need for so many requests for reconsideration 
and reduce the number of denials.

    11. When VA published the current rule governing 
verification, it stated ``VA estimates the cost to an 
individual business to be less than $100.00 for 70-75 percent 
of the businesses seeking verification, and the average cost to 
the entire population of veterans seeking to become verified is 
less than $325.00 on average.'' 76 Fed. Reg. 3022 (2011). Does 
that comport with your experience?

    Answer 11. I'm not sure how the VA has determined the cost 
to an individual business to be less than $100 to go through 
the verification process. I have received reports from business 
owners stating that the cost has been up to several thousands 
of dollars. While I'm sure that it does not cost that much for 
most businesses, it would surely cost more than $100 if you 
just factored in the hourly rate for someone in the company to 
put together all of the required information.

    12. VA recently announced that it would add a pilot pre-
determination program that would occur before the initial 
verification program. While few would disagree that the program 
could stand streamlining, some have suggested that this will 
simply add a third hoop for our veterans to jump through. Is 
this a reasonable concern?

    Answer 12. The pre-determination process does raise some 
concerns. At present, it has not been made clear as to how that 
process will be conducted differently from the initial review 
process. The only difference that I can see at the moment, is 
that after the initial review, items in the application that 
raise red flags or could lead to denial, will be sent back to 
the applicant so that they can make changes, additions and/or 
deletions to the information and resubmit.

    The veteran, once notified of the preliminary findings by 
the CVE reviewer, will have only 5 days to resubmit corrected 
information. So depending on the extent of the changes 
required, it could take more than 5 days. If the applicant does 
not submit the new or additional information in 5 days, CVE 
will issue a determination letter which will probably be a 
denial. At that point, the applicant can request 
reconsideration and then we are right back where we started 
with a 147 days or more wait time for the new information to be 
reviewed.

    13. Each time VA reorganizes its verification process, it 
seems to add employees and spend more money, with little 
improvement for our veterans. Please provide your thoughts on 
what the pre-determination program will mean in terms of costs 
and staff.

    Answer 13. Not sure if the pre-determination program will 
mean more staff and more costs. I'm sure it will create more 
processing time, more workload, and probably more confusion 
among staff and applicants.

    14. There is consensus that contract intended for service-
disabled veteran-owned small businesses should go only to 
service-disabled veteran-owned small businesses. The following 
questions address the prevention of fraud.

          a. VA has said that of the firms found not to 
        qualify; only about 2% are turned down for reasons of 
        fraud. That means 98% are turned down for structural 
        reasons. What does that say about the program?

          b. SBA's self-certification model has been criticized 
        for leaving the door open to fraud. Is that the case, 
        and how can we improve that process?

          c. Does the timing of VA's verification pose 
        challenges? Specifically, since VA's program looks 
        primarily at a company before the company is bidding on 
        a contract, does it leave open the door to a verified 
        company getting a contract, and then just passing the 
        work through to another company?

    Answer 14. If 98% of the firms are denied for structural 
reasons then it says to me that the requirements are far to 
strict. In an attempt to screen out fraud and 
misrepresentation, too many legitimate business owners are 
being denied. SBA's self certification model is obviously a 
more open process but its the law. However, if businesses are 
required to attest to their legal status as a legitimate 
veteran or service disabled veteran owned business, and are 
later found to be fraudulent, then they should be prosecuted to 
the full extent of the law, penalized, and not be allowed to 
participate in the program again. With proper oversight and due 
diligence on the part of contracting officers, SBA, and other 
agency officials, firms committing fraud in any program will be 
detected.

    For those firms that successfully complete the verification 
process must then market themselves to the VA for contracts. VA 
verified firms are not automatically awarded contracts simply 
because they have been verified. But for those that do received 
contracts, agencies should still provide oversight and due 
diligence to ensure that a firm remains eligible for the 
program it was selected to participate in and that it does not 
violate any of the small business rules.

    15. In your testimony you listed seven reasons you thought 
VA should stop using to deny companies verification. One of 
those was the instance where the service-disabled veteran isn't 
involved in the day to day operations. In such cases, how do we 
make sure that this isn't just a case of ``rent-a-vet''?

    Answer 15. The VA verification requirements should not be 
so stringent that legitimate veterans business owners are 
denied based solely on a business' profile and the assumption 
that they will be used as a `rent-a-vet'. Owners that are not 
working full time in the business or participating in the day 
to day operations should be allowed to present sufficient 
documentation to demonstrate that they are in control of the 
company. Meeting minutes, organization charts, management 
reports, CEO memos and directives, are just some of the 
examples which can be used to demonstrate that the owner 
controls the company.

    A veteran business owner should not be denied solely on the 
basis that they have others in the company with more experience 
than them or because they have partnerships with other 
companies that have more experience in the marketplace. VA - 
CVE should utilize some of its resources for oversight and 
follow up of veteran owned businesses where there is a 
perceived view that the firm is being overly reliant on non-
veteran support. This in addition to unscheduled visits to the 
owners principal place of business and a review of contract 
actions of the business will help to identify companies that 
are misrepresenting themselves or abusing the program or 
breaking the law.

    16. One of the biggest obstacles with VA's certification 
process is that it is ever changing. So much so that on this 
Tuesday March 5th, two days before this hearing was originally 
scheduled to take place, VA again changed its process. I have a 
few questions in regards to that.

          a. With these latest changes, even in reading them 
        the process seems cumbersome while certain parts 
        discuss business days, other sections merely say hours. 
        You'll be able to stop the clock, but need to get them 
        know within 48 hours. If that 48 hours or 48 hours of 
        business days. I foresee a lot of complications with 
        this process; but as someone whose dealt with it 
        before. What are your overall thoughts?

          b. The letter changing the policy indicates that this 
        will be a pilot run of a pre-determination process, and 
        be fully initiated on May 1, 2013. Based on your 
        experiences, how likely do you think VA is to keep this 
        process intact?

          c. More broadly, how often does VA make these sort of 
        changes?

          d. How do these changes affect service-disabled 
        veteran small business owners ability to understand the 
        process?

    Answer 16. Please refer to my response to Question #12. In 
addition, I will say that the pre-determination process is 
something we have asked the VA to do for the past 2 years. What 
I do have a problem with is that (1) they practically had to be 
forced to do it; but (2) they are not allowing sufficient time 
for the applicant to resubmit the corrected information; (3) 
its probably still going to be difficult for an applicant to 
get a live person to assist them within that 5 day period; (4) 
to avoid getting caught up in the 5 day limit a veteran will 
have to withdraw their application and resubmit at a later 
time, thus going through the process again; and (5) this new 
process has already led to confusion because more applicant's 
are now asking more questions about how to navigate the entire 
process.

    There have been a number of changes to this VA - CVE 
verification process over the years. Another recent change is 
the allowance of transfer restrictions. That only came about 
after the recent court ruling in the Miles case. Other process 
changes have led to confusion and more time in the processing.

    Then there is still that part of the process which calls 
for a visit to the applicant's principal place of business. 
From reports I have received, this part of the process is not 
consistent.

    17. I understand that you and many others volunteer to help 
service-disabled veterans navigate the VA processes. While I 
thank you for your service, are you aware of any other 
contracting programs that require this level of outside 
assistance before a firm can be compete for contracts?

    Answer 17. A few months ago, VA - CVE started a Veterans 
Assistance Partner Program whereby representatives from other 
organizations are supposed to be trained as VA Verification 
Counselors. At present, there are only a few organizations who 
volunteer their time assisting veterans with the verification 
process. I am one of them. But now the VA is directing more and 
more veterans to the volunteer counselors in order to reduce 
VA's workload. Some veterans now are being told that they must 
consult with a counselor first. As a result, some counselors 
are now charging a fee for their services and since some 
counselors are attorney's they are likely to charge fees as 
well.

    VA - CVE adopted this model from the VA's use of Veteran 
Service Officers from Veteran Service Organizations to assist 
veterans with filing claims with the VA for compensation for 
service connected disabilities. This model has been in use for 
at least 20 years and has proven to be helpful for thousands of 
veterans. However, while its a good model to use for the VA 
verification assistance, it will take several years to perfect 
it for use on a national level.

    18. Mr. Wynn, how should Congress amend 38 CFR Sec. 74 to 
provide for clearer interpretation of the sections you find 
most convoluted?

    Answer 18. At this time, I don't want to present myself as 
the expert on these matters and tell Congress what they should 
do. But what I will suggest, is that you or the House Small 
Business Committee convene a roundtable either formally or 
informally to discuss amendments to 38 CFR 74. I think it would 
be helpful as a follow up to the hearing to have some open 
discussion and brainstorming to try and come up with what may 
or may not work. I would like to participate in such a 
discussion and hope that the other witnesses from the hearing 
would be invited as well. However, I'm not sure if the VA's 
representatives are willing to offer recommendations for 
changes to the existing regulation.

    I think the SBA should be a part of that discussion, and 
selected staffers from the House Veterans Affairs Subcommittee 
on Economic Opportunity. A comparative analysis should be made 
between SBA's and VA's interpretations of the regulations that 
use the same language yet produce different results.

    Conclusion:

    I hope that I have provided useful responses to all of your 
questions. And please do not hesitate to contact me if you 
require additional information regarding this matter.

    Joe Wynn

    Nabvets Legislative Liaison

    VVA Special Advisor

    Member of VET-Force

    202 365-0482
    Davy Leghorn's Responses to Questions for the Record from
    Subcommittee on Contracting and Workforce, Committee on 
Small Business
    Subcommittee on Oversight and Investigations, Committee on 
Veterans' Affairs
    Hearing: ``Consistently Inconsistent: Challenges for 
Serivce-Disabled Veteran-Owned
    Small Businesses,'' March 19, 2013.
    Submitted April 9, 2013.

    1. If you had to provide one particularly egregious example 
of VA failing to certify a firm, what would it be?
    VA's stripping of SDVOSB status from the firm KWV Inc. has 
been the most egregious case by far. This was a clear example 
of how VA used an SBA OHA ruling set it as a brightline rule 
without looking at a totality of circumstances. The US Court of 
Federal Claims ruled in favor of KWV and VA restored the firm's 
status. The Court ruled that VA shall extend KWV's eligibility 
by 72 days to account for the days it was wrongfully removed. 
Hardly accounting for the awards and contracts they lost during 
that time.

    2. What suggestions for aligning regulations between VA and 
SBA are most necessary?

    Mr. Leney was right that there are few differences between 
38 CFR 74 and 13 CFR 125. However, most of the differences come 
down to interpretive differences. Where VA sets bright line 
rulings and uses them to preclude companies; SBA looks at a 
totality of circumstances.

    Mr. Leney was incorrect when he said VA was not making size 
determinations. We believe that when VA refers a case over to 
the SBA for a size determination and drops the firm in question 
from the vet-biz vendor list, they are making a size 
determination. When VA precludes a company from the Vet First 
program based off of a size restriction based off a firm's 
NAICS codes, they are in essence making a size determination as 
well. If VA is going to make these round-a-about size 
determinations, then they need to adopt 13 CFR 121 to give them 
the regulatory authority to do so correctly.

    3. Do you think that VA should be relying, in part, on 
SBA's 8(a) regulations as the basis for it verification 
program?

    No, the 8(a) program is a business development program, VA 
Verification is a certification program (closer to SBA's 
HubZone program). VA's partial adaptation of the 8(a) program 
is how they came up with a punitive 6 month waiting period. We 
know of not statutory requirements that forces VA to enforce 
this. SBA's 8(a) program is the only other place where we see 
this; SBA enforces a 12 month waiting period for reapplication 
on firms that have been denied. 13 CFR 121 and 13 CFR 125 are 
the only regulations VA needs to align 38 CFR 74 with.

    4. One statutory difference between the VA and SBA programs 
deals with the treatment of surviving spouses. If we were to 
try to reconcile these programs, how do you think we should 
address surviving spouses of service-disabled veterans?

    The American Legion has a resolution on this specific 
issue. The American Legion advocates for regulatory changes 
that would in effect make it so that if any disabled veteran 
who owns a certified service-disabled veteran-owned business 
dies, (regardless of his/her disability at the time), their 
business inherited by their spouse/dependent will retain the 
service-disabled veteran-owned business status in conjunction 
with Public Law 109-461.

    The American Legion supports that if any servicemember, to 
include those who were in the National Guard or Reserve, is 
killed in action and owns at least 51 percent of a business 
prior to his/her death, the business bequeathed to their 
spouse/dependents must be granted service-disabled veteran-
owned business status for reason of preference in federal 
contracts.

    The American Legion supports any administrative or 
legislative effort that will improve and increase the benefits 
bequeathed to the veteran's spouses or dependents upon a 
veteran business owner's death.

    Attached is a copy of our resolution.

    5. I understand that being verified by VA is increasingly 
important--not only is it required for VA contracts, but other 
agencies seem to be placing importance on verification, even 
though the statute doesn't require it. For example, FAA's 
regulations now require VA verification, and an Air Force 
contract recently required VA verification. I understand that 
other agencies see it as a credential, and that prime 
contractors and states are now also requiring VA verification. 
Please address the challenge that poses to firms that operate 
under SBA's government-wide program?

    Because of the self-certifying nature of SBA's SDVOSB 
program, contracting officers from the various agencies are 
wary of awarding contracts to self-proclaimed SDVOSB. Entrance 
into the 8(a) program requires documentation of ownership and 
control on the front end, hence in the contracting officer's 
mind, there is less change that an 8(a) certified firm is a 
fraudulent firm. VA verification program was to provide this 
certification and assurance for the contracting officers. There 
are not enough resources at SBA for them to check first like VA 
is doing, but SBA's SDVOSB self-certification program is self 
policing though status protests. In the past, DOD and VA have 
been scrutinized by Congress and the press for the number of 
fraudulent SDVOSB firms they awarded contracts to, this is why 
with the advent of VA verification, agencies are starting 
asking if firms are verified by CVE.

    6. During the March 19 hearing, Tom Leney stated ``I think 
that this program that the VA has established has created a 
gold standard.'' Do you believe this is correct? If not, in 
what sense is it incorrect?

    While The American Legion does not believe VA verification 
is the ``gold standard'' we understand why other agencies do. 
Contracting officers are risk averse, their jobs are to award 
contracts to the lowest bidder with the capabilities to finish 
the job and meet SBA's small business goaling. When they give a 
fraudulent firm a contract, they have not done their jobs. A 
firm having gone though the verification process adds a level 
of security for the contracting officer. This is why and how 
the VA verification program has become a ``gold standard.''

    7. At the same time, Mr. Leney stated ``In the federal 
government, when people know that a firm has been verified by 
the VA, they can take it to the bank. And the results, this is 
real money to real vets, and it is a program that benefits 
veterans.'' This seems to suggest that VA expects its 
certification to be given deference at agencies other than VA, 
despite the fact that the governmentwide program does not 
require VA certification. Is VA doing enough to make it clear 
to other agencies that the VA certification is to be used for 
VA contracts only?

    This is a common misconception held by many in the small 
business community that has been exacerbated by contracting 
officers in other agencies who ask if SDVOSB firms are VA 
verified. VA verification is not for ALL VA contracts, 
technically, VA verification are for those firms who are 
seeking to participate in VA's Vet First Program. A self-
certified SDVOSB can still do business with VA outside of the 
Vet First Program.

    VA is definitely not doing enough to let the agencies know 
about this. Two years ago at an American Legion Small Business 
Training Program, Mr. Leney stated that he authorized a 
memorandum telling the agencies not to require VA verification 
in SDVOSB set asides. Afterwards, when our SDVOSBs continue to 
run into the same problems with the agencies, we reached out to 
CVE for a copy of this memorandum so our SDVOSBs can provide a 
copy to the contracting officers. CVE refused to produce or 
share this memorandum and further refused to be quoted.

    8. What effect does the lengthy and inadequate appeals 
process currently in place at VA have on small businesses' 
ability to compete for contracts?

    Many times, VA comes in contact with SDVOSBs when they are 
subcontractors and identify them as small businesses that have 
the requisite experience and are likely candidates for set-
aside contracts. The firms are encouraged to enter the 
verification process while simultaneously bidding for VA 
contracts. The lengthy process is most damaging for these firms 
who know they can walk onto some lucrative contract if only the 
timing was right and to firms that have their status stripped 
after an inspection. During the period that they are removed 
from the vetbiz vendor list, they cannot be awarded set-aside 
contracts, bid on set-aside contracts. If they attempt to do 
business with another agency, they'd have to explain how their 
status is in arbitration, which of course would be a cause of 
concern for any diligent contracting officer.

    9. VA's request for reconsideration takes 147 days and 
isn't heard by administrative judges, whereas SBA's appeals 
process takes 15 days and does result in a published decision 
from an administrative judge. The following questions relate to 
that disparity:

          a. How do you think the appellate process should 
        function?

          b. Would published decisions be an improvement?

          c. Is there a reason to use administrative judges who 
        are independent of the verification process?

    a) With any federal appellate process, there should be an 
unbiased body separate from the office that conducted the 
initial examination. Take Veterans' Benefits Administration's 
appellate process for example, a claim for benefits denied at 
the Regional Office is appealed to the Board of Veterans 
Appeals, where VA attorneys and Veterans Law Judges (VLJs) 
removed from the Regional Office make decisions based off a de 
novo review of the evidence of record. Right now, the same 
entity that conducts the examination also handles the R4R 
process. Again, we reiterate, we know R4R is not a formal 
appeal process, however, absent a real appeals process, this is 
as close as we get. So ideally, the model of VA's BVA is the 
way an administrative appellate process should function. We see 
SBA's OHA as a comparable body to VA's BVA. OHA has an 
outstanding track record, they have the expertise and their 
decisions are based off their case laws.

    b) Published decisions hold the agency accountable. When 
decisions are made behind closed doors, the stakeholders have 
no oversight over the process or legal reasoning that went 
behind a denial. Published decisions at the administrative 
level are not precedence setting and decisions are made by a 
case-by-case basis, but having access to published decisions 
allows the stakeholders to better assist applicants and 
preemptively address issues the administrative Judges will 
latch on to.

    c) Yes, an appellate process should require a de novo 
review of the evidence of record, having the same entity review 
their colleague's work defeats the purpose of a de novo review.

    10. If 48 percent of VA's requests for reconsideration are 
granted, does that indicate a problem with the initial 
determination process?

    The course of our testimony outlines what we believe to be 
wrong with the initial application process. The high percentage 
of grants from the R4R stems from the fact that veteran owners 
can still provide additional records and alter the evidence of 
record. The veteran is more willing to alter the business plan 
when he is faced with a six month bar from reapplication when 
he is forced to accept the denial at the end of R4R. R4R is not 
a formal appeals process; we merely refer to it as such because 
it is as close as VA got to having an actual appeals process. 
We believe the high initial denial rate is a better indicator 
of problems with the initial determination process.

    11. When VA published the current rule governing 
verification, it stated ``VA estimates the cost to an 
individual business to be less than $100.00 for 70-75 percent 
of the businesses seeking verification, and the average cost to 
the entire population of veterans seeking to become verified is 
less than $325.00 on average.'' 76 Fed. Reg. 3022 (2011). Does 
that comport with your experience?

    From experience, it takes any given firm a minimum of 3-4 
hours to collect the paperwork, save it and proceed with up 
loading documents on the Vetbiz website. Business executives 
that would be responsible for completing this process, 
according to the Bureau of Labor Statistics, earn at least $95/
hr. The American Legion fails to see how VA can claim that it 
takes less than $100 for a firm to get verified unless the CEOs 
are earning $25/hr on average.

    The American Legion has not kept track of the general cost 
of veterans seeking to become verified. However, the veterans 
that we've had worked with that needed to have their bylaws 
scanned by a lawyer usually spends $1200 (this is on the lower 
end). Again this is the price when a counselor has sat down and 
made most of the changes already and has submitted it back to 
the veteran and the veteran goes and seeks legal counsel for 
good measure. Many of the mid to large cap businesses we work 
with usually have legal counsel on retention. There's no way we 
can accurately capture how much is being spent on verification 
for firms with legal counsel on retention. We can only state 
that for the small capacity business that have been denied and 
are going through a R4R or resubmitting their application, it 
is much more then what VA reports when legal fees are factored 
in. Further, The American Legion does not charge for 
verification counseling, but some of the other counselors do 
and they do charge more than $100 to review documents.

    12. VA recently announced that it would add a pilot pre-
determination program that would occur before the initial 
verification program. While few would disagree that the program 
could stand streamlining, some have suggested that this will 
simply add a third hoop for our veterans to jump through. Is 
this a reasonable concern?

    The American Legion and other VSOs have always advocated 
for more human interaction in the application process. VA has 
always responded that they do not have the staff and resources 
to contact every veteran if a problem occurs. So in the past 
we've used a ``letter of explanation'' system to provide the 
contextualization or human element in a process that is so 
document driven. However, as CVE continued to grow, they now 
have resources they can allocate for this interaction. We 
recognize that adding this may be a delay from getting an 
application through to the examination phase; however, this is 
one of those processes that has always been needed, there was 
just not enough resources in the past. By adding this process 
to the front end, we can hopefully alleviate some of the 
processes on the back end when a veteran decides to undergo a 
request for reconsideration.

    13. Each time VA reorganizes its verification process, it 
seems to add employees and spend more money, with little 
improvement for our veterans. Please provide your thoughts on 
what the pre-determination program will mean in terms of costs 
and staff.

    As previously stated we advocated for more human 
interaction. A significant amount of flexibility is necessary 
to allow entrepreneurship to occur. It is our hopes that 
veterans can explain and contextualize documents so their 
application can progress through the process without stoppages. 
What would really be helpful is if the person that is working 
with the veteran is the examiner or at least on the examination 
team as well that way they can mitigate some of the 
miscommunication problems with documentation and transferring 
of the veteran's intent from one team to the next. There is 
great hope in this new program to do what it intends to do. 
While we understand that direct communication could be a time 
consuming task, we're not sure what cost or whether new staff 
is necessary to accomplish this.

    14. There is consensus that contracts intended for service-
disabled veteran-owned small businesses should go only to 
service-disabled veteran-owned small businesses. The following 
questions address the prevention of fraud.

          a. VA has said that of the firms found not to 
        qualify; only about 2% are turned down for reasons of 
        fraud. That means 98% are turned down for structural 
        reasons. What does that say about the program?

          b. SBA's self-certification model has been criticized 
        for leaving the door open to fraud. Is that the case, 
        and how can we improve that process?

          c. Does the timing of VA's verification pose 
        challenges? Specifically, since VA's program looks 
        primarily at a company before the company is bidding on 
        a contract, does it leave open the door to a verified 
        company getting a contract, and then just passing the 
        work through to another company?

    a) The fact that 98 percent of the firms are turned down 
for structural reasons means that the requirements are too 
stringent. Why is it that general legal documents that make 
good business sense that you can pull off of the a website is 
not good enough for VA? It's because VA's regulatory control 
requirements do not make ``good business sense'' but this is 
the price for admittance into VA's Vet First Program. The large 
cap small businesses have legal counsel and contracting experts 
on hand to adjust their documents to get past the VA examiners, 
they go through the process swimmingly because they have the 
resources to obfuscate their real business model from VA 
examiners. The small cap small businesses who can't afford 
legal staff and pull their business documents off the web are 
the ones being denied. For the most part, these folks don't 
even understand quorums, board of directors or voting 
requirements.

    b) SBA's self certification program does open the door to 
fraud but so does VA's document driven process as we previously 
mentioned. The veterans' small business community is very 
active and is self-policing via status protests. Though a 
fraudulent firm might abscond with a contract one time, it 
would be nearly impossible for them to do it again.

    c) VA does not just look at a company before the company 
bids on a contract. There are scheduled and unannounced site-
visits that should make a firm conform to the business model 
they submitted for verification purposes. In the coming year, 
VA will toe a hard line against those who fail inspection and 
who are currently on VA contracts and refer them for 
disbarment. CVE may not have the resources to conduct as many 
site-visits as they would like, but it is with the hope that 
the threat of site-visits will hold the firms in the vendor 
pages in check.

    15. Mr. Leghorn, I was interested to read in your testimony 
that you take issue with the six month waiting period required 
before a service-disabled veteran can reapply for verification 
at VA. Do you think this waiting period is intended to prevent 
fraud, or does it serve another purpose?

    There are no statutory provisions that require a punitive 
waiting period after a denial. The only place we see this is in 
the 8(a) program. We believe this is VA trying to create a 
hybrid using SBA's SDVOSB and 8(a) program. A 12 month waiting 
period was instituted in the 8(a) program because a company 
must be afforded a reasonable amount of time to restructure 
their business to resubmit their application. 12 months was set 
as an appropriate amount of time for non-compliant companies to 
work with counselors at the SBDCs to become compliant and stay 
in the 8(a) program. Again we believe VA should not be taking 
anything from 8(a) programs except the underlining attitude in 
the way the 8(a) program is administered. If 98 percent of the 
veterans trying to get in the Vet First Program are not 
malicious and are just ignorant of VA's stringent requirements, 
then we should not be punishing them with a 6 month penalty for 
corrections or deletions in their bylaws that takes a merely a 
day to accomplish. VA should allow these firms to resubmit as 
many times as they want until they get their business models 
right.

    We understand that there is the R4R process that allows the 
owner to submit additional evidence and many do get verified 
after going through this process. However, the owner is faced 
with an 147 day wait to get through the R4R or he can accept 
the denial and wait 6 months (180 days). As it stands, there is 
no ways of maneuvering around a substantial waiting period 
created by VA. If the 6 month penalty is removed, then perhaps 
fewer applications will enter the R4R process, thereby 
relieving the backlog on the back end.

    16. Mr. Leghorn, your testimony also raised an interesting 
point about VA taking SBA decisions and turning them into 
bright line rules. Can you expound on that issue?

    VA has undergone a tremendous effort to root out fraud. 
They've reviewed OHA's decisions and set brightline rulings 
based off of OHA's denials. However, SBA's rulings incorporate 
into them a review of the totality of circumstances. VA claims 
that they do this but recent Federal Court of Claims decisions 
do not reflect that they do. Take KWV Inc. v United States for 
instance, VA ruled that a veteran owner removed from his 
business 6 months a year could not control his business. OHA 
had a similar case that set the precedence. However, in the OHA 
case, time zones and the fact that the owner had two other 
businesses came into play. OHA went out of their way to discuss 
that distance alone was not the deciding factor. Again, SBA 
made their ruling based off of a totality of circumstances; 
whereas VA honed in on OHA's reason for denial but not the 
circumstances in their ruling against KWV. The veteran owner of 
KWV was able to demonstrate that he kept in constant 
communication with his project managers and that because he was 
in the same time zone he was able to communication during 
business hours. The Federal Court overturned VA's decision and 
restored KWV's status.

    17. Mr. Leghorn, I understand that The American Legion is 
concerned with the growth of the Center for Veterans 
Entrepreneurship at VA. Would you give us some additional 
background on this, and talk about whether this has translated 
into better service for our veterans?

    The American Legion is very concerned with the growth of 
yet another VA claims process. As federal agencies, state 
government and even those in the private sector start asking 
for VA verification status, more and more small businesses are 
submitting applications to CVE. We do not want to see more 
internal processes grow out of the agency's guise of being more 
``thorough'' or ``streamlining the process.'' Good intentions 
can sometimes cause multiple lines where applications can get 
backlogged. The American Legion has seen this first hand with 
other VA claims processes. We do not wish this to happen to CVE 
and the verification process.

    18. As Congresswoman Herrera Beutler mentioned her opening 
statement, a copy of which is attached, there is a veteran 
business owner in her district who has been attempting to get 
certified with VA for almost four years. He has a ratings 
letter issued by the VA indicating he has a service connected 
disability, but is still not officially recognized by the 
Department of Veteran Affairs as a SDVOB. Then, after years of 
sending in information, he received a letter in January 
requesting more information on his operating agreement. The 
letter, in a very vague way, indicated the operating agreement 
between him and his partner was an issue, but gave no 
suggestions or guidance on how to correct the problem. I 
understand the VA has said of the firms founds not to qualify, 
only about 2% are turned down for reasons of fraud. That means 
98% are turned down for structural reasons. What does that say 
about the program? Are you satisfied with the effectiveness, 
efficiency, and accuracy of the VA's certification process?

    While The American Legion understands that this is 
absolutely frustrating, we have to look at this from the 
Agency's perspective as well. There are major legal issues 
associated with employees of CVE give legal advice. They can 
alert veterans to where there might be problems, but they 
cannot be liable for giving legal advice. This is why VA began 
the verification assistance program which includes verification 
counseling from a third party. The American Legion has a 
counselor on staff, whose information is listed on the Vetbiz 
website, who can help veterans amend their bylaws to get them 
compliant to the current interpretation of the regulations. The 
veterans should have been referred to a counselor.
      Marc Goldschmitt Responses to Questions for the Record from


 Subcommittee on Contracting and Workforce, Committee on Small Business


 Subcommittee on Oversight and Investigations, Committee on Veterans' 
                                Affairs


 Hearing: ``Consistently Inconsistent: Challenges for Service-Disabled 
                             Veteran-Owned


                  Small Businesses,'' March 19, 2013.


                        Submitted April 6, 2013


    Questions for the Record - Marc Goldschmitt

    If you had to provide one particulary egregious example of 
VA failing to certify a firm, what would it be?

          Picking the most egregious example of VA failing to 
        verify a firm requires evaluation and weighting of 
        factors including:

                   The emotional cost to the veteran 
                and family members

                   The financial cost to the veteran 
                and family members

                   The financial cost, including lost 
                opportunities, to the veteran's business

                   The precedence and impact of the 
                decision, action or lack of action on the 
                veteran community and businesses.

    My written testimony contained eight (8) examples of 
companies that, for different reasons, could qualify for this 
distinction. Of those eight, I consider XSIG the most 
egregious. XSIG's experience with the verification process 
included lost documentation, incomplete documentation review 
and, most significantly, a threat of prosecution.

    XSIG is a Maryland based security company. Organized as a 
``C-Corporation,'' XSIG has compliant By Laws as evidenced by 
its 8(a) certification. At the time of initial verification 
application, XSIG had a non-veteran minority owner. CVE 
demanded that XSIG submit an Operating Agreement which was 
neither required nor appropriate. After prolonged discussions, 
the owner downloaded an Operating Agreement from the internet, 
which he submitted. Prior to CVE evaluation, the minority owner 
resigned all corporate offices and relinquished all ownership 
making the SDV a 100% owner. CVE was property notified of the 
changes. CVE denied XSIG based upon the Operating Agreement 
even though the findings were no longer relevant based upon the 
ownership change. The owner sought CVE help in correcting this 
error and was told that he had to admit that the Operating 
Agreement that he submitted was incorrect. The owner was later 
notified, in writing, that he was lucky that he was not being 
prosecuted because he had submitted false information.

    2. What suggestions for aligning regulations between VA and 
SBA are most necessary?

    SBA interpretations recognize that many, if not all, 
standard have shades of gray. CVE is searching for a bright 
line for all standards where they can say there is a black and 
white yes or no. CVE's ``bright line for everything'' approach 
is unrealistic and ignores business reality, case law and 
unique ``fact patterns'' that differentiate and define a 
business' true ownership and control metrics. VA must accept a 
``shades of gray'' approach and work collaboratively with SBA 
to minimize the band where there are shades of gray and to 
provide objective metrics and standards that are predictable 
and repeatable. This will provide a basis to realistically 
evaluate and align SBA and VA regulations.

    3. Do you think that VA should be relying, in part, on 
SBA's 8(a) regulations as the basis for it verification 
program?

    No. VA should rely on SBA's SDVOSB regulations as the basis 
for its verification program. The 8(a) program is a business 
development program and has requirements well beyond the scope 
of ownership and control. VA should eliminate the adjudicative 
costs incurred for reviewing the non-applicable sections of the 
8(a) regulation and bring the verification program into a more 
affordable range for veterans and the taxpayers.

    4. One statutory difference between the VA and SBA programs 
deals with the treatment of surviving spouses. If we were to 
try to reconcile these programs, how do you think we should 
address surviving spouses of service-disabled veterans?

    A more generalized approach of business continuity should 
be addressed. The veteran's family and employees--frequently 
veterans themselves--should not be further traumatized by 
rendering the business unable to continue or compete. A 
reasonable period of between 3 and 5 years should be provided 
for the survivors to transition the business for sale, 
dissolution or continuance as a small business. This should 
include exercising of current contract options and continuation 
of veteran or service disabled veteran owned small business 
status.

    5. I understand that being verified by VA is increasingly 
important--not only is it required for VA contracts, but other 
agencies seem to be placing importance on verification, even 
though the statute doesn't require it. For example, FAA's 
regeulations now require VA verification, and an Air Force 
contract recently required VA verification. I understand that 
other agencies see it as a credential, and that prime 
contractors and states are now also requiring VA verification. 
Please address the challenge that poses to firms that operate 
under SBA's governmentwide program?

    When VA began verification, firms that were verified 
received lapel pins and were authorized to display the Verified 
Logo. These firms began using verification as a differentiator 
Government-wide. This encouraged other Government agencies and 
large prime contractors to give unwarranted deference to VA 
verifications as a means of due diligence. The result has been 
that real veterans are unfairly being denied opportunities at 
other agencies as both prime and subcontractors.

    6. During the March 19 hearing, Tom Leney stated ``I think 
that this program that the VA has established has created a 
gold standard.'' Do you believe this is correct? If not, in 
what sense is it incorrect?

    That is not correct. A gold standard is a model of 
excellence; a paragon. It is the supreme example of something 
against which others are judged or measured. Key metrics for 
establishing a gold standard for an adjudication process would 
include timeliness, trust, confidence, cost effectiveness, 
program effectiveness, predictability, repeatability, risk 
management, risk mitigation and emulation by similar 
organizations. A ``gold standard'' program would be envied and 
copied by other organizations and should be a declaration by 
stakeholders and other organizations performing similar 
adjudication functions, not a self-certification process.

    7. At the same time, Mr. Leney stated ``In the federal 
government, when people know that a firm has been verified by 
the VA, they can take it to the bank. And the results, this is 
real money to real vets, and it is a program that benefits 
veterans.'' This seems to suggest that VA expects its 
certification to be given deference at agencies other than VA, 
despite the fact that the government-wide program does not 
require VA certification. Is VA doing enough to make it clear 
to other agencies that the VA certification is to be used for 
VA contracts only?

    No. VA is not doing enough to make it clear to other 
agencies that verifications are for VA acquisitions only. As 
noted in question 5, real veterans needlessly suffer real 
economic losses and impact. By continuing to use language such 
as ``Gold Standard'' and ``Take it to the bank,'' in public 
statements and forums, VA actively promotes and encourages the 
use of verification by outside agencies and prime contractors.

    When VA began verification, firms that were verified 
received lapel pins and were authorized to display the Verified 
Logo. These firms began using verification as a differentiator 
Government-wide. This encouraged other Government agencies and 
large prime contractors to give unwarranted deference to VA 
verifications as a means of due diligence. The result has been 
that real veterans are unfairly being denied opportunities at 
other agencies as both prime and subcontractors.

    8. What effect does the lengthy and inadequate appeals 
process currently in place at VA have on small businesses' 
ability to compete for contracts?

          The lengthy appeals process delays the small 
        businesses' ability to bid and win proposals. This has 
        several lasting impacts:

                   For small businesses with limited 
                operating capital, the owner(s) may not have 
                the economic capacity to continue operations. 
                While the specific impact will vary by company 
                this always means loss of jobs and income.

                   Time to market will be delayed. This 
                is a very subtle but major impact on the small 
                business. As the business gains capacity and 
                capability to bid, win and perform contract 
                work, it achieves growth. Delaying the start of 
                this process results in significant reductions 
                in total revenue. Due to Federal buying cycles, 
                a 6 month delay can be the equivalent of moving 
                out one fiscal year. Consequently a company 
                that has successive years' revenues of $100k, 
                $500K and $1 Million would have total revenues 
                of $1.6 Million. A 6-12 month delay would 
                result in total revenue over the sam eperiod of 
                only $600K--a $1 Million dollar reduction. This 
                revenue is un-recoverable and the company will 
                see continued significant revenue reductions 
                over the subsequent years. This is illustrated 
                in the following graphic. The darker area (red) 
                represents cumulative revenues after a 1 year 
                delay. The lighter (blue) area represents the 
                significant ($1 Million) in increased revenue 
                achieved with zero delay. It also represents 
                lost revenue due to the delay in ``Time to 
                Market.''
                [GRAPHIC] [TIFF OMITTED] T0170.004
                
    99. VA's request for reconsideration takes 147 days and 
isn't heard by administrative judges, whereas SBA's appeals 
process takes 15 days and does result in a published decision 
from an administrative judge. The following questions relate to 
that disparity:

          a. How do you think the appellate process should 
        function?

                  The appellate process should review the 
                verification case file for errors in law or 
                fact as adjudicated by VA. As noted in recent 
                Court of Federal Claims cases, this would 
                require that the administrative judge assure 
                that VA findings are traceable to and properly 
                reference regulation and that those 
                interpretations are consistent with case law 
                and published VA standards.

          b. Would published decisions be an improvement?

    Yes. Published decisions are essential. The Veteran 
community and stakeholders deserve the baseline of authority, 
traceability and acceptability of published decisions.

    Traceability of findings to regulation and law is 
essential. Published decisions from Administrative Law Judges 
would provide that traceability and increase the veteran 
stakeholders' acceptance of and confidence in VA's verification 
program.

    Currently, VA publishes ``Verification Assistance Briefs 
(VAB)'' that contain excerpts from denial letters. There are 
problems with some of these VABs. For example in the Joint 
Venture VAB, the first excerpt from a denial letter references 
terms in the findings that are not included in either 38 CFR 74 
or 13 CFR 121 regarding SDVOSB JVs. One VAB introduces the new 
term ``Full time Control'' which does not have any regulatory 
reference or definition.

    A disclaimer included in CVE's Verification Assistance 
Briefs further highlights the need for published administrative 
law decisions. This disclaimer is ``This information has been 
provided by CVE for general informational purposes and should 
not be construed as providing legal advice. You should contact 
your attorney to obtain advice with respect to any particular 
issue or problem. In addition, CVE makes no representation as 
to the accuracy or whether the above information is currently 
up-to-date. (emphasis added) All applicants must read the 
applicable regulations and determine how best to meet these 
requirements. The VAB's do not constitute legal notice or 
replace the regulations.''

          c. Is there a reason to use administrative judges who 
        are independent of the verification process?

                  Yes. The current process has unpredictable 
                outcomes. Administrative judges who are 
                independent of the verification process are 
                essential to assuring that the verification 
                standards and processes converge to repeatable, 
                predictable outcomes that are consistent with 
                statute and regulation(s).

    10. If 48 percent of VA's requests for reconsideration are 
granted, does that indicate a problem with the initial 
determination process?

    A 48 percent R4R approval rate indicates that there may be 
significant benefit to implementing and expanding the planned 
pre-determination process.

    Of greater significance is the 52% denial rate of denial 
for R4R applicants. As described in question 14, the extremely 
low rate of fradulent companies means that annually between 
1200 and 1500 legitimate companies are being denied. VA should 
take on a proactive advocate role and redirect funds and effort 
to providing earlier assistance to companies seeking 
verification.

    Currently non-profit Verification Assistance Partners 
(VAPs) support some of the efforts to assist companies prepare 
documentation for the verification process. Verification 
Assistance Counselors providing this assistance are doing so as 
a collateral duty. This limits the availability of support. 
Providing grant funding to the non-profits currently engaged as 
Verification Assistance Partners will allow those organizations 
to deploy full time verification assistance counselors which 
will result in higher initial verification rates, a 
significantly reduced CVE budget requirement and faster 
verification cycle times.

    11. When VA published the current rule governing 
verification, it stated ``VA estimates the cost to an 
individual business to be less than $100.00 for 70-75 percent 
of the businesses seeking verification, and the average cost to 
the entire population of veterans seeking to become verified is 
less than $325.00 on average.'' 76 Fed. Reg. 3022 (2011). Does 
that comport with your experience?

    That does not comport with my experience. Prior to 
implementation of PL 11-275, average costs for initial 
verification exceeded $5,000.00 and $7,500 if the company 
appealed. My experience is that, post PL 111-275 implementation 
that the costs to small businesses to prepare and submit 
verification paperwork is in the thousands or tens of thousands 
of dollars and that these costs are increasing. In addition the 
verification program has significant indirect and hidden costs 
to veteran businesses.

    All small businesses working with the Federal Government 
face significant challenges for start-up, growth and, often, 
sustainment. Congress' intent to increase opportunities for 
veteran businesses is undermined when excessive business 
resources are expended on non-value added exercises.

    From the verification program's inception, costs were 
frequently anecdotal. Identifying the true costs and benefits 
to businesses of VA's verification program is important for 
Congress and the veteran community to measure the success of 
the Veterans First program. Quantification of true costs and 
benefits is also essential to determine how effectively VA is 
allocating resources for their verification processes. Question 
15 addresses this issue in more detail.

    In early CY 2011, Bob Hesser and I, for the VET Force, 
conducted a survey that included cost estimates from businesses 
that had completed the verification process. The survey sought 
to quantify costs that companies incurred in preparing and 
submitting documentation required by VA. Companies reported a 
wide variance of costs from under $1000 to over $50,000. We 
reviewed ``outliers'' such as the $50,000 claim and determined 
them to be valid. These costs only included direct costs such 
as labor and legal fees. The average direct cost was in excess 
of $5,000. For companies that requested reconsideration, the 
average cost was in excess of $7,500.

    Costs to the veteran community and VA for verification 
processing are rapidly increasing. Additional information is 
needed to quantify the efficacy of the evolving verification 
processes and provide feedback to VA to eliminate, or at least 
minimize, non-value added activites.

                   Since the VET Force survey, the 
                intensity and complexity of the verification 
                process have grown significantly, which can 
                dramatically increase the direct costs for 
                verification and Requests for Reconsideration. 
                I expect these average costs to more than 
                double with potential increases of an order of 
                magnitude for many companies.

                   Since implementation of PL 111-275 
                the lengthy verification processes have 
                precluded companies from competing for Veterans 
                First opportunities. This has associated direct 
                and indirect cost implications.

                   The ``Fast Track'' program had 
                erroneous and/or avoidable denials that cost 
                real veteran businesses, real dollars for real 
                programs where they were the best value to the 
                VA. The avoidable denials refer to businesses 
                that had received incomplete findings and/or 
                had been in the CVE ``black hole'' for as long 
                as two years or more, during which time 
                deficiencies could have been fully corrected.

    The most significant costs, however, are the costs of lost 
revenue due to ``Time to Market'' impacts as discussed in my 
response to question 8.

    12. VA recently announced that it would add a pilot pre-
determination program that would occur before the initial 
verification program. While few would disagree that the program 
could stand streamlining, some have suggested that this will 
simply add a third hoop for our veterans to jump through. Is 
this a reasonable concern?

    The pre-determination program moves the hoop for some 
companies that would otherwise be denied. For those companies, 
it replaces a 147 day Request for Reconsideration period with a 
five day process that will allow these companies to receive 
their verification decisions four to six months earlier. In 
these cases, companies that benefit from the pre-determination 
process will realize significant increased revenue potential 
due to the ``Time to Market'' impact addressed in responses to 
questions 8 and 12. This will ultimately result in significant 
benefit the veteran community.

    The overall impact to verification outcomes where 
approximately 20% to 25% of applicant companies are ultimately 
denied is unclear. These companies are provided a 30 day 
``second chance'' window but are not successful in overcoming 
VA identified deficiencies. This low success rate in a 30 day 
window raises concerns for how effective the pre-determination 
process will be with its five day window.

    Recent changes in VA interpretations such as Transfer 
Restrictions will skew statistics making it difficult to 
distinguish between improvements due to pre-determination and 
changes in interpretations. As VA moves forward with its pilot 
pre-determination, it will be beneficial to identify if pre-
determination activities could be moved earlier in the process 
and if additional items could be included in the pre-
determination process. More importantly, the pilot pre-
determination program could provide important information for 
the value of shifting VA's verification program from an 
adversarial ``Gotcha'' philosophy to a more collaborative ``Get 
to Yes'' approach.

    13. Each time VA reorganizes its verification process, it 
seems to add employees and spend more money, with little 
improvement for our veterans. Please provide your thoughts on 
what the pre-determination program will mean in terms of costs 
and staff.

    The pre-determination program will increase workloan 
demands and will therefore increase costs and staff 
requirements required for initial verifications. VA states that 
Requests for Reconsiderations (R4R) are handled through VA's 
Office of General Counsel, therefore, I assume, the probable 
decrease in the number of R4R's will have little or no impact 
on CVE costs and staffing. I estimate that CVE cost and 
staffing will increase by 5% to 10%. This presumes a continued 
rate of 5,900 cases per year with approximately 20% (1200 
cases) eligible for pre-determination and use of CVE's current 
multiple level review processes for the pre-determination 
reviews. Using historical denial and final denial rates, this 
also means that each year, the veteran community will continue 
to experience final denials for approximately 1200 legitimate 
companies. Hopefully, the pilot pre-determination effort will 
demonstrate that structured dialog with applicant companies 
will result in:

                   better understanding of the 
                requirements,

                   better understanding of the 
                standards,

                   fewer initial and final denials and

                   evidence that earlier, more frequent 
                dialogue and collaborative efforts will result 
                in dramatically lower program costs and 
                significantly improved outcomes.

    14. There is consensus that contracts intended for service-
disabled veteran-owned small businesses should go only to 
service-disabled veteran-owned small businesses. The following 
questions address the prevention of fraud.

          a. VA has said that of the firms found not to 
        qualify; only about 2% are turned down for reasons of 
        fraud. That means 98% are turned down for structural 
        reasons. What does that say about the program?
                  The 2% appears to be too high by several 
                orders of magnitude. This implies that the 
                program is using arbitrary statistics in an 
                attempt to justify its significant program 
                costs and extreme interpretations. According to 
                recent testimony, in FY 2012, VA adjudicated 
                5,900 companies. An unspecified number of cases 
                are referred to the Office of Inspector General 
                (OIG) and VA has not provided statistics on the 
                number of referred companies or the number of 
                companies investigated and found to be 
                fraudulent. The only available reference is 
                from VA's website which lists only four 
                identified cases that cover a two year period. 
                This represents a statistic that is closer to 
                0.02% (two one hundredth's of one percent).

          b. SBA's self-certification model has been criticized 
        for leaving the door open to fraud. Is that the case, 
        and how can we improve that process?

                  Where there is money involved, there will be 
                fraud. The Veteran Community has been ``self-
                policing'' since the beginning of the program 
                and this has resulted in numerous successful 
                protests, indictments and convictions. Many of 
                these ``bad actors'' continue to self-certify 
                and may receive continued contract wins.

                  A simple solution is to have the ``Service 
                Disabled Veteran Owned Small Business'' 
                declaration field in the System for Awards 
                Management (SAM) managed by SBA. Any firm found 
                to be ``Other than SDVOSB'' by SBA would have 
                its SDVOSB designation changed by SBA until the 
                company could demonstrate that it is fully 
                compliant with 13 CFR 125. This would capture 
                the benefits of self-certification while 
                eliminating many of the objections to self-
                certification.

          c. Does the timing of VA's verification pose 
        challenges? Specifically, since VA's program looks 
        primarily at a company before the company is bidding on 
        a contract, does it leave open the door to a verified 
        company getting a contract, and then just passing the 
        work through to another company?

                  The timing of VA's verification may pose 
                minor challenges. Typically, successful small 
                businesses will invest resources in developing 
                customer relationships at the Prime and Agency 
                levels. This provides strategic visibility to 
                the Agency and prime requirements, which would 
                include sufficient lead-time to prepare for and 
                receive VA verification.

                  Some businesses new to the Government space 
                or new to VA may be in a position to 
                participate in teams bidding near term 
                opportunities. If the prime needs specific, 
                unique corporate capabilities, the small 
                business can still participate in the bid as a 
                small business.

                  Challenges arise when Prime contractors are 
                assembling teams 12-18 months before 
                anticipated RFP release. Frequently, these 
                primes will only accept companies that have 
                already received verification and will solidify 
                the team before an applicant can go through the 
                verification process.

    15. In your testimony, you refer to VA's approach as risk-
avoidance. Can you explain what you mean? If VA were to back 
away from this approach, it could mean that potentially 
unqualified firms would be verified. When do you consider this 
an acceptable risk?

    It is an acceptable risk now.

    Risk avoidance is a risk management technique that seeks to 
eliminate any possibility of risk through hazard prevention, or 
the discontinuation of activities determined to entail any 
level of risk. It is often used in extreme situations where the 
risk exposure creates an extraordinary liability potential.

    In the context of VA verification, risk avoidance means 
that VA is willing to preclude any possibility of a non-veteran 
company at the potential expense of excluding many legitimate 
businesses. This carries a high cost to VA perform 
verification, a high cost to industry to prepare for 
verification, a high cost to industry in lost revenue and 
opportunities. The current verification process has not 
identified sufficient numbers of fraudulent companies to 
justify the additional cost. This VA business model is not 
sustainable or affordable for either VA or industry.

    Veteran community self-policing and penalties for 
misrepresentation will help reduce and minimize this risk. VA 
stakeholder feedback is required to validate the acceptability 
of this risk.

    16. As a verification assistance counselor who helps aid 
service-disabled veteran small business owners through the VA 
verification process, can you explain the process to becoming a 
verification assistance counselor and why they are needed?

    No. As a verification counselor, I review the company 
profile, ownership, governance, management and operations with 
business owners. The processes and rational for the processes 
is evolving and are not relevant to the role that the 
verification assistance counselor plays. A verification 
assistance counselor assists a company in preparing and 
evaluating documentation required for submission to CVE. This 
requires that the verification assistance counselor be 
knowledgeable of the standards and criteria that CVE uses to 
examine and evaluate documentation and address governance 
issues in the documentation that may not meet either regulatory 
requirements or CVE interpretations.

    17. Further, in light of your training, you've become 
intimately acquainted with why the VA requires certain 
materials in order to get certified and your testimony brings 
out concerns you have with this, specifically that some of it 
may be unprotected or excessive. Can you elaborate on these 
concerns?

    Excessive

    VA training for counselors focuses on the process steps and 
describes how documentation goes through multiple levels of 
review. The training does not discuss in sufficient detail how 
or why specific documents are required or used. Training 
briefly reviews how documentation is stored and accessed for 
review.

    Training material refers to the documentation that is 
required. This information is published on the VA/CVE website 
at https://www.vip.vetbiz.gov/Public/Register/
DocumentList.aspx. On this page, users can view CVE 
documentation requirements for six different types of business 
organizations. These lists contain excess documentation 
requirements. In addition, several of these lists are 
incorrect. Areas where the lists are incorrect overlap 
excessive documentation requests.

    Examples of excessive requests

                   Limited Liability Companies, Sole 
                Proprietorships, Limited Liability Partnerships 
                and General partnerships

                            are precluded by state laws from 
                        issuing stock, yet CVE lists stock 
                        certificates and stock registers as 
                        requirements for documentation 
                        submission.

                            Do not have By Laws, they have 
                        Operating Agreements, yet CVE requires 
                        both Operating Agreements and ByLaws

                            Cannot have shareholders and 
                        therefore cannot have shareholder 
                        agreements, yet CVE requires 
                        submission.

                   Personal income taxes including 1040 
                and K-1's are redundant and invasive. 
                Information required for determination of 
                corporate distributions, an indicator of 
                relative ownership percentages, is contained in 
                the corporate return with its K-1's. For a sole 
                proprietorship, all distributions are on 
                Schedule C of the 1040 which by default would 
                indicate that the veteran owns 100%. For 
                purposes of determination and ownerhsip

                   Affiliation documentation. 
                Affiliation is a size determination issue which 
                is outside of the authority of PL 109-461. When 
                CVE finds a possible ``affiliation'' CVE 
                requires corporate income taxes and personal 
                income tax documentation from all owners of all 
                ``affiliated compares. Affiliation through 
                common ownership or management requires taht an 
                entity--in this case the veteran--control both 
                companies. Lack of understanding of these SBA 
                regulations and misapplication of the 
                terminology and concept of affiliation has 
                created excessive demands for documentation

    Examples of data protection issues

                   Continued concerns of lost 
                documentation

                   Lack of ``Need to Know''

                   Traceability to who accessed a 
                document and how it was used.

                   Availability of Payroll data. As we 
                look at

    18. Your testimony illuminates concerns that other 
agencies, although they are not supposed to; have begun using 
CVE certification as a standard. How often have you seen this 
occurring?

    I have directly observed this at several small business 
conferences and matchmaking events. Daily, I read one or more 
postings on social collaboration sites and forums that address 
this concern.

    19. Mr. Goldschmitt, you recommended have the Office of 
Hearings and Appeals hear all service-disabled veteran appeals. 
What do you think are the advantages of unifying the appeals 
process?

    Unifying the appeals process will provide checks and 
balances similar to the separation of powers within the 
Executive, Legislative and Judicial branches. A unified appeals 
process will facilitate the convergence of interpretations of 
common SBA SDVOSB and VA verification requirements. It will 
provide an opportunity to utilize SBA's history of case law and 
the subtleties that occur with different ``fact patterns.'' It 
will assist the Veteran Community is establishing viable 
business models that allow common business practices that 
support practical governance, investment, financing, human 
resources and other factors that foster growth and 
profitability.

    20 Mr. Goldschmitt, you recommended aligning the 
regulations that SBA and VA rely upon. Even if we use exactly 
the same words, how would we insure that we have the same 
interpretations?

    Interpretations are based upon statute, regulation, policy, 
knowledge and experience. The training and experience of VA 
adjudicators and SBA adjudicators will vary between agencies as 
well as within agencies. Using the same words, will provide a 
basis for establishing consistent interpretations. Common 
training and case law will facilitate the convergence of 
interpretations and provide an understanding of the nuances 
associates with different fact patterns.
    Subcommittee on Contracting and Workforce, Committee on 
Small Business

    Subcommittee on Oversight and Investigations, Committee on 
Veterans' Affairs

    Hearing: ``Consistently Inconsistent: Challenges for 
Service-Disabled Veteran-Owned Small Businesses,'' March 19, 
2013.
    Questions for the Record - Jonathan Williams

    1. If you had to provide one particularly egregious example 
of the VA failing to certify a firm, what would it be?

    We had one case that involved multiple rounds of denials, 
reconsideration requests, and back-and-forth with the VA OGC. 
The issues were not particularly complex, but it took over one 
year to resolve and several thousand dollars for the company.

    2. What suggestions for aligning regulations between the VA 
and the SBA are most necessary?

           The VA and the SBA should permit reasonable 
        transfer restrictions on veteran ownership

           The VA should not require SDVOSB joint 
        ventures to be separately verified by the CVE--perhaps 
        simply review the joint venture agreement within a 
        certain amount of time prior to contract award, similar 
        to how the SBA handles approval of 8(a) joint ventures. 
        8(a) firms do not have to go through a second 8(a) 
        application process for the joint venture. They just 
        submit the joint venture approval paperwork within 20 
        days of when the award is expected to be made.

           The VA's rules should be scrubbed to remove 
        rights to decide affiliation/size issues without going 
        to the SBA, and to remove the provision that allows the 
        VA to use the principal of control through affiliation 
        to find that a veteran does not control his business. 
        The SBA's OHA found in its Dooley Mack decision that 
        control in the context of affiliation is different than 
        veteran control, and OHA specifically rejected the 
        SBA's use of the precise language that is in the VA's 
        regulations that mixes the two control concepts.

           The VA's regulations require the veteran to 
        be the highest compensated, while the SBA's SDVOSB 
        rules do not. The same is true for the VA's requirement 
        to have a veteran as the full-time manager of the 
        company, which is not found in the SBA's rules.

           The SBA has published its standard operating 
        procedures (``SOP'') for the 8(a) Program, which is a 
        useful tool for firms and practitioners to understand 
        the inner workings of the 8(a) Program. A similar SOP 
        for the VA's SDVOSB program would help to lessen the 
        confusion many firms experience in seeking to 
        understand and use the program.

           The VA could offer an appeal process similar 
        to what is currently available through the SBA, or the 
        VA could simply use the SBA's appeal process as is 
        envisioned in the VA's rules but has not been realized 
        due to the lack of the interagency agreement

           The VA could specify a certain time period 
        during which contract awards will not be terminated 
        while the veteran has an opportunity to challenge an 
        adverse finding as to his SDVOSB eligibility.

    3. Do you think that the VA should be relying, in part, on 
the SBA's 8(a) regulations as the basis for its verification 
program?

    I don't think it is necessarily wrong for the VA to pattern 
its rules after some of the 8(a) rules if the agency believes 
this is the best way to establish and enforce its views on 
program eligibility. I do not see a statutory conflict with the 
VA doing this. However, from a practical standpoint, the VA's 
cherry-picking of some regulations from the SBA's SDVOSB rules, 
and others from the SBA's 8(a) rules, has created a lot of 
confusion because it gives veterans two sets of similar, but 
different, rules with which to comply.

    4. One statutory difference between the VA and the SBA 
programs deals with the treatment of surviving spouses. If we 
were to try to reconcile these programs, how do you think we 
should address surviving spouses of service-disabled veterans?

    This seems like a nice benefit or advantage of the VA 
program, but I am not sure how often it is used. I never have 
seen it used.

    5. I understand that being verified by the VA is 
increasingly important--not only is it required for VA 
contracts, but other agencies seem to be placing importance on 
verification, even though the statute doesn't require it. For 
example, FAA's regulations now require VA verification, and an 
Air Force contract recently required VA verification. I 
understand that other agencies see it as a credential, and that 
prime contractors and states are now also requiring VA 
verification. Please address the challenge that poses to firms 
that operate under the SBA's government-wide program.

    Firms are forced to protest when these regulations are 
mistakenly put into RFPs, which costs them money, slows down 
the procurement process, and clogs the protest system. In 
addition, firms may lose out on work with primes that require 
CVE certification, when the primes could rely on self-
certification.

    6. During the March 19 hearing, Tom Leney stated ``I think 
that this program that the VA has established has created a 
gold standard.'' Do you believe this is correct? If not, in 
what sense is it incorrect?

    No, I do not believe this is correct. As our testimony and 
answers reflect, and as Mr. Leney acknowledged during his 
testimony, there continue to be a number of shortcomings in the 
program that are making it too difficult for legitimate SDVOSBs 
to benefit from the program as intended.

    7. At the same time, Mr. Leney stated ``In the federal 
government, when people know that a firm has been verified by 
the VA, they can take it to the bank. And the results, this is 
real money to real vets, and it is a program that benefits 
veterans.'' This seems to suggest that the VA expects its 
certification to be given deference at agencies other than the 
VA, despite the fact that the government-wide program does not 
require VA certification. Is the VA doing enough to make it 
clear to other agencies that VA certification is to be used for 
VA contracts only?

    I do not know what the VA is doing in this regard, but the 
anecdotal evidence from my fellow panel members and my clients 
suggests that the VA is not doing enough. Many other agencies 
and prime contractors believe CVE verification is necessary 
when it is, in fact, inapplicable.

    8. What effect does the lengthy and inadequate appeals 
process currently in place at the VA have on small businesses' 
ability to compete for contracts?

    While in limbo, small businesses lose or cannot win 
contracts, so this has a big impact. Many firms have lost 
contracts because of easily correctable issues in their 
corporate records or because of administrative errors. 
Currently, VA contracting officers are not required to wait for 
a decision on a pending reconsideration request or appeal 
before moving on from an initial award decision. Some SDVOSBs 
have been successful in preserving a contract award after an 
adverse eligibility ruling because they had the resources to 
file for an injunction or the contacts with the right people 
within the VA. But for too many SDVOSBs, the contract is lost.

    9. The VA's request for reconsideration takes 147 days and 
isn't heard by administrative judges, whereas the SBA's appeals 
process takes 15 days and does result in a published decision 
from an administrative judge. The following questions relate to 
that disparity:

          a. How do you think the appellate process should 
        function?

          The appellate process should function similar to 
        OHA--quicker, with a review by an Administrative Judge, 
        and a public decision.

          b. Would published decisions be an improvement?

          Yes. Currently, in terms of the legal effect of the 
        VA's decisions, there is no precedential value to the 
        VA's rulings. And because the VA's decisions are not 
        publicized, there is no informational or instructive 
        value, either. Conversely, OHA decisions can set 
        precedent for the SBA and are instructive for firms in 
        understanding how the SBA is applying its rules and how 
        to maintain eligibility. If the VA published its 
        decisions, veterans and their representatives would be 
        much more knowledgeable about the VA's interpretations, 
        regulations, precedent, and guideposts.

          c. Is there a reason to use administrative judges who 
        are independent of the verification process?

          Yes, the review is independent so, if nothing else, 
        it gives the appearance of being unbiased and a fresh 
        perspective.

    10. If 48 percent of the VA's requests for reconsideration 
are granted, does that indicate a problem with the initial 
determination process?

    Yes. This is a symptom of the ``deny first, ask questions 
later'' approach. Since 2011, over 60% of our reconsiderations 
were based on easily correctable issues in the veterans' 
corporate records.

    11. When the VA published the current rule governing 
verification, it stated ``VA estimates the cost to an 
individual business to be less than $100.00 for 70-75 percent 
of the businesses seeking verification, and the average cost to 
the entire population of veterans seeking to become verified is 
less than $325.00 on average.'' 76 Fed. Reg. 3022 (2011). Does 
that comport with your experience?

    No. The cost for an attorney to prepare the corporate 
records required to go through the VA's certification will vary 
depending on the complexity of the corporation, the number of 
owners, and what they are trying to accomplish. But in almost 
all cases, you are talking about an amount in the thousands of 
dollars, not hundreds.

    12. The VA recently announced that it would add a pilot 
pre-determination program that would occur before the initial 
verification program. While few would disagree that the program 
could stand streamlining, some have suggested that this will 
simply add a third hoop for our veterans to jump through. Is 
this a reasonable concern?

    This is a legitimate concern, and proof will be in the 
pudding, but on balance I like the idea of the pre-
determination program because it has the potential to avoid 
unnecessary reconsideration requests, which should in turn 
speed up the reconsideration process. The sooner veterans can 
cut to the chase about perceived issues in the application and 
have change to correct them, the better.

    13. Each time the VA reorganizes its verification process, 
it seems to add employees and spend more money, with little 
improvement for our veterans. Please provide your thoughts on 
what the pre-determination program will mean in terms of costs 
and staff.

    I do not have any insights on this, other than I would 
imagine that to do it right, the pre-determination stage will 
require some additional costs. But I would think the VA could 
accomplish this with its existing workforce by having them 
devote more time upfront to flagging these issues.

    14. There is consensus that contracts intended for service-
disabled veteran-owned small businesses should go only to 
service-disabled veteran-owned small businesses. The following 
questions address the prevention fraud.

          a. The VA has said that, of the firms found not to 
        qualify, only about 2% are turned down for reasons of 
        fraud. That means 98% are turned down for structural 
        reasons. What does that say about the program?

          That the pendulum has swung too far in the direction 
        of creating barriers to entry, and we are too focused 
        on keeping veterans out at the expense of trying to 
        help them get in.

          b. The SBA's self-certification model has been 
        criticized for leaving the door open to fraud. Is that 
        the case, and how can we improve the process?

          That is the perception, but I am not sure it is 
        reality. I am not sure a flawed application process is 
        any better than self-certification at preventing fraud. 
        Perhaps something like the WOSB program would be a more 
        manageable middle ground. The WOSB program is neither a 
        complete self-certification nor upfront verification 
        program.

          c. Does the timing of the VA's verification pose 
        challenges? Specifically, since the VA's program looks 
        primarily at a company before the company is bidding on 
        a contract, does it leave open the door to a verified 
        company getting a contract, and then just passing the 
        work through to another company?

          VAAR 852.219-10 specifies subcontract limitations 
        similar to FAR/SBA rules. This is the mechanism through 
        which the VA should hold firms accountable for 
        performance of work requirements. Once the firm is 
        verified, I think the focus shifts to the contracting 
        departments since compliance with the limitations on 
        subcontracting is a matter of contract administration. 
        I have seen more performance of work audits on our 
        clients' contracts, but this remains an area that 
        generally does not seem to get much focus, at the VA 
        and other agencies.

    15. The following questions relate to the recent Court of 
Federal Claims decision in Miles Construction, LLC v. United 
States, No. 12-597C (Fed. Cl. 2013). As I understand it, before 
Miles, the VA had a blanket prohibition on transfer 
restrictions, while the SBA's Office of Hearings and Appeals 
prohibited some transfer restrictions and allowed others 
depending on the wording of the agreements. When Miles 
challenged the VA's rule, the VA tried to argue the Office of 
Hearings and Appeals' cases, and the court rejected this 
argument. Now we have a case where the VA will have a blanket 
rule permitting transfer restrictions, while the SBA will still 
have its case-by-case basis for assessing these agreements.

          a. First, can you think of cases where transfer 
        restrictions should be found to lead to the loss of 
        control?

          Yes, such as when the transfer restrictions give the 
        minority partner too much control or are onerous or 
        non-customary (e.g., the transfer restrictions at issue 
        in the OHA decision, International Logistics, which 
        gave the minority owners the right of first refusal to 
        buy the veteran's stock at a price well below fair 
        market value).

          b. Second, since the SBA's rules on transfer 
        restrictions also apply to whether a firm is a small 
        business, aren't we risking a situation where the VA 
        will find that a firm qualifies, only to potentially 
        have the SBA find that the firm is no longer small?

          That seems like a somewhat remote possibility, but in 
        theory, yes, you could have the SBA find affiliation 
        based on a transfer restriction that gives a minority 
        owner negative control, yet the VA would apparently no 
        longer care about the transfer restriction in terms of 
        SDVOSB eligibility.

          c. Third, does the Court of Federal Claims' decision 
        illustrate the problem of using different statutory and 
        regulatory schemes for these two programs?

          Yes, absolutely! Two inconsistent results.

          d. Finally, I believe the Miles case also speaks to 
        the lack of due process provided to service-disabled 
        veteran businesses under the Administrative Procedures 
        Act. Could you address that as well?

          The VA's protest rules are very bare-bonded and I do 
        not think they were intended to last this long. They 
        clearly envision that the SBA would handle all size and 
        SDVOSB appeals, once an interagency agreement was 
        reached. But we are still waiting for the interagency 
        agreement. In the meantime, the VA's rules provide some 
        basic provisions for handling SDVOSB eligibility 
        protests, but they are not as well thought out as the 
        SBA's rules. So, there are gaps such as the one that 
        the judge discussed in Miles that led to due process 
        concerns. If the VA is not going to turn over the 
        protest handling to the SBA under the interagency 
        agreement as envisioned, the VA's protest rules should 
        be improved.

    16. In your testimony, you recommend that the SBA handle 
all size and affiliation inquires. I think if you ask the VA, 
it will say that it is already deferring to the SBA on these 
issues. Do you think that is the case?

    Net in my experience, no. Their rules allow them to deny 
applications for size issues and to find the veteran does not 
control based on affiliation. A VA rule allows the CVE to deny 
an application if the CVE determines that a concern does not 
qualify as small, even if the SBA has not issues a size ruling 
for that firm (38 C.F.R. Sec. 74.13(d)). Under this rule, a 
firm whose application is denied because of a size ruling by 
the CVE may subsequently request a formal size determination 
from the SBA, but the firm would have to file a new application 
with the CVE after receiving a size determination from the SBA. 
In this way, the CVE is able to perform size analyses that 
should be left to the SBA.

    In fact, OHA has found that the standard for veteran 
control under the SBA's SDVOSB regulations is not the same as 
the standard for control under the SBA's small business 
affiliation rules. In DooleyMack Gov't Contracting, LLC, SBA 
No. VET-159 (2009), the SBA had concluded that a veteran did 
not control his company because ``business relationships exist 
which cause such dependence that [the veteran] cannot exercise 
independent business judgment without economic risk.'' This SBA 
conclusion, which OHA rejected, is nearly identical to the VA's 
regulation at 38 C.F.R. Sec. 74.4(i)(4). OHA overturned the 
SBA's analysis because the judge found that the SBA had 
confused the affiliation control principles under 13 C.F.R. 
Sec. 121.103 with the veteran control principles under 13 
C.F.R. Sec. 125.10. That same confusion is evidenced in 38 
C.F.R. Sec. 74.4(i)(4), which ostensibly addresses veteran 
control but reads like an SBA affiliation rule from 13 C.F.R. 
Sec. 121.103.

    17. You also mentioned that the SBA and the VA treat joint 
ventures differently. Can you explain how that plays out, and 
why it matters?

    The SBA does not require approval of the joint venture, 
while the VA requires the joint venture to go through its own 
verification process. Joint ventures are not supposed to be 
ongoing entities; they are supposed to be limited ventures 
formed for a particular contract. This is almost impossible to 
do when you have to get the joint venture verified through the 
CVE since the process usually takes several months. By the time 
you get your joint venture through the CVE, the contract 
opportunity would have already come and gone. As a result, we 
have only ever handled one or two SDVOSB joint ventures at the 
VA, and in one case it was for an ongoing joint venture. The 
VA's approach forces firms to have ongoing joint ventures that 
are a potential ground for affiliation under the SBA's rules. 
And the VA's approach makes it too difficult to use a joint 
venture, so many veterans are missing out on this useful tool.

    18. In your testimony, you recommend consolidating the two 
regulatory schemes into one with regulations and appeal process 
similar to that which is currently available at the SBA. How 
would you envision that happening?

    I think you would look to merge the two sets of rules into 
one, keeping some parts of both, but using the SBA's rules as 
the starting point. The CVE could continue to verify firms 
using the new consolidated rules, at least until it could be 
figured out how to get the entire program under one roof. By 
using the SBA's rules as the starting point, there would be a 
clear appellate process for veterans.

    19. Mr. Williams, how can the VA streamline the application 
process through the Center for Veterans Enterprise (CVE) to 
make it less burdensome and duplicative for veterans?

    Try to issue only one denial letter covering all reasons 
for denial, so firms will not have to endure multiple rounds of 
reconsideration. Work more with veterans through steps like the 
new initial screening stage to allow the veterans to fix issues 
and become eligible without having to go back to square one. 
Figure out a better way to ensure that correspondence reaches 
veterans so they do not get terminated from the program without 
having an opportunity to respond. Extend the re-verification 
timeline by another year, or consider eliminating it all 
together. Once a firm gets into the 8(a) program, it must make 
some annual showings, but it is not required to essentially re-
apply every year or two years like the VA's re-verification 
process. Firms are obligated to notify the VA about changes, so 
it is unclear why the VA forces firms to basically reapply 
every couple of years. Also, counsel the onsite investigators 
and the CVE reviewers not to make veterans feel like they are 
guilty until proven innocent.

    20. Mr. Williams, in your testimony you state how the VA 
uses a ``deny first and ask questions later'' approach to the 
application process. In your experience, how many veterans 
would you say, approximately, become dejected and simply cease 
their pursuit of contracts they should rightfully have the 
opportunity to pursue?

    I worked with one firm that gave up on the process, one 
firm that almost gave up when their reconsideration requests 
dragged on for over one year, and I am currently working with a 
firm that is close to giving up based on some very poor 
experiences with an onsite investigator. Given these anecdotal 
experiences, I would have to assume there are a significant 
number of veterans who have abandoned the program and contract 
opportunities because it is too difficult to get into and stay 
in the program.
[GRAPHIC] [TIFF OMITTED] T0170.005

    0Enclosure

    Subcommittee on Contracting and Workforce, Committee on 
Small Business

    Subcommittee on Oversight and Investigations, Committee on 
Veterans' Affairs

    Hearing: ``Consistently Inconsistent: Challenges for 
Service-Disabled Veteran-Owned Small Businesses,'' March 19, 
2013

                 Responses to Questions for the Record


                       William B. Shear, Director


              Financial Markets and Community Investment,


                    Government Accountability Office


    1. Your written statement focused on your January 14th 
report on the VA verification program. However, it's my 
understanding that the scope of this report changed over time. 
Can you tell us about that evolution, and why it was necessary?

    When we began our work in February 2012, we initially 
considered reviewing a sample of applications for verification 
to assess how consistently the Department of Veterans Affairs 
(VA) applied its guidelines and the timeliness of the 
verification process. However, because VA introduced 
significant changes to its procedures and operations in 2012, 
we determined that evaluating VA's compliance with its past 
procedures would be of limited value and that testing the 
effectiveness of verification procedures that were still 
evolving would be premature. We also found that the 
verification program's data system did not provide the 
information that we would need to analyze the timeliness of the 
verification process. As a result, we focused instead on issues 
related to planning for and designing the verification program 
and on changes in the program's management and operations.

    2. GAO stated that VA had 28 employees and 174 contractors 
assigned to verification. What have been the resulting 
challenges from relying so heavily on contractors?

    While we did not look specifically at the challenges from 
relying so heavily on contractors, our work identified three 
key issues facing the verification program related to its use 
of contractors. First, we reported in January 2013 that the 
verification program's data system did not meet VA's needs for 
assigning and monitoring the progress of applications.\1\ As a 
result, the contractor that initially examines applications 
relied on a separate workflow management system, which is 
inefficient and increases the risk that data will not be 
completely or accurately recorded across systems. Second, VA 
initially did not have a standardized approach to training 
verification program employees and contractors. To help address 
this challenge, VA began taking steps in December 2011 to 
improve training, such as hiring the first training officer for 
the verification program and revising the training program. 
VA's initial strategic plan for the verification program 
identified improving training as an ongoing focus for 2013. 
Third, while VA began taking some steps in 2012 to improve its 
oversight of the quality of the work produced by some its 
contractors, the agency lacked metrics that it could use to 
monitor the quality and consistency of work produced by the 
contractors that perform examinations and site visits.
---------------------------------------------------------------------------
    \1\ GAO, Veteran-Owned Small Businesses: Planning and Data System 
for VA's Verification Program Need Improvement, GAO-13-95 (Jan. 14, 
2013).

    3. GAO staTed that VA had made a number of changes intended 
to improve the verification program since December 2011. But it 
also stated that before VA could expand operations for a 
government-wide program, it would need to demonstrate that the 
recent changes have resulted in operational improvements and 
that its new efforts to educate applicants have been effective. 
Why weren't you able to determine whether the recent changes 
---------------------------------------------------------------------------
have been effective?

    During the period of our study--February 2012 to January 
2013--the changes that VA introduced beginning in December 2011 
were still being implemented or had not been in place long 
enough for us to evaluate their results. However, as we 
reported in January 2013, VA could strengthen its efforts to 
improve its management and oversight of its verification 
program by taking additional actions.\2\ First, in its initial 
strategic plan, VA had not established quality and outcome 
measures that it could use to assess the verification program's 
performance over time. Second, the program's data system lacked 
data fields and reporting capabilities that VA needed to 
monitor program trends and staff performance. By developing 
performance measures and addressing the shortcomings in its 
data system, VA would be in a better position to assess the 
effectiveness of its recent changes to the verification process 
and to determine whether additional actions are needed.
---------------------------------------------------------------------------
    \2\ GAO-13-95.

    4. GAO has done previous reports on both SBA's and VA's 
certification and verification programs, and both indicated 
problems with fraud. Could you tell us more about the 
---------------------------------------------------------------------------
challenges you found?

    The Small Business Administration (SBA) and VA have taken 
various actions in response to deficiencies we identified in 
their certification and verification programs, but both 
continue to face challenges in establishing internal controls 
that provide reasonable assurance against program fraud and 
abuse. For example, in June 2008, we reported that the 
mechanisms SBA used to certify and monitor HUBZone frims 
provided limited assurance that only eligible firms participate 
in the program.\3\ We found that SBA verified information 
reported by firms at application or during recertification only 
in limited instances. We also found that SBA was not following 
its policy of recertifying all firms every 3 years. In a 
subsequent report, we noted that weaknesses in SBA's 
eligibility review process for the HUBZone program allowed 
bogus firms to be certified based on fradulent information.\4\ 
Specifically, our testing revealed that SBA did not adequately 
authenticate self-reported information--especially as it 
pertained to information regarding whether a firm's principal 
office location met program requirements.
---------------------------------------------------------------------------
    \3\ GAO, Small Business Administration: Additional Actions Are 
Needed to Certify and Monitor HUBZone Businesses and Assess Program 
Results, GAO-08-643 (Washington, D.C.: June 17, 2008).
    \4\ GAO, Small Business Administration: Undercover Tests Show 
HUBZone Program Remains Vulnerable to Fraud and Abuse, GAO-10-759 
(Washington, D.C.: June 25, 2010).

    We also identified weakenesses in SBA's 8(a) program and 
VA's service-disabled veteran-owned small business program that 
allowed ineligible firms to participate in those programs.\5\ 
For example, we found that SBA relied heavily on self-reported 
information from 8(a) program applicants during the initial 
certification and annual reviews, particularly in evaluating an 
individual's adjusted net worth and total assets, with limited 
data validation performed after firms entered the program. As I 
noted in my March 2013 statement, VA has instituted a number of 
significant changes to its verificationn process to improve and 
address program weakenesses but continues to face challenges in 
its efforts to establish a stable and efficient program to 
verify firms on a timely and consistent basis.\6\ These 
challenges are directly related to shortcomings in strategic 
planning and data systems for the verification program. One of 
the fundamental challenges that both SBA and VA face is 
balancing the inherent tension between the need to establish 
effective internal controls to prevent ineligible firms from 
participating in their programs and the goal of facilitating 
access to federal contracting opportunities for the intended 
targets of these programs.
---------------------------------------------------------------------------
    \5\ See, for example, GAO, 8(a) Program: Fourteen Ineligible Firms 
Received $325 Million in Sole-Source and Set-Aside Contracts, GAO-10-
425 (Washington, D.C.: Mar. 30, 2010) and GAO, Service-Disabled 
Veteran-Owned Small Business Program: Fraud Prevention Controls Needed 
to Improve Program Integrity, GAO-10-740T (Washington, D.C.; May 24, 
2010).
    \6\ GAO, Veteran-Owned Small Businesses: Planning and Data System 
for VA's Verification Program Need Improvement, GAO-13-425T (Mar. 19, 
2013).

    5. Mr. Shear, as we go forward, what aspects do you 
---------------------------------------------------------------------------
consider crucial to a successful verification program?

    Based on our evaluation of VA's verification program, we 
recommended that VA (1) continue to develop, refine, and 
implement a formal strategic plan to provide a comprehensive 
framework to guid, integrate, and monitor the verification 
program's activities over time (including incorporating longer-
term goals, objectives, and outcome measures for the 
verification program and sharing the plan with key 
stakeholders); and (2) integrate its efforts to modify or 
replace the verification program's data system with the broader 
strategic planning effort to ensure that the new system not 
only addresses the short-term needs of the program but also can 
be readilky adapted to meet long-term needs. In both our audit 
work and our recommendations, we focused on strategic planning 
because VA did not have a stable process in place that would 
have enabled the agency or us to test how well the process was 
working. Therefore, beyond taking actions to put a stable 
process in place--such as actions needed to obtain an effective 
data system, which is a major challenge itself--VA needs to 
develop effective ways to monitor the verification program's 
activities over time. In particular, VA will need to collect 
information that reflects the quality of verifications carried 
out by its staff and contractors so it can test how well a new 
process is working. In doing so, VA would put itself in a 
better position to manage any tradeoffs between providing 
reasonable assurance that only eligible firms are verified and 
that all eligible firms are verified on a timely and consistent 
basis.
 Subcommittee on Contracting and Workforce, Committee on Small Business


 Subcommittee on Oversight and Investigations, Committee on Veterans' 
                                Affairs


 Hearing: ``Consistently Inconsistent: Challenges for Service-Disabled 
           Veteran-Owned Small Businesses,'' March 19, 2013.


    Questions for the Record - John Shoraka, Associate 
Administrator, Government Contracting and Business Development, 
U.S. Small Business Administration

    1. In the letter from Mr. Shoraka included on page 56 of 
the Government Accountability Office (GAO) Report, Veteran-
Owned Small Businesses: Planning and Data System for VA's 
Verification Program Need Improvement (2013) (GAO-13-95), Mr. 
Shoraka states that there are statutory, procedural and 
interpretive differences between the Small Business 
Administration (SBA) government wide contracting program for 
service-disabled veteran-owned small businesses (SDVOSBs) and 
the Department of Veterans Affairs (VA) SDVOSB program. 
Specifically, the letter cites the disparate treatment of 
surviving spouses as the statutory difference between the 
program; the protest process as the procedural difference 
between the programs; and concludes that ``while it is true 
that the wording of the regulations is similar, there are some 
key differences in interpretations.'' Please enumerate and 
explain:

          a. Any other statutory differences between the 
        programs;

          A key statutory difference between the VA program and 
        the SBA program is that the VA program is a statutorily 
        required verification program, whereas the SBA program 
        permits self-certification. Additional statutory 
        differences include the VA allows eligibility for firms 
        owned and controlled by surviving spouses and the VA 
        has a VetFirst contracting preference.

          b. Any differences between 13 C.F.R. Sec. Sec. 125.8-
        125.29 and 38 C.F.R. Sec. 74;

          The differences between the rules are outlined in the 
        attached chart.

          c. Any differences between 13 C.F.R. Sec. 124 and 38 
        C.F.R. Sec. 74;

          See above referenced chart.

          d. Any interpretative differences between the VA and 
        SBA programs, including which differences SBA considers 
        key.

          It is difficult to summarize the interpretive 
        differences between the VA and SBA programs because we 
        are not aware of situations where the exact same firm 
        was found to be eligible under one program and not 
        eligible under the other program. Each case is 
        different. An example of a known difference in 
        interpretation is how the VA handles restrictions on 
        sale and transfer of ownership. Prior to the Miles 
        decision, the VA appeared to not allow any restrictions 
        on sale or transfer. As a result of Miles, the VA may 
        now allow any and all restrictions on sale and 
        transfer. In contrast, SBA examines restrictions on 
        sale and transfer as one component of control 
        eligibility requirements, along with other factors. SBA 
        makes a determination as to whether the Veteran owns 
        and controls the firm based on a review of the totality 
        of circumstances for the applicant firm. It is 
        difficult to say which restrictions are allowed and 
        which are not, because restrictions vary from case to 
        case. Over time, SBA's decisions are reviewed on appeal 
        and SBA has published appeal decisions that the public 
        can use as guidance.

    2. GAO was told by SBA officials that there were not any 
major differences in the VA and SBA regulatory eligibility 
requirements or the interpretation of these regulations. 
However, in SBA's official comments, Mr. Shoraka stated that 
there were key differences in how the agencies interpreted the 
regulations. Does this highlight a disconnect between what is 
happening on the ground and what management sees as policy?

    The key difference between the SBA program and the VA 
program is the fact that the SBA program is a protest-based 
self-certification program and the VA program is a front-end 
certification program. This difference is significant from the 
perspective of the public, as the timing of documentation 
requests, eligibility process, and options for recourse are 
very different when the VA and SBA programs are compared. 
However, the regulations for each program are very similar. As 
we have already highlighted above, there are statutory 
differences (e.g., surviving spouse) and differences in 
interpretation in specific fact scenarios (e.g., restrictions 
on sale and transfer). Procedurally, at SBA a protest decision 
may be appealed to another office where an Administrative Judge 
reviews the decision on a clear error of fact or law standard.

    3. How could collaboration between SBA and VA prior to the 
implementation of VA's program aided the process and prevented 
the problems that currently exist?

    I cannot speak to the degree of collaboration between SBA 
and VA during the period VA was developing their program, as 
the program was established prior to my time at SBA. There can 
be differences in interpretation within the same agency. 
Certainly, there can be differences in interpretation between 
two agencies. The purpose of both programs is to ensure that 
the benefits of the programs flows to the intended 
beneficiaries.

    4. What does SBA believe are the advantages of SBA's appeal 
process to the Office of Hearings and Appeals?

    Key advantages of an independent appellate review process 
include: published opinions; established precedent; and a 
transparent process overseen by an impartial third party. These 
benefits lend credibility not only to the appeal decision, but 
also the original decision.

    5. In his written testimony, Mr. Shoraka emphasized that 
SBA's cases are made on a case-by-case, fact-specific basis, so 
there is rarely one factor contributing to a firm's denial. 
What do you see as the advantages of such a system? Do you 
think VA is attempting to adopt ``bright line'' tests? Do you 
think such tests are in keeping with the SBA's rules and 
regulations interpreting the Small Business Act?

    The goal of both programs is to determine whether the 
Veteran owns and controls the firm. Making these determinations 
involves a thorough process that may require the analysis of 
voluminous documentation, which may include articles of 
incorporation, bylaws, tax returns, bank statements, loan 
arrangements, leases, financial statements, resumes, licenses, 
etc. It is difficult to draft rules to address each specific 
ownership and control scenario, which is SBA's basis for a 
case-by-case approach for determinations.

    6. What role did SBA play in the preparation and issuance 
of VA's VAB ``Applicant Must Meet Small Business Definition?''

    I am not aware of any role as the program was established 
before my time at SBA. However, the VA recognizes that only SBA 
can determine size in connection with a specific government 
contract. SBA has authority to render size determinations in 
connection with another agency's programs (13 CFR 121.901).

    7. Both statutes state that a firm's status as a service-
disabled veteran is to be determined by VA's definitions, but 
that whether a firm is a small business should be based on the 
Small Business Act. Thus, if the VA is applying SBA's rules 
differently than SBA, isn't VA usurping SBA's authority?

    Only SBA can determine size, absent specific statutory 
authority to the contrary. The VA recognizes that only SBA can 
determine size for a specific government contract. Only the VA 
can address whether it is issuing size decisions and denying 
access to its program based on size.

    8. What is the educational or professional background of 
the SBA employees who perform the program certification for the 
8(a) program?

    The skills required to perform program certifications for 
the 8(a) program are broad based and include such abilities as 
critical thinking, financial analysis capability, strategic 
thinking, understanding of organizational structures, 
government contracts etc. These skills can be obtained in a 
variety of professions and are commonly found in business 
curriculums and legal curriculums at the higher education 
level, therefore the SBA employees that perform this function 
largely have legal and graduate level business backgrounds.

    9. In VA's verification program, the ratio of federal 
employees to contractors is as high as 1 to 24. How does VA's 
reliance on contractors compare with SBA's approach to 
verification in other programs?

    HUBZone: SBA does not currently rely on contractor support 
for the purposes related to the HUBZone certification process. 
SBA currently has a staff of 20 Federal employees that are 
responsible for initial certification and continuing 
eligibility reviews of HUBZone firms.

    The HUBZone office had contractor support prior to FY2013. 
It is difficult to make comparisons of ratios of contractor 
staff to federal staff between the HUBZone program and the VA 
program, as we do not fully know the ways the VA contractor 
staff support the VA federal staff.

    During the period of contractor support of the HUBZone 
office, the contractors specifically managed complex 
administrative functions and staffed a HelpDesk. In 2009, 
following a critical change in the business process of 
reviewing HUBZone initial applications, the HUBZone program 
hired contractors to assist with the processing of initial 
applications. These contractors were hired to supplement the 
existing federal staff in performing a more rigorous level of 
eligibility review to include full documentation. Additionally, 
the HUBZone program underwent a reengineering of their 
certification process. After the application process 
transitioned to the new workflow, the program discontinued use 
of contractors. In FY 2013, the HUBZone office increased the 
total number of Federal staff to 20 engaged in the review 
process. This was a direct result of cost savings analysis and 
in-source justification performed by the agency based on the 
use of contractors from 2009-2011.

    8(a) Business Development: SBA does not rely on contractor 
support for the purposes related to the 8(a) eligibility review 
process. SBA currently has a staff of eighteen employees that 
are responsible for certification of new applicants into the 
8(a) program.

    10. In order to reduce fraud and abuse in the system, 
Administrator Mills has previously testified that SBA would 
work with the VA to get an SDVOSB certification process in 
place for SBA's program. However, we have yet to see any 
concrete steps taken towards this goal. What steps the SBA has 
taken in process and when we can expect to see a credible 
certification process in place this program?

    In previous testimony, Administrator Mills referenced the 
collaboration between SBA and VA in several areas to improve 
alignment of the SBA and VA programs. The SBA has collaborated 
with VA to help identify best practices in mitigating fraud, 
waste and abuse in government contracting programs. We have 
provided VA with insight into our processes and procedures for 
mitigating fraud, waste, and abuse and have shared insight into 
the development of data systems that support programmatic 
efficiency.

    11. What steps has SBA taken to educate agencies 
government-wide about the differences between the VA's and 
SBA's programs, specifically the difference of eligibility 
requirements for contract award?

    Contracting officers should understand that the SBA SDVOSB 
Program is intended for government-wide procurement from 
SDVOSBs, whereas the VA Program is intended for firms seeking 
to do business with the VA. SBA is collaborating with the 
Office of Federal Procurement Policy to issue reminders via an 
acquisition alert regarding the differences in the requirements 
of the programs. Additionally, SBA has created modules for 
contracting officers at SBA's online government contracting 
learning portal, the Government Contracting Classroom 
(www.sba.gov/gcclassroom). We are seeking to cross post or 
incorporate these courses into the courses available to 
contracting officers via the Federal Acquisition Institute 
(FAI) and Defense Acquisition University (DAU).

    12. What steps has SBA taken to ensure that SDVOSB's are 
not prevented from competing on an SDVOSB contract outside of 
the VA solely because they are not certified through the CVE 
program?

    When SBA is alerted to this scenario, we inform the 
contracting officer that CVE certification is not required in 
order to compete for an SDVO set-aside under the Small Business 
Act. There are published OHA decisions which we share with 
agencies. The Federal Acquisition Regulation (FAR) is clear 
that the SDVO program is a self-certification program. See FAR 
19.1307, 19.1403, 52.219-1, 52.219-27.

    13. If the underlying statutory differences between the SBA 
and VA program were resolved, would the program be able to 
function using the same regulations for eligibility purposes?

    Yes, but that does not mean the VA or SBA would not apply 
those regulations differently to a specific fact situation.

    14. At the hearing, Mr. Leney stated that SBA would charge 
VA $1 million to verify 40 SDVOSBs. What was the basis of these 
numbers? Based on the costs of running the 8(a) Business 
Development Program and the HUBZone Program, what does SBA 
estimate it would cost to manage VA's verification program?

    I cannot speak for the basis of Mr. Leney's numbers, but 
negotiations between the SBA and VA focused on SBA processing 
protests and appeals, not certification. We would need 
additional information such as SBVOSBs application volume, 
recertification efforts and program size to forecast the cost 
to manage VA's verification program.

    15. At one time, SBA and VA negotiated to have SBA manage 
VA's verification process. What became of those negotiations?

    SBA and the VA entered into discussions pertaining to 
processing protests and appeals, not certification. The 
agencies were unable to reach agreement on compensation, and no 
further discussions are scheduled.

    16. VA's procurement regulations (48 C.F.R. Sec. 819.307) 
state that ``For acquisitions under the authority of subpart 
819.70, upon execution of an interagency agreement between VA 
and the SBA pursuant to the Economy Act (31 U.S.C. 1535), 
regarding service-disabled veteran-owned or veteran-owned small 
business status, contracting officers shall forward all status 
protests to the Director, Office of Government Contracting (D/
GC), U.S. Small Business Administration (ATTN: VAAR Part 819 
SDVOSB/VOSB Small Business Status Protests), 409 3rd Street, 
SW., Washington, DC 20416, for disposition.'' This regulation 
was promulgated December 8, 2009. However, it is clear based 
upon the recent Court of Federal Claims decisions that no such 
interagency agreement has been executed. What is the status of 
this interagency agreement?

    See above response to question 15.

    17. Likewise, 48 C.F.R. Sec. 819.307 states that ``Except 
for ownership and control issues to be determined in accordance 
with 38 CFR part 74, protests shall follow the procedures set 
forth in FAR 19.307 for both service-disabled veteran-owned and 
veteran-owned small business status.'' However, pursuant to 
Section 3(a)(1) of the Small Business Act, ownership and 
control are two of the three statutory requirements for 
qualifying as a small business (``a small business concern . . 
. shall be deemed to be one which is independently owned and 
operated and which is not dominant in its field of 
operation''). As Section 3(a)(2) states, standards and 
interpretations of these factors are vested in the 
Administrator for purposes of the Small Business Act or any 
other Act. Therefore, how is VA permitted to make independent 
determinations regarding ownership and control?

    Ownership and control for size is different than ownership 
and control for status. When SBA conducts a formal size 
determination it is trying to determine whether a firm is 
affiliated with another firm and if that affiliation would 
render the firm in question other than small. When SBA reviews 
a firm for SDVO status, it is seeking to determine whether the 
Veteran owns and controls the firm. Consequently, a firm may be 
found to be ineligible under one program but eligible under the 
other.

    18. When SBA admits a firm to the 8(a) program, SBA has 
verified that the firm is a small business owned and controlled 
by a socially and economically disadvantaged individual. In 
making that determination, does SBA look at whether the firm is 
itself a small business, or only whether the ownership and 
control of the firm is by a qualifying individual?

    When making a determination of 8(a) BD program eligibility, 
SBA evaluates an applicant pursuant to the relevant provisions 
set forth in 13 CFR Sec. 124. These regulations stipulate that 
to be eligible to participate in the 8(a) BD program the 
applicant concern must be small and must be at least 51% 
unconditionally owned and controlled by a socially and 
economically disadvantaged individual or individuals. 
Therefore, in conducting its eligibility analysis SBA 
determines whether the applicant concern is a small business in 
the primary industry in which it is seeking certification and 
whether the concern is at least 51% unconditionally owned and 
controlled by socially and economically disadvantaged 
individuals. Additionally, an 8(a) participant's size can 
always be protested in connection with any competitive 8(a) 
set-aside or other competitive set-aside procurement.

    19. SBA's SDVOSB self-certification process has been 
criticized as leaving the door open for fraud. Please comment 
on this criticism, and on the relative merits of contract-
specific protests versus general certifications. Is the SBA 
undertaking efforts to put additional checks and balances in 
place to make the SBA's SDVOB certification less vulnerable to 
fraud?

    There is a risk of fraud in any government contracting 
program, including those where certification is required. There 
are significant costs to certifying all firms that may be 
interested in winning a government contract versus reviewing 
the limited number of firms that have been awarded a government 
contract on a protest basis. This trade-off must be considered 
when making a determination as to whether funds and resources 
will be made available for a full certification program. Firms 
and individuals that misrepresent their status may be subject 
to civil and criminal penalties, as well as debarment and 
suspension from government contracting. SBA has debarred or 
suspended more firms from government contracting in the past 4 
years than it did in the previous 10 years, and individuals 
have been convicted and sentenced to prison for 
misrepresentations in connection with SBA's programs.

    20. Please describe SBA's interactions with VA regarding 
SDVOSB verifications, and assess of how much the agency has 
contributed to progress made by VA in developing processes and 
a data system for verification.

    SBA and the VA have met to discuss the regulations for the 
various programs, and the differences in interpretation. SBA 
and the VA have also met to discuss the 8(a) Business 
Development Program's business processes, regulations and 
information about IT requirements. Most recently SBA involved 
VA in usability testing of some of the workflows supporting 
business processes associated with the 8(a) and HubZone 
programs.

    21. Please provide information on the staffing levels, 
costs, and caseloads associated with each of SBA's 
certification programs.

     HUBZone:

            FY13 HZ = 20 FTEs - of these 11 are 100% dedicated 
        to evaluating initial and continuing eligibility 
        actions; 2 provide Admin Support to the initial and 
        continuing unit; 3 dedicate 75% of their time towards 
        evaluations; and 1 provides 25% management support 
        towards the evaluation unit. 3 provide program 
        management and leadership guidance and to include 
        various infrastructure elements such as website, maps, 
        marketing, etc.

            Annual case load averages approx. 5,000 actions 
        (includes: initial apps, material changes, re-
        certifications, program examinations, protests, 
        proposed decertification, and decertification actions)

     8(a) Business Development

            FY13 BD = 27 Headquarter FTEs - of these 14 are 
        100% dedicated to evaluating initial and continuing 
        eligibility determinations; 5 provide Admin Support and 
        perform screenings for the initial application unit and 
        the continuing eligibility unit; and 5 provide 100% 
        management support, program management and leadership 
        guidance to include various infrastructure elements 
        such as website, marketing, etc. District Office staff 
        are leveraged to perform annual reviews of program 
        participants consistent with the Small Business Act.

            Annual case load averages approx. 11,500 actions 
        (includes: initial apps, continuing eligibility 
        reviews, early graduations, voluntary withdrawals, 
        terminations, changes of ownership etc.)

    22. SBA uses a 3 year recertification cycle for HUBZone 
firms. How did SBA decide that three years was the appropriate 
time frame?

    In 2004, SBA amended 13 CFR 126.500 concerning continued 
eligibility in the HUBZone program. Before 2004, a qualified 
HUBZone SBC recertified annually. SBA believed that such an 
annual recertification was burdensome to SBCs and changed the 
timeframe to every three years. SBA considered that the program 
examination process and protest mechanism effectively eliminate 
concerns that SBCs are not eligible. SBA also believed that 
three years was a reasonable period of time to give effect to a 
HUBZone certification.

    Additionally, HUBZone regulations and the FAR require that 
a firm must be a qualified HUBZone SBC both at the time of its 
initial offer and at the time of award in order to be eligible 
for a HUBZone contract. The HUBZone offeror must provide to the 
Contracting Officer a copy of notice required by 13 CFR 126.501 
if material changes occur before contract award that could 
affect its HUBZone eligibility. In other words, the offeror for 
a HUBZone contract is required to notify the Contracting 
Officer if it is not in compliance with HUBZone eligibility 
criteria. The HUBZone regulations also provide a protest 
mechanism in connection with awards of HUBZone contracts (13 
CFR Subpart H - Protests). Through a robust recertification 
process, requirements of notification of material changes, and 
the protest process. the HUBZone program mitigates instances of 
firms misrepresenting their status.

    23. Please explain the differences in the application 
process for the 8(a) program and the VA's SDVOSB program, with 
special emphasis on factors only required for one program or 
the other.

    While the processes for both certification programs are 
somewhat similar there are some noteworthy differences. The 
application process for VA's SDVOSB is comprised of five 
distinct phases, Initiation, Examination, Evaluation, 
Determination, and Reconsideration, while the SBA process has 
three phases, Screening, Processing and Reconsideration. The 
three phased approach by SBA is driven by statute. During the 
SBA's process applicants are allowed to provide additional 
supporting documents and/or explanations as the process is 
considered iterative while the SDVOSB application once 
submitted cannot be changed. When a reconsideration request is 
submitted as a part of the SDVOSB application process new 
information can be submitted by the applicant at that time. The 
8(a) program incorporates administrative procedures where 
applicants can request review by an Administrative Law Judge 
when declined under certain conditions while the SDVOSB does 
not.

    24. While the recent Court of Federal Claims decision in 
Miles Construction, LLC v. United States, No. 12-597C (Fed. Cl. 
2013) is not binding on SBA, it does speak to the SBA's 
position on transfer restrictions. Does SBA anticipate 
revisiting its regulations or policies in light of the Miles 
decision?

    Decisions of the Court of Federal Claims apply to the facts 
of those cases and do not bind other Judges on the Court of 
Federal Claims. While the Court discussed some of SBA's 
decisions, it did not rule on the merits of those decisions. 
The facts in the SBA decisions that the Court discussed are 
distinguishable from the facts in the Miles decision. SBA will 
continue to review each specific factual scenario when making 
its decisions, and does not intend to change its regulations 
based on Miles.

    25. Are the SBA and VA planning to align their 
certification processes to eliminate confusion for veterans 
when certifying as a SDVOB?

    Congress created two separate programs: a government-wide 
self-certification protest-based program based on the Small 
Business Act, and a VetFirst program specific to the VA that 
requires certification by the VA. The VA has tried to align its 
regulations to SBA's regulations to the extent possible. There 
will always be the potential for differences of interpretation 
based on specific factual scenarios, but both agencies attempt 
to ensure that the benefits of the programs flow to the 
intended beneficiaries.

    26. Mr. Shoraka, based upon your experience, what would you 
say the VA needs to do to improve the way it certifies veteran 
businesses?

    I believe that the VA's recent announcement of a screening 
process to assist applicants when they first submit materials 
will help veterans develop a better understanding of the VA 
verification process. Additionally, a transparent and 
independent appellate review process would provide firms with a 
clear path for recourse.

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          3Opening Statement of Congresswoman Herrera Beutler


    Consistently Inconsistent: Challenges for Service-Disabled 
Veteran-Owned Small Businesses

    Tuesday, March 19

    Statement

    I think we all agree we need to prevent contracts intended 
for service-disabled veteran-owned small businesses (SDVOSB) 
from going to firms that don't qualify for the program. 
However, both the VA and SBA SDVOSB certification processes are 
flawed. SBA's self-certification is quick and has the advantage 
of allowing nearly 13,000 SDVOSBs to almost immediately begin 
competing for contracts. It also provides for a timely and 
transparent process for stakeholders to protest if they believe 
the firm does not qualify for the program. While it is an 
efficient program, it may not be as effective as the VA at 
preventing fraudulent companies from taking advantage of the 
program.

    On the other hand, VA's verification process takes an 
average of 85 days for the initial verification process and 147 
days on appeal. In addition, VA's SDVOSB program has 4,102 
SDVOSB currently certified, but VA uses over 200 FTEs and 
spends $33 million per year to run the program. It's not clear 
that adding more employees and providing additional funding are 
the answers--but it's clear that a fix is needed.

    Unfortunately, both of these programs are vulnerable to 
fraud. This is a shame, because our nation needs this program 
to assist our veteran business owners. I am pleased this 
hearing is addressing this important issue today.

    I have heard from a number of Service-Disabled Veteran 
Owned Small Businesses in my district on this issue. They are 
frustrated with the overly-burdensome VA certification process. 
Some are also confused by the inconsistency between the two 
program; they are certified as a SDVOSB through SBA, but not 
through VA. Often, it is not until they are interested in 
competing for a VA contract, they realize they are ineligible.

    What complicates this matter is that small businesses are 
working with limited resources. One veteran owned business in 
my district began the process to get certified by VA almost 
four years ago. He has completed many transactions while 
growing this business--he's taken out many loans, a million 
dollar credit line, 5 to 10 million in bonding aggregate, etc. 
Never before has he had to go through the time- and resource-
consuming process of providing this level of detail about his 
financial status and personal information. He has been forced 
to start the entire registration process over multiple times to 
address minor problems, and has repeatedly been forced to 
provide additional information. There is no leeway on timing 
and if he has questions, he's received little to no guidance or 
assistance.

    I am very pleased VA is taking a real serious stance in 
order to stop companies from illegally obtaining contracts by 
falsely claiming the SDVOB status. I support accountability 
measures and hope there are severe repercussions for those who 
are caught abusing the system. On the other hand, however, the 
process for certifying with the VA must be streamlined and 
shortened. While the process should be effectively keeping out 
fraudulent applicants, unfortunately in its current form it is 
keeping out legitimate Service-Disabled Veteran Owned Small 
Businesses. This needs to change.
                   NINETY-FOURTH NATIONAL CONVENTION


                                   OF


                          THE AMERICAN LEGION


                         Indianapolis, Indiana


                        August 28, 29, 30, 2012


   Resolution No. 323: The Status of Service-Disabled Veteran-Owned 
             Business after the Death of the Veteran Owner


    Origin: Convention Committee on Other Economic 
Matters
    Submitted by: Convention Committee on Other Economic 
Matters

    WHEREAS, Public Law No. 109-461 passed in December 2006 
created additional benefits for surviving spouses who inherit 
service-disabled veteran-owned businesses; and
    WHEREAS, The intent of the law was to ensure that a 
business owned by a veteran that received contracts based on 
the service-disabled veteran-owned business status did not 
suffer because the veteran died; and
    WHEREAS, Spouses are able to retain the service-disabled 
veteran-owned business status for up to 10 years if the veteran 
owned at least 51 percent of the company before their death; 
and
    WHEREAS, The law passed in December 2006 only took into 
account the veteran who returned disabled; consequently, it 
left a large gap in those servicemembers who owned businesses 
who were killed in the line of duty; and
    WHEREAS, Public Law 109-461, in its treatment of businesses 
after death of veteran-owner, neglected to take into account 
Reservists and National Guard members who owned businesses 
before their activation; and
    WHEREAS, Public Law 109-461 only transfers service-disabled 
veteran-owned business status to the surviving spouse of a 
veteran who acquires ownership rights in a small business if 
the death of a veteran causes a small business to be less than 
51 percent-owned by one or more veterans; and
    WHEREAS, The transfer of status in the period beginning on 
the date on which the veteran dies, only applies to a surviving 
spouse of a veteran with a service-connected disability rated 
as 100 percent disabling or a surviving spouse of a veteran who 
dies as a result of a service-connected disability; now, 
therefore, be it

    RESOLVED, By The American Legion in National Convention 
assembled in Indianapolis, Indiana, August 28, 29, 30, 2012, 
That The American Legion support amending Public Law 109-461 to 
read that if any disabled veteran who owns a certified service-
disabled veteran-owned business dies, (regardless of his/her 
disability at the time), their business inherited by their 
spouse/dependent will retain the service-disabled veteran-owned 
business status in conjunction with Public Law 109-461; and, be 
it further

    RESOLVED, That The American Legion supports that if any 
servicemember, to include those who were mobilized in the 
National Guard or Reserve, is killed in action and owns at 
least 51 percent of a business prior to his/her death, the 
business bequeathed to their spouses/dependents must be granted 
service-disabled veteran-owned business status for reason of 
preference in federal contracts; and, be it finally

    RESOLVED, That The American Legion supports any 
administrative or legislative effort that will improve and 
increase the benefits bequeathed to the veteran's spouses or 
dependents upon a veteran business owner's death.
                           Opening Statement


                         Chairman Mike Coffman


              Subcommittee on Oversight and Investigations


 ``Consistently Inconsistent: Challenges for Service-Disabled Veteran-
                        Owned Small Businesses''


                             March 19, 2013


    Thank You, Chairman Hanna, for yielding, and thank you also 
to your subcommittee for holding this joint hearing.

    The problems with VA's SDVOSB certification program are, 
sadly, not new ones. The Veterans' Affairs Committee had 
several subcommittee hearings during the last Congress on the 
issue, but improvements within the program seem to be slow in 
coming.

    My subcommittee continues to frequently hear from SDVOSBs 
and their advocates regarding what should be a straightforward 
process for veterans attempting to do business with VA. While 
the verification process at CVE has improved and helped weed 
out some bad actors, it is abundantly clear that there's still 
a long road ahead.

    One topic discussed at length in the 112th Congress was 
VA's definition of ownership and control of a small business. 
Despite the Committee's bringing this problem to VA's 
attention, VA's definitions retain some key differences from 
the Small Business Administration, and the effect of these 
differences has been a self-induced backlog of legitimate 
companies attempting to get certified through CVE and do 
business with VA.

    The fact that VA's different interpretations of what 
constitutes ownership mean that an individual could be 
recognized as a veteran small business owner with one 
government agency but not with VA should raise everyone's 
eyebrows. However, that's the reality that some veterans face 
today, including service-disabled veterans. SBA has had 
commonsense requirements for what constitutes an SDVOSB in 
place for a long time. While VA's intent may be in the right 
place, its regulatory and interpretive actions have put many 
eligible veterans at a disadvantage.

    We still need to get this right. If we are going to enable 
our veterans who sacrificed for this country to do business 
with the federal government, and if VA is going to set the 
standard for recognizing the commitment of these same veterans, 
then a straightforward, common-sense process needs to be in 
place.

    It is my sincere hope that, down the road, we are not still 
discussing the same issues. The time for conversation is past, 
and it is time to take action, fix the problems, and move on. I 
understand that the system will never be perfect, nor is there 
one simple answer. However, after all the years that have 
passed since this program was set up, and the resources that 
have been added to CVE, it is reasonable to expect that we 
would be further along than we are today.

    I yield back.
    Honorable Jackie Walorski

    HVAC ONI Hearing - ``Consistently Inconsistent: Challenges 
for Service-Disabled Veteran-Owned Small Businesses''

    Mr. Chairman, it's an honor to serve on this committee.

    I thank you for holding this hearing on such an important 
issue for our veterans. As our service members transition into 
civilian life, we must remain steadfast in our commitment to 
provide these soldiers with the necessary skills for 
employment. For the entrepreneurial-minded soldiers, we must 
work to remove redundant and archaic bureaucratic barriers.

    Members of the military are disciplined, determined, and 
are known for their ability to lead. These attributes are 
critical in the world of business, and, as a result, it is not 
surprising that veterans operated over 2.4 million nonfarm 
businesses accounting for 9.0 percent of all nonfarm businesses 
in the United States in 2007.\1\ Hoosier veterans owned 
approximately 46,000 firms in this same period.\2\
---------------------------------------------------------------------------
    \1\ U.S. Small Business Administration, 2007 Survey of Business 
Owners - Veteran-Owned Firms, http://www.census.gov/econ/sbo/
getsof.html?07veteran
    \2\ U.S. Small Business Administration, Summary Statistics for 
Veteran-Owned Firms by State: 2007, http://www2.census.gov/econ/sbo/07/
final/tables/vet--table1.pdf

    We know what veterans are capable of, but that is not why 
we are here today. The Veterans Administration has done great 
work in improving its ability to assist and equip veterans in 
terms of establishing and growing a business; however, there is 
---------------------------------------------------------------------------
still room for improvement.

    I look forward to working with my colleagues and our 
panelists, today, to identify the issues which confront 
service-disabled veteran-owned small businesses.

    Thank you.