[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
AN EXAMINATION OF CONTINUED CHALLENGES IN VA'S VETS FIRST VERIFICATION
PROCESS
=======================================================================
JOINT HEARING
before the
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
of the
COMMITTEE ON VETERANS' AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
and the
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
of the
COMMITTEE ON SMALL BUSINESS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
WEDNESDAY, NOVEMBER 4, 2015
__________
Serial No. 114-43
__________
Printed for the use of the Committee on Veterans' Affairs
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COMMITTEE ON VETERANS' AFFAIRS
JEFF MILLER, Florida, Chairman
DOUG LAMBORN, Colorado CORRINE BROWN, Florida, Ranking
GUS M. BILIRAKIS, Florida, Vice- Minority Member
Chairman MARK TAKANO, California
DAVID P. ROE, Tennessee JULIA BROWNLEY, California
DAN BENISHEK, Michigan DINA TITUS, Nevada
TIM HUELSKAMP, Kansas RAUL RUIZ, California
MIKE COFFMAN, Colorado ANN M. KUSTER, New Hampshire
BRAD R. WENSTRUP, Ohio BETO O'ROURKE, Texas
JACKIE WALORSKI, Indiana KATHLEEN RICE, New York
RALPH ABRAHAM, Louisiana TIMOTHY J. WALZ, Minnesota
LEE ZELDIN, New York JERRY McNERNEY, California
RYAN COSTELLO, Pennsylvania
AMATA COLEMAN RADEWAGEN, American
Samoa
MIKE BOST, Illinois
Jon Towers, Staff Director
Don Phillips, Democratic Staff Director
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATION
MIKE COFFMAN, Colorado, Chairman
DOUG LAMBORN, Colorado ANN M. KUSTER, New Hampshire,
DAVID P. ROE, Tennessee Ranking Member
DAN BENISHEK, Michigan BETO O'ROURKE, Texas
TIM HUELSKAMP, Kansas KATHLEEN RICE, New York
JACKIE WALORSKI, Indiana TIMOTHY J. WALZ, Minnesota
COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa NYDIA VELAZQUEZ, New York, Ranking
BLAINE LUETKEMEYER, Missouri Member
RICHARD HANNA, New York YVETTE CLARK, New York
TIM HUELSKAMP, Kansas JUDY CHU, California
TOM RICE, South Carolina JANICE HAHN, California
CHRIS GIBSON,New York DONALD PAYNE, Jr, New Jersey
DAVE BRAT, Virginia GRACE MENG, New York
AMATA COLEMAN RADEWAGEN, BRENDA LAWRENCE, Michigan
American Samoa ALMA ADAMS, North Carolina
STEVE KNIGHT, California SETH MOULTON, Massachusetts
CARLOS CURBELO, Florida MARK TAKAI, Hawaii
MIKE BOST, Illinois
CRESENT HARDY, Nevada
Kevin Fitzpatrick Staff Director
Stephen Dennis Deputy Staff Director for Policy
Jan Oliver Deputy Staff Director for Operation
Barry Pineles Chief Counsel
Michael Day Minority Staff Director
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Veterans' Affairs are also
published in electronic form. The printed hearing record remains the
official version. Because electronic submissions are used to prepare
both printed and electronic versions of the hearing record, the process
of converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
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Wednesday, November 4, 2015
Page
An Examination Of Continued Challenges in VA's Vets First
Verification Process........................................... 1
OPENING STATEMENTS
Mike Coffman, Chairman........................................... 1
Richard Hanna, Committee on Small Business....................... 2
Nydia Velazquez, Ranking Member of Small Business Committee...... 3
Ann M. Kuster, Ranking Member.................................... 5
Dr. Tim Huelskamp, Member........................................ 17
WITNESSES
Mr. William Shear, Director, Financial Markets and Community
Investment, U.S. Government Accountabililty Office............. 6
Prepared Statement........................................... 28
Mr. Quentin Aucion, Assistant Inspector General for
Investigations, Office of the Inspector General................ 7
Prepared Statement........................................... 46
Accompanied by:
Gregory Gladhill, Audit Manager, Los Angeles Office of Audits
and Evaluations, Office of the Inspector General
Mr. Tom Leney, Executive Director, Office of Small and
Disadvantaged Business Utilization, Department of Veterans
Affairs........................................................ 9
Prepared Statement........................................... 55
AN EXAMINATION OF CONTINUED CHALLENGES IN VA'S VETS FIRST VERIFICATION
PROCESS
----------
Wednesday, November 4, 2015
U.S. House of Representatives,
Committee on Veterans' Affairs,
Subcommittee on Oversight
and Investigations,
Washington, D.C.
The Subcommittees met, pursuant to notice, at 10:35 a.m.,
in Room 334, Cannon House Office Building, Hon. Mike Coffman
[Chairman of the Subcommittee on Oversight and Investigations]
presiding.
Present from the Subcommittee on Oversight and
Investigations: Representatives Coffman, Huelskamp, Kuster,
Rice, and Walz.
Present from the Subcommittee on Contracting and Workforce:
Representatives Hanna, King, Kelly, Velazquez, Lawrence, and
Clarke.
OPENING STATEMENT OF CHAIRMAN MIKE COFFMAN
Mr. Coffman. Good morning. I would like to welcome everyone
to today's joint hearing titled An Examination of Continued
Challenges in VA's Vets First Verification Process.
I am pleased to host Chairman Richard Hanna and his fellow
Members of the Subcommittee on Contracting and Workforce for
the House Committee on Small Business for this joint hearing.
We are again today to examine the challenges that persist
with VA's implementation of the verification process for Vets
First set-asides. Since 2006, this Committee has held repeated
hearings while OIG and GAO have issued multiple reports
highlighting the lack of progress with this program.
In our previous joint hearing in 2013, I noted that my
Subcommittee received frequent complaints from service-
disabled, veteran-owned small businesses about the length of
time and scope of examination for veterans undergoing the
verification process.
We still hear these complaints all too frequently.
According to VA's Center for Verification and Evaluation or
CVE, risk team applications are being processed within the
regulatory timeframe 98 percent of the time with an error rate
of less than one percent.
What CVE does not report is that it resets the clock for
applicants it convinces to withdraw and then reapply to avoid
the six-month suspension if they had allowed their initial
applications to be denied for lack of supporting documentation.
GAO estimates that accounting for such re-application, 15
percent of applications took more than four months to receive a
determination. Unfortunately, VA is adept at gaming the numbers
based on incorrect data that VA entered into the Federal
procurement database system or, more importantly, required data
that was never entered into the system.
VA has received an A on the small business procurement
score card every year reported since fiscal year 2011 and has
exceeded its goal with regard to service-disabled veterans,
veteran-owned small businesses.
However, in a hearing before this Committee on June 23,
2015, Mr. Jan Frye, VA's senior procurement executive,
testified that VA seriously overstated its compliance with
government-wide small business goals and VA officials at the
highest levels knew that the data was false at the time they
submitted it. Business opportunities that should normally be
reserved for service-disabled veterans are jeopardized by false
data.
Apart from data manipulation, CVE continues to face serious
problems. Even after multiple reports, GAO indicated that CVE
still has not established a cost-effective, veteran-friendly
verification process or acquired an IT system that meets its
needs. VA paid a contractor $871,000 for such an IT solution
only to cancel the contract on October 2014.
Significantly, GAO has also found that VA lacks a
comprehensive operational plan with specific actions and
milestone dates for managing and achieving long-term
objectives. Lack of an adequate operational plan is a serious
problem, especially for an agency that runs most day-to-day
businesses through contract employees rather than those within
the Federal Civil Service system.
It is important that CVE get this right. According to
procurement data gathered by OIG for fiscal year 2015, VA
procurements totaled $91.5 billion of which $3.9 billion went
to veteran-owned small businesses and of that $3.9 billion,
$3.5 went to service-disabled, veteran-owned small businesses.
Notwithstanding CVE's verification efforts, fraud by
ineligible contractors remains a priority for OIG. Fortunately,
OIG has had success in obtaining prosecutions by DOJ.
Lastly, I note that the Supreme Court will hear a challenge
next week to VA's misinterpretation of the rule of two
requirements that essentially guts the contract award
preference for Vets First set-asides. VA should be leading the
effort for the Vets First Program, not trying to undermine it.
I now recognize Chairman Hanna for his opening statement.
OPENING STATEMENT OF RICHARD HANNA
Mr. Hanna. Thank you.
Chairman Coffman and I held our first joint hearing on the
Department of Veterans Affairs' verification of veterans that
service disability veterans-owned businesses. We are here today
to find out what progress has been made and what challenges
remain.
Let's start with a little good news. First, the Small
Business Administration in 2014, Federal Government met the
three percent goal for prime contracts to service-disabled,
veteran-owned businesses. That means, as Chairman Coffman said,
nearly $14 billion in contracts, three and a half roughly
billion dollars spent with the VA. These are real contracts for
service-disabled veterans.
The bad news is that the VA Vets First Contracting Program
is still in turmoil. Even though VA buys almost every other
thing than weapon systems, only a third of firms owned by
service-disabled veterans registered with the SBA are also
verified by the VA.
For veterans, the number drops to less than 20 percent even
though there are no benefits to registering as a veteran-owned
business with the SBA. Why aren't these companies trying to do
business with the VA, the one agency directed to contract with
veterans and service-disabled veterans first?
I suspect that part of the answer is that it is still hard
to do business with the VA. While the verification process
seems to have gotten speedier, it lacks the comprehensive
original plan. Indeed, while VA told us in 2013 that they were
going to revisit their regulations--this is for you, Mr.
Leney--the written statement for today's hearing contains the
same promise during the same hearing.
VA promised that there was a next generation system under
development with an initial operation capability that would be
operational in 2013. There is still no system.
It has been nearly two years since the VA told staff that
they were going to have SBA take over the appeals process, but
still there is no agreement in place. We owe our veterans more
than that.
The National Veteran Small Business Week next week, there
are two important days for our veterans. While we all know
November 11 is Veterans Day, you also know, as Chairman Coffman
mentioned, there is a Supreme Court case, Kingdomware
Technologies versus the United States.
I know that Chairman Coffman, Ranking Member Velazquez, and
Ranking Member Kuster and I as well as many others signed on
the amicus brief in support of that case.
Essentially they are saying that we should be allowed to do
less for veterans and service-disabled, veteran-owned
businesses than Congress legislated when it created the Vets
First Program. Given this argument, if I were a veteran-owned
business, I would think twice about spending the time and money
necessary to be verified to participate in the Veterans First
Program.
Again, I want to thank all our witnesses for being here
today, and I look forward to some concrete solutions and honest
answers. So thank you.
Mr. Coffman. Thank you, Chairman Hanna.
I now yield to Ranking Member Nydia Velazquez of the Full
Committee on Small Business for her opening statement.
OPENING STATEMENT OF NYDIA VELAZQUEZ
Ms. Velazquez. Thank you, Chairman, Ranking Members and
Members of both Committees.
It is my pleasure to be sitting in for Mr. Takano,
especially we discuss a topic as important as our Nation's
veterans.
With Veterans Day next week, we honor the sacrifices our
veterans have made for this country. Over the last century,
these brave Americans have fought in Afghanistan, Iraq,
Vietnam, Korea, and Europe for not only our freedoms but for
the freedoms of others.
While many lost their lives, the surviving 22 million men
and women include 5.5 million who were disabled during their
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 2015, this initiative awarded more than 100,000
contracts worth over $13 billion to SDV small firms. These
awards accounted for over 3.5 percent of all Federal contracts
meeting the statutory goal of three percent for the third year
in a row.
Additionally, though, the numbers are not final. It appears
that the goal will also be reached for fiscal year 2015. While
these accomplishments should be applauded, it should also be
pointed out that it comes on the heels of allegations of fraud
and abuse at the Department of Veterans Affairs.
Earlier this year, we heard testimony from the VA's senior
procurement executive indicating that various individuals at
the VA were procuring billions of dollars worth of goods with
purchase cards thereby circumventing competition requirements
as well as the small business reserve. These allegations have
left us to question the VA's performance in small business
contracting.
Today's hearing focuses on another area that has been
problematic for the VA, its process for verifying and
certifying SDV businesses to its Vets First 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 SDV businesses.
To prevent these abuses, GAO recommended that a
verification system be implemented. Over time, VA has complied
with this and we have seen an improvement in the process.
As we will hear today, verification times have gone down by
more than 50 percent to an average of 42 days. And the VA has
increased its number of site visits to 606 in fiscal year 2015.
However, there are still areas that need work. For example,
the VA still lacks an operational plan for the process and
there continues to be strong reliance on contractors to verify
firms.
Addressing these failings and ensuring SDV procurement
programs work as intended is long past due. With an
unemployment rate of more than seven 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 these men and women, programs like the one we are
discussing today are critical to reduce the unemployment rate
for veterans.
I think I can speak for all the 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.
With that, I want to thank the witnesses for appearing
before our Subcommittee this morning. I thank the Chairman and
yield back.
Mr. Coffman. Thank you, Ranking Member Velazquez.
I now yield to Ranking Member Kuster for her opening
statement.
OPENING STATEMENT OF ANN M. KUSTER
Ms. Kuster. Thank you, Chairman Coffman.
Welcome, Chairman Hanna and Ranking Member Velazquez.
I appreciate this opportunity to update the VA's
verification processes for certifying veteran-owned small
businesses and service-disabled, veteran-owned small
businesses.
Since 2013, as we have heard when this Subcommittee held a
hearing on the issue, VA has been making some progress in
addressing many of the concerns raised. VA has also taken steps
to implement new processes and look for ways to improve the
certification process.
However, we understand that there are problems that
continue to persist and areas that we need to explore going
forward.
It is encouraging to see that the VA has developed a
strategic plan for the long-term management of this program and
has adopted a case management system so that a veteran applying
for certification can speak directly with the person at VA
performing the assessment and address any issues early in the
process.
At the same time, however, I am concerned about high
leadership turnover, low staffing levels, and VA's lack of a
plan with specific actions, milestones, and measures of
progress to manage its efforts to implement the changes. I am
also worried that VA lacks an IT system to adequately support
case management for its verification program.
Unfortunately, an inability to properly oversee and
implement sound processes and issues with collection and
analysis of accurate data seem to be themes we see time and
time again before this Subcommittee.
Today I am interested to hear about the specific steps that
VA plans to take to address these issues, how the VA is
measuring and demonstrating progress, and when we can expect to
see measurable, positive outcomes.
VA must strike the right balance here. On the one hand, VA
must ensure its verification process is vet friendly and not
overly burdensome for our veterans. On the other hand, VA must
prevent fraud and ensure fairness for all veterans-owned
businesses with the certification.
This certification grants our veterans distinct advantages
when competing for VA contracts and government contracts. And
we all want to ensure that these advantages are truly afforded
to small businesses owned by veterans and disabled veterans.
Our Committees in VA must work together to ensure the VA
has the resources it needs and that the proper accountability
measures are in place to achieve this balance so that our
taxpayer dollars are well spent and so that our small
businesses owned by veterans and service-disabled veterans are
able to prosper and receive the preferences that we as a Nation
intend them to receive.
Thank you, Mr. Chairman. I yield back.
Mr. Coffman. Thank you, Ranking Member Kuster.
I now welcome our witnesses to the table. Today we will
hear from Mr. William Shear, Director of Financial Markets and
Community Investments, United States Government Accountability
Office. Mr. Shear has frequently testified before both
Committees and we look forward to hearing his testimony today.
Mr. Quentin Aucoin, Assistant Inspector General for
Investigations, VA Office of the Inspector General. Mr. Aucoin
is the agent in charge of criminal investigations including
those involving fraud in the SDVOSB Program. He is accompanied
by Mr. Gregory Gladhill, Auditor/Manager, Los Angeles Office of
Audits and Evaluations.
Mr. Tom Leney, Executive Director, Office of Small and
Disadvantaged Business Utilization, United States Department of
Veterans Affairs. Mr. Leney is responsible for promoting small
business participation at VA with a particular focus on
service-disabled, veteran-owned small businesses and veteran-
owned small businesses.
All of your complete written statements will be made part
of the hearing record. I ask the witnesses to please stand and
raise your right hand.
[Witnesses sworn.]
Mr. Coffman. Very well. Please be seated.
Mr. Shear, you are now recognized for five minutes.
STATEMENT OF WILLIAM SHEAR
Mr. Shear. Thank you.
Chairmen Coffmen and Hanna, Ranking Members Kuster and
Velazquez, and Members of the Committees, I am pleased to be
here this morning to discuss our ongoing work on 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 with VA.
My testimony discusses preliminary observations on first,
VA's progress in establishing a timely and consistent
verification program and improving communication with veterans
and, second, the steps VA has taken to identify and address
verification program challenges and long-term goals.
Based on our preliminary observations, VA has made
significant improvements to its verification process and
communication with veterans since our 2013 report. VA reported
reduced average application processing times. In addition, we
reviewed a randomly selected sample of verification
applications and found that VA followed its procedures for
reviewing applications.
The agency has also conducted post-verification site visits
to 606 firms in fiscal year 2015 to check the accuracy of
verification decisions and help ensure continued compliance
with program regulations. In addition, VA has made several
changes to improve veterans' experiences with the program.
With respect to the steps VA has taken to identify and
address verification program challenges and long-term goals, VA
has multiple efforts underway to make its verification program
more cost effective and veteran friendly, but our preliminary
results indicate that lacks a comprehensive operational plan to
guide its efforts.
For instance, VA intends to restructure part of its
verification process and in August 2015 began a pilot that
gives veterans a case manager to serve as one point of contact.
VA plans to fully transition to this new process by April 2016.
VA also plans to change the program's organizational
structure and hire a director for the program which has had
three different directors, the last two of which have been
acting directors, since 2011.
Finally, VA plans to replace the program's outdated case
management system but has faced delays due to contractor
performance issues. Efforts are underway to develop a new
system.
VA has developed a high-level operating plan for its OSDBU,
but the plan does not include an integrated schedule with
specific actions and milestone dates for achieving the multiple
program changes underway or discuss how these various efforts
might be coordinated within OSDBU.
Our work over the years on organizational transformations
states that organizations should set implementation goals and a
timeline to show progress. Such a plan is vital to managing
multiple efforts to completion and achieving long-term program
objectives, particularly when senior level staffing for the
verification program has lacked continuity. We continue to
assess these issues and will report our results early next
year.
Again, thank you for the opportunity to participate in this
hearing. I would be happy to answer any questions.
[The prepared statement of William Shear appears in the
Appendix]
Mr. Coffman. Thank you, Mr. Shear.
Mr. Aucoin, you are now recognized for five minutes.
STATEMENT OF QUENTIN AUCOIN
Mr. Aucoin. Thank you, Mr. Chairman.
Mr. Chairman and Mr. Chairman, Ranking Members, and Members
of the Subcommittees, thank you for the opportunity to discuss
the VA Office of Inspector General's work related to veteran-
owned small business and service-disabled, veteran-owned small
business programs.
My testimony today will focus on OIG investigations of
allegations that companies and individuals have fraudulently
obtained Government noncompetitive set-aside contracts by
misrepresenting their status as veteran-owned small businesses,
service-disabled, veteran-owned small businesses, and through
other pass-through schemes which deprive legitimate, eligible
veteran-owned businesses from obtaining contracts they have
earned through their honorable military service.
My written testimony highlights many examples of recent OIG
cases that have been successfully prosecuted. I am accompanied
here today by Mr. Gregory Gladhill. He's an audit manager from
our Los Angeles Office of Audit and Evaluations.
The purpose of the Veterans First Contracting Program is to
ensure that legitimately-owned and controlled veteran-owned
small businesses and service-disabled, veteran-owned small
businesses are able to compete for set-aside contracts as well
as stimulate small business communities and to create economic
growth.
However, the program's set-side advantages have made it a
target for abuse and sometimes fraud by ineligible contractors
using various deceptive schemes to acquire lucrative VA
contracts.
We have opened 386 preliminary predicated investigations
and 168 full investigations regarding allegations of veteran-
owned small business fraud and service-disabled, veteran-owned
small business fraud since 2008.
Currently we have 50 preliminary investigations open and 70
full investigations open. Many of these are being worked
jointly with the Small Business Administration's Office of
Inspector General, others with the General Services
Administration's Office of Inspector General, and we have other
Federal law enforcement agencies that are also working with us
jointly.
Since 2008, our VOSB and SDVOSB investigations have
resulted in the indictment of 56 individuals and five
companies. For those defendants charged, 44 have been convicted
to date. Furthermore, courts of jurisdiction have levied
approximately $15 million in fines against these defendants and
companies and ordered them to pay approximately $6.6 million in
restitution.
We consider these results a significant achievement because
Federal prosecutions in these areas were historically
difficult. It has been difficult to convince Federal
prosecutors that the Government is, in fact, a victim when the
services or products are delivered.
But in these particular instances, it is the program and
the legitimate veterans who are being cheated. We have been
able to convey that, and by doing so, we have obtained
successful prosecutions.
In addition to the criminal and civil prosecutions, our
special agents pursue suspensions and debarments against
individuals and companies involved where there is evidence or
cause for such action. Since fiscal year 2008, we have achieved
72 suspensions and debarments.
Presently most of our investigations involve pass-through
schemes where an eligible business obtains a contract but
passes the business through to an ineligible contractor. The
eligible business performs little or no work under the contract
it passes through.
This is specifically in violation of the requirements under
the contract. Federal acquisition thresholds and limitations on
subcontracting for VOSB and SDVOSB contracts specifically
prohibit this.
A second type of fraud we look at is a scheme that is
commonly referred to as ``rent-a-veteran''. To be eligible for
participation in the Veterans First Contracting Program, the
regulations require one or more veterans or service-disabled
veterans unconditionally direct, control, and own 51 percent of
the business. In the rent-a-vet schemes, an individual who is
otherwise not eligible is controlling the business and the
veteran is only used as a front to obtain the work.
In this scheme, the true owner of the company conspires
with the veteran to have the veteran assume ownership in name
only. A variation of this scheme also involves the
establishment of new firms for the sole purpose of obtaining
set-aside contracts in an inappropriate manner.
We have also investigated cases where veterans who are not
service-disabled or in some cases individuals who are not
veterans falsely self-certify their business. These businesses
improperly benefit from the receipt of VOSB or SDVOSB contracts
and they potentially block eligible veterans from competing for
or obtaining these contracts.
Lastly, we have investigated several cases where corrupt VA
employees have steered business to ineligible contractors and
making it appear as if they were SDVOSB contracts.
In closure, our work demonstrates that the OIG has
developed significant resources to investigate these
individuals and companies who use these deceptive schemes. We
take these allegations seriously and we pursue them
aggressively so that individuals who seek to defraud the VA and
cheat eligible veterans will see this as a deterrent factor and
they will not engage in activities to deprive legitimate
veterans for the contracts that they should get.
Mr. Chairmen, this concludes my statement. We would be
pleased to answer any questions that you or any other Members
of the Committees may have.
[The prepared statement of Quentin Aucoin appears in the
Appendix]
Mr. Coffman. Thank you, Mr. Aucoin, for your testimony.
Mr. Leney, you are now recognized for five minutes.
STATEMENT OF TOM LENEY
Mr. Leney. Thank you, Mr. Chairman.
Chairman Coffman, Chairman Hanna, Ranking Member Kuster,
Ranking Member Velazquez, and Members of the Subcommittees,
thank you for inviting me to testify regarding what the VA has
done to address the challenges in our VA Veterans First
Verification Program.
The VA has made substantial progress in improving the
verification program since the last GAO report of 2013. In
February 2015, GAO began its newest audit of the program. Their
statement of facts reflects many of the improvements made by
the CVE since the 2013 report.
In short, by the end of 2015, applications were being
processed within the regulatory timeframe 99.8 percent of the
time with an approval rate of 94 percent. Initial applications
were processed in an average of 41 days, well below the
regulatory target of 60 days.
Success in codifying its processes resulted in CVE earning
the ISO 9001 certification. OSDBU has also implemented a
rigorous internal audit and continuous improvement process and
CVE has taken action to close 95 percent of all of our internal
audit findings to date.
In addition to the codification of its processes, GAO found
that all of CVE records are now secured, controlled, and filed
in accordance and compliance with NARA standards.
As a part of the oversight of the program, CVE conducts
post-verification audits to monitor ongoing compliance. In
2015, CVE conducted 606 such audits revealing a noncompliance
rate of approximately four percent and a determination error
rate of less than one percent.
These statistics reflect the higher accuracy of
determinations and the widespread compliance by veteran-owned
small businesses with the program.
The extensive program of audits also addresses concern
raised by various stakeholders regarding program ineligibility
or possible fraudulent activities. CVE has implemented a
process for responding to allegations and conducting
investigations where sufficient evidence is provided to support
those allegations.
We work closely with the Office of Inspector General to
identify fraud and indications of fraud are aggressively
pursued by the VA Office of Inspector General with our support.
We have examined the lessons learned from the
implementation of the current verification regulations and
conducted considerable stakeholder outreach. VA has drafted
changes to the rule to improve clarity and more closely align
it to common business practices.
The draft of the rule is currently under final review and
we expect it to be published next Friday in the Federal
Register. And the comment period will end on the 16th of
January 2016.
Since 2013, we have expanded our efforts to communicate
with veterans about the program. Our Verification Assistance
Program consists of several elements now. We now provide access
to more than 320 counselors located around the country at no
cost to the veteran to assist them with the process.
We have expanded a series of verification assistance
briefs, our frequently asked questions and fact sheets that
explain the process and the regulatory requirements. We have
also expanded our customer service center where veterans can
speak with CVE representatives.
CVE created a self-assessment tool that takes the veteran
through every step of the process and every element of the
regulation. We host pre-application workshops and town halls
each month to educate veterans on requirements and the process
and to obtain feedback.
Firms currently receive predetermination findings
notifications and have the opportunity to fix issues or
withdraw without penalty. CVE sends out pre-expiration notices
at 120, 90, and 30 days prior to expiration and follows up with
phone calls at 90 and 30 days to make sure that the veterans
know what their status is.
Although CVE has made great improvements in processing time
and customer assistance, we have not been satisfied. As part of
Secretary McDonald's MyVA initiative, we have undertaken a
transformation of the verification process to improve the
veteran experience.
We reached out to veterans via focus groups and surveys to
identify pain points that remain in the process and are in the
midst of a trial that addresses those pain points.
Feedback to date reflects strong support for the new
process and we expect it to be fully implemented no later than
the end of April of 2016. That is the milestone we have
established.
GAO has reported that the CVE's case management data system
had shortcomings that hindered our ability to operate, oversee,
and monitor the verification process. In 2013, GAO recommended
that we modify or replace the system. We made improvements to
the current system to address short-term issues and established
plans to replace it with a case management system that will
support the new process currently under trial.
In conclusion, the VA has made significant progress in its
Vets First Verification Program. We have overcome many of the
challenges and vulnerabilities that were originally raised by
the GAO and OIG reports. And we continue to improve in order to
align with Secretary McDonald's MyVA initiative.
These improvements will continue to enable veterans to gain
access to the VA program, the results of more than $3.8 billion
in procurement dollars going to veterans, more than 20 percent
of our total spend and approximately 30 percent of the total
Federal Government spend with veteran-owned small businesses.
Thank you for this opportunity and I look forward to your
questions.
[The prepared statement of Tom Leney appears in the
Appendix]
Mr. Coffman. Mr. Leney, CVE has about 16 full-time
equivalent Federal employees and 156 contractors with a budget
of $16.1 million for fiscal year 2015 coming from the supply
fund.
Why has VA not formalized a more appropriate and
transparent funding methodology for CVE?
Mr. Leney. We have formalized a transparent funding
mechanism for CVE. My office, the Office of Small and
Disadvantaged Business Utilization, including CVE is funded
through the VA Supply Fund. And that fund, I believe, is
transparent to the Congress and we provide and are willing to
provide whatever information the Congress would like on details
on how we utilize that budget dollars.
Mr. Coffman. Mr. Shear, in your testimony, you indicate VA
lacks an operating plan and an integrated schedule and that it
also lacks a plan of action and milestone dates for achieving
program changes.
What are your major concerns resulting from the lack of
such an integrated schedule?
Mr. Shear. There are a lot of moving pieces here where
everything is going on at the same time. First you are going to
a case management system that is being tested. Then there is
development of an IT system that presumably would be based on
what type of case management system you were putting in place.
But that is going on at the same time.
You are going through an organizational change at the same
time. And so with those different pieces going on and with the
idea that there hasn't been stability in senior leadership,
there is only, as you just said, 15 or 16 actually government
workers that are involved here, these types of transitions
really take an awful lot of coordination.
How do all the pieces fit together? And we just don't see
any clarity on that.
Mr. Coffman. Thank you.
Mr. Aucoin, the OIG has successfully pursued some fraud
cases related to veteran-owned small businesses.
Can you share your insight into this problem?
Mr. Aucoin. Yes, sir. Presently the majority of the cases
that we are seeing are pass-through type of cases. We do have a
large number of those. These cases are labor intensive. They
are difficult to investigate. But I believe the payoff on these
cases is huge.
We are talking about corruption of a program designed to
allow eligible veterans to get these set-aside contracts,
getting the money back to the Department, and also serving as a
deterrent so that other folks won't try this type of fraud.
It's really important.
Mr. Coffman. How much of it? I know that we have had
hearings, other hearings about the procurement problems within
the VA and the ability of procurement Officers to circumvent
the competitive process through these credit card purchases,
mounting credit card purchases.
How much does that affect this particular program?
Mr. Aucoin. We have had some crossover. We had one
particular case in New Jersey that involved a senior
engineering employee. Half of this $6 million scheme involved
corruption of the SDVOSB process. Steering that business
inappropriately allowed him to steer the business to a company
he helped set up and he got about $1.2 million in kickbacks
from the fraud.
Mr. Coffman. Okay. Thank you, Mr. Aucoin.
Chairman Hanna, you are now recognized.
Mr. Hanna. Mr. Leney, just quickly, could you respond to
what amounted to an accusation that your agency games the
numbers to make the dates look better?
Mr. Leney. That is not a true statement. The VA does not
game its numbers. The department has acknowledged that in the
past, we have had purchase actions that have not been recorded
in FPDS and have not been brought under FAR-based contracts.
It is not clear the impact of those actions on veteran-
owned small business. In fact, the bulk of those actions are
what we call non-VA care purchases that go to doctors' offices.
And I can't tell you what percentage of doctors' offices are
veteran-owned or part of the Federal Government process.
Mr. Hanna. So the answer is that you don't do anything to
change the time it takes you to approve or disapprove in any
way?
Mr. Leney. Sir, I don't understand.
Mr. Hanna. Well, we are talking about the approval process,
the length of time it takes you to approve a veteran or not.
What I heard Mr. Shear say, unless I am mistaken, was that
certain things are done to change that date by making someone
reapply and cancel their original application.
Mr. Leney. Thank you. I now understand.
We have improved the process. The regulation gives us 60
days to complete the process. What we have been able to do is
enable the veteran to take as much time as they need to provide
us with documentation that we need in order to make a
determination.
We have now allowed veterans to withdraw by giving them a
predetermination finding. Originally when you submitted your
application, that application was evaluated and you received a
determination letter which then if you were found to be
ineligible resulted in a six month period of time before you
could come back in.
We now provide that information to the veteran and allow
them to withdraw. It is a courtesy to the veteran. And some
firms withdraw two and three times, but we do that for the
veteran.
Mr. Hanna. Okay. I understand.
When I walked in the room, you and I spoke briefly. And you
had indicated to me that Congress needs to have legislation in
order for you to change the nature of the appeal process, that
basically veterans are appealing to the same individual who
made the original decision, whatever that decision was.
Obviously it was a negative one for them or they wouldn't
appeal.
But, yet, under your Acquisition Regulation 819.3, it is
clear that you have the ability to go--in fact, you can forward
all status protest to the Small Business Administration.
But you don't agree with that, I take it?
Mr. Leney. We forward all size determinations to the Small
Business Administration. We have no objection to utilizing a
different appeal process. I am, in fact, the appeal authority
for verification appeals.
We have talked with the SBA. I have spoken personally with
the Office of Hearing and Appeals. We have no particular
problem with utilizing the Office of Hearing and Appeals.
Unfortunately when we worked through this process, our Office
of General Counsel has informed me that this will require a
legislative change in order for a process within the VA to have
an appeal to another----
Mr. Hanna. So that I understand you, you are perfectly
content having that done by the SBA?
Mr. Leney. I have no objection and----
Mr. Hanna. But you----
Mr. Leney [continuing]. I am not aware of any change----
Mr. Hanna [continuing]. believe that this Congress has to
change the law in order to allow you to do that even though
your own regulations suggest that you----
Mr. Leney. Our own regulations do not allow us to provide
that appeal authority outside the Department of Veteran
Affairs. And the Office of General Counsel has informed me we
will require legislation to do that. But I am not aware and I
am certainly not opposed to using the Office of Hearing and
Appeals.
In fact, we have examined every Office of Hearing and
Appeals' decision over the last three years to make sure that
we are aligned with their interpretations of the regulation
since----
Mr. Hanna. It has got to be a little awkward to be the
originator of the decision and also the person or the group
that one has to appeal to.
Mr. Leney. I don't consider the current appeal process to
be optimal. However, I am separated from, while the Center for
Verification and Evaluation works for me, I am not part of the
center. So it is an appeal to a higher authority, if you will.
But, again, I have no issue or no problem with using the
Office of Hearing and Appeals. We need your help with
legislation.
Mr. Hanna. Thank you. My time is expired.
Mr. Coffman. Thank you, Chairman Hanna.
Ranking Member Velazquez, you are now recognized.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Shear, there continues to be high reliance on
contractors to perform the verification functions with only 15
full-time Federal employees overseeing all contractors.
Additionally, many of the contractors are classified by VA as
key personnel.
Is it at all concerning that VA lacks the capabilities
internally to run its verification program?
Mr. Shear. There are a number of concerns that can be
raised about this arrangement with such a small number of
government workers. One thing is that when you have government
staff, you have the ability to train the staff and to develop
the capacity over time to conduct the function. And that is
being lost by saying we are going to go out and contract
whenever we need people with certain qualifications.
So that is one of the first concerns. There are concerns
with overseeing--here I might be answering another question,
but there might be concerns when you do use contractors to have
the capability to actually oversee those contractors. So those
would be two of the issues that I would highlight.'
Ms. Velazquez. So in your opinion, does VA have the
expertise to oversee all of these contractors?
Mr. Shear. We observe that there is a very small number of
people who are engaged in the program. So I can't point to the
people and just say that they are not capable.
There are certain contracts we see being used both in terms
of operating the program and in terms of evaluation to try to
determine where the program should go where it is of concern of
whether these 15 or so employees really have the capacity to
oversee those contracts.
Ms. Velazquez. Thank you.
Mr. Leney, some question whether contractors should even be
performing this work because it can be deemed inherently
governmental or at the very least a conflict of interest.
Mr. Leney, what controls do you have in place to ensure
that there is no improper use of applicant information by the
contractors?
Mr. Leney. We have internal controls to ensure that the
information that is provided to CVE as part of the verification
process remains confidential. All contractors that are involved
in the program sign nondisclosure agreements.
We have multiple check points. All verification
applications are reviewed by a Federal employee. We utilize
contractors because it gives us flexibility and we are able to
acquire high-quality.
Ms. Velazquez. But what mechanisms do you have in place to
oversee that first, they have the training because they are
conducting on-site visits, right?
Mr. Leney. Yes.
Ms. Velazquez. They perform IT to application reviews. Do
they have the training? Do they have the expertise? And then
what type of oversight mechanisms do you have in place to make
sure that the access to the information and the data that they
have is not used improperly?
Mr. Leney. We know that they are trained because we train
them. We train all of our staff, our Federal reviewers, our
evaluators, our site visitors to the same standard. All of them
are required to be qualified and certified to do the job. They
are trained to exactly the same standard.
Ms. Velazquez. Okay.
Mr. Leney. Utilizing contractors, I have lawyers. Every
single evaluator is a lawyer. Many of them have MBAs. So we are
able to acquire high-quality people through a contracting
mechanism much more quickly and efficiently than we would if we
were hiring federal staff.
Ms. Velazquez. Thank you, sir.
Mr. Aucoin, Mr. Leney's testimony indicated that the
verification program has a 61 percent approval rate when
businesses request reconsideration of their application.
Has your office investigated whether these businesses are
receiving appropriate levels of scrutiny in their
reconsideration?
Mr. Aucoin. The Office of Investigations has not addressed
that particular issue. But I would ask Mr. Gladhill if he has
something he can speak to in that area.
Mr. Gladhill. Yes. The Office of Audits and Evaluations
currently has not looked at that rate, but in fiscal year 2017,
we will be doing a follow-up review of the verification
process. We will consider that for part of our methodology.
Ms. Velazquez. Thank you.
Thank you, Mr. Chairman.
Mr. Coffman. Thank you, Ranking Member Velazquez.
Ranking Member Kuster, you are now recognized.
Ms. Kuster. Thank you, Mr. Chairman.
And I will direct my questions to Mr. Leney. Apparently,
the IT contract for the case management system has been
canceled on performance grounds.
What is your plan to ensure the case management system is
supported with necessary IT capability and when can we expect
to see an IT system in place to support the CVE's verification
program?
Mr. Leney. That is correct, Congresswoman. We did cancel
the procurement of our follow-on case management system. We
were concerned about the performance on the contract. And as
stewards of the American taxpayer, we cannot allow a contract
to continue forward if we don't believe it is going to result
in----
Ms. Kuster. How did it take $800,000 worth of the contract
before you determined that?
Mr. Leney. Because a contractor was able to complete a
portion of the contract and then we were able to determine in
the course of that that they would not be able to complete and
they were not delivering on the rest of the contract.
Ms. Kuster. Were they qualified when they were chosen?
Mr. Leney. Yes. They were qualified through the procurement
process.
Ms. Kuster. And what is it that you got for that sum, over
$800,000 of taxpayer money?
Mr. Leney. We got some of their earlier deliverables. But
when they failed to meet subsequent deliverables and we
realized they had made a change in their subcontracting
arrangements, we did not have confidence they would be able to
complete the contract.
Ms. Kuster. Well, let me ask you this. Where do we go from
here and is there any value to the taxpayer of that $800,000?
Has anything been salvageable?
Mr. Leney. Yes. We were able to salvage the analysis of the
baseline system that they provided. We have worked--we work
very closely with the Office of Information Technology through
the PMAS process. So we have put together an extensive and
detailed plan for the acquisition and implementation of a new
system.
Ms. Kuster. And what is the timeline for that?
Mr. Leney. The timeline for that is 2017. What remains,
however, is we have been asked by the Supply Fund to go back to
the Supply Fund and reinitiate the fundamental business case.
We did a business case for the original system. They have
asked us to provide them with a new business case for the
follow-on system. We had anticipated doing a pilot here in the
first quarter of 2016, but I will require approval by the
Supply Fund board to do that.
Ms. Kuster. So I am going back to Mr. Shear's comment. We
have a lot of moving parts and you are trying to change to a
case management model while you are in the process of
redeveloping this IT program.
Are you able to move forward with the transition to the
case management model before the IT for case management is in
place?
Mr. Leney. Yes. In fact, one of the reasons we have not
pursued more aggressively the change in the case management
system is as part of our MyVA effort, our fundamental change in
the verification process.
We are in the midst of a trial. That will be complete here
by the end of the first quarter of the fiscal year. We will
have a new process in place with contracts by April and we will
be able to adapt the verification case management system to
support that.
Ms. Kuster. So further on that, my question is, have you
performed an analysis of the SBA verification process versus
the VA verification process because just speaking on behalf of
veterans and business owners, this seems like incredibly over-
burdensome government regulation that is timely, costly?
And I don't see it serving any additional purposes. If the
SBA manages to get these verifications done at a higher rate in
a more efficient manner, why don't we just adopt their system
or better yet----
Mr. Leney. The SBA does not have----
Ms. Kuster. [continuing]. why don't we just say if you are
verified, you can have the contract?
Mr. Leney. Two important points. We have done a detailed
examination of both the SBA regulation and our regulation and
determined there is no material differences between the two
currently. There will be some differences when our rule change
goes into effect as we seek to make our rule more consistent
with normal business practices.
Secondly, the SBA has no verification program. The only
time the SBA looks at a veteran-owned small business is in
response to a status protest. Last year, they did about 40. We
did about 4,500 verifications. The difference between the SBA
and the VA is we verify, they do not.
And we believe that--you have heard Mr. Aucoin. You know,
we think it is, A, you have mandated that we do it and we
support that because we think it is very important that the
$3.9 billion that goes to veteran-owned small businesses goes
to people who are the real deal. It is real money to real vets.
Ms. Kuster. Well, I don't disagree with that. I just wish
we could do it more efficiently and more effectively. So----
Mr. Leney. Ma'am, I think we are.
Ms. Kuster [continuing]. Appreciate your efforts. Thank
you.
Mr. Leney. I think we are.
Mr. Coffman. Thank you, Ranking Member Kuster.
Dr. Huelskamp, you are now recognized.
Dr. Huelskamp. Thank you, Mr. Chairman.
I would like to continue following up on that line of
questions of Mr. Leney and talking about the SBA.
Does the CVE coordinate and communicate with the SBA to
determine companies that are too large and should be removed
from your database?
Mr. Leney. Yes, sir, we do. All issues with respect to size
are referred to the SBA. The SBA is the only organization
within the Federal Government that is authorized to make size
determinations.
We do not make those determinations. If in the course of
our examinations, we believe that the company is not small, we
refer those companies to the SBA.
Dr. Huelskamp. You say that is the case, but I see at least
a couple companies brought to my attention that SBA has
determined they are a large business.
Do you monitor their published decisions on this?
Mr. Leney. Yes, we do, sir.
Dr. Huelskamp. Okay. Well, we have a case of a construction
company in Flemington, New Jersey and beginning in 2012
determined to be a large business.
Yet, here it is three years later, you are still
disagreeing with that SBA decision?
Mr. Leney. To explain that, sir, what happens is the SBA
makes a size determination with respect to a particular North
American industry code in a particular procurement. To be
eligible for verification, you need to have at least one--be
considered to be small in at least one NAICS code. For example,
a firm could--one NAICS code----
Dr. Huelskamp. I don't want to get into details. So you are
saying you have different definitions of small and large
business?
Mr. Leney. No, sir, we do not. We have the same
definitions. It is--their determinations are much narrower than
ours.
Dr. Huelskamp. Same definition, but narrower? I am missing
the point.
Mr. Leney. Yes, sir. When they do a size determination, it
is with respect to particular industry sector.
Dr. Huelskamp. All right. Well, I would like a little
follow-up on that----
Mr. Leney. And we would be happy to follow-up.
Dr. Huelskamp [continuing]. Because apparently they
disagree. There are two companies here where they say they are
a big business and you say they are not under the same
definition, is that----
Mr. Leney. I can't speak to the individual company. I am
happy to look into that and provide you with an answer for the
record, sir.
Dr. Huelskamp. Okay. I would like to follow-up on that.
Mr. Leney. Yes, sir.
Dr. Huelskamp. And, secondly, with Mr. Aucoin, I appreciate
your testimony and the department's support of our efforts in,
I believe it is House Bill 3015 to fix some of these problems,
so I appreciate that and this verification process.
You do outline a few areas in which you see the fraud,
whether it is the rent-a-vet scheme, you know, whether it is
the false pass-through schemes, or you do indicate a few cases
of corrupt VA employees.
In particular, back on the issue with the Machinga
situation----
Mr. Aucoin. Yes.
Dr. Huelskamp. [continuing]. How was that discovered where
a corrupt VA employee received $1.2 million in kickbacks just
sentenced to 46 months in prison? I mean, can you quickly
describe how that was found out and how that will be avoided in
the future?
Mr. Aucoin. It was discovered as part of another similar
investigation. While we were conducting the investigation,
information regarding that scheme came to light. And once the
lead came to our attention we did a thorough investigation. The
scheme was wide ranging. It was a $6 million scheme and quite
complex. But it came to light while we were doing a very
similar investigation.
Dr. Huelskamp. So you just happened, somebody happened to
stumble upon this. Well how was that, I mean I want you to be
brief, how was that hidden? How will that be found out in
future situations? I am particularly concerned when Mr. Leney,
I think he mentioned that he was the single final appeal on
some part of this process.
Mr. Aucoin. Right.
Dr. Huelskamp. Do we have that type of authority
established in one individual rather than a Committee elsewhere
in the VA?
Mr. Aucoin. I do not know the answer to that. I will take
that one for the record.
Dr. Huelskamp. Okay. So again, how will this be avoided,
the Machinga situation, in the future?
Mr. Aucoin. The biggest area we look at is pass throughs.
That right now is just the biggest area of fraud. And I think
that there is currently some things under consideration
legislation-wise regarding a certification. At the time of
contracting, it would be great if there was a bright line. We
are a country of bright lines. If the veteran that is eligible
saw this bright line and said, look, you are going to have to
do this right, and these are the rules in one place. And under
the penalties of Title 18 Section 1001, you certify that you
are going to do it right. That would put a bright line there so
that folks would not get trouble, but also it would give us a
better tool to address this, whether it is for debarment,
suspension, or judicial action. And I think that is presently
under consideration now.
Dr. Huelskamp. And I appreciate that. It is H.R. 3016. I
appreciate the prosecution side of that. I would like a little
feedback of how you discover the problem.
Mr. Aucoin. Yes.
Dr. Huelskamp. I mean, not, you know, this is a corrupt VA
employee steering megamillion dollar contracts to his buddies,
I guess, and somehow we just stumble upon that? I mean, it
shows that there are some serious problems in the program when
that can occur. And I would like a few more details on how we
avoid that in the future. So I appreciate the work you all did
in finding that situation, and the FBI did prosecute that. But
that is very troubling to me, that that can somehow continue to
occur.
Mr. Aucoin. Right.
Dr. Huelskamp. So thank you. I yield back.
Mr. Aucoin. We have some proactive work in that area. But
most of our referrals come from contractors who are eligible
and they find out that someone else who they believe is not
eligible got the contract. And it is kind of a self-governing
system among eligible veterans. They say I know these folks are
not eligible, and I wanted to get that work because I am
eligible, and I want to make this referral. And the bulk of our
allegations presently come in , in that way.
Dr. Huelskamp. Okay. I yield back. Thank you, Mr. Chairman.
Mr. Coffman. Thank you, Dr. Huelskamp. Ms. Rice, you are
now recognized.
Ms. Rice. Thank you, Mr. Chairman. Mr. Aucoin, I just
wanted to follow up on what Dr. Huelskamp was asking you about.
So a lot of these cases, these investigations, start with an
eligible--well, you tell me what percentage starts with an
eligible contractor informing you or someone at the VA that
someone who has been awarded a contract is ineligible?
Mr. Aucoin. Right now the majority of our cases do
originate in that fashion, yes.
Ms. Rice. So I guess what my question is, what are we doing
wrong here? I mean, I am hearing a lot of, what are we doing--
well, first of all I think everyone would agree that the
Veterans First contracting program is a worthwhile program.
Mr. Aucoin. Yes.
Ms. Rice. That needs to, the integrity of which needs to be
maintained if it is going to serve the purpose, right?
Mr. Aucoin. Yes.
Ms. Rice. So why, it seems to me like there is absolutely
no vetting done up front and it is not until we hear about
someone who did not get a contract and we get a tip that an
investigation starts. Why is there no ability to identify
ineligible fraudulent contractors earlier?
Mr. Aucoin. Well, I would not say there is not a vetting
process. When the Veterans First Contracting Program first
started we did have a number of folks that just were not
eligible at all. They were not veterans and they certainly were
not disabled veterans, and we did have a number of cases like
that. But our work load has shifted. Now most of the cases we
see are pass throughs, where they are eligible but they just do
not do it correctly. We do have occasional instances where
there are corrupt VA employees who will steer the contract to
someone who is not eligible. But again, the vast majority of
our work now are pass through schemes.
Ms. Rice. So you are saying that it is impossible to
disqualify that scenario because it is not until the actual
contract is being implemented----
Mr. Aucoin. That is correct.
Ms. Rice [continuing]. that you see the fraud?
Mr. Aucoin. Right. And again, speaking of bright lines, it
would be advantageous if at the time the contract is signed it
advises the contractor that they are responsible for following
all of the regulations for performing a certain percentage of
the work depending on the type of contract. It is different for
construction versus other services. But you have to follow the
regulations. If you pass through and you do none of the work or
very little of the work, that is a violation in the middle of
the contracting action. You are eligible up front, but you
basically made yourself ineligible by fraud in the middle of
the contract.
Ms. Rice. One of the biggest--well, I agree that making it
a penalty, right, making them sign the legislation that we were
talking about is actually very, a great idea to act as a
deterrent. But the other deterrent, I think, is that when you
catch people that they are actually debarred forever, forever,
right? I mean, can you just explain the whole debarment process
and how effective--I forget the number. How many debarments
were there?
Mr. Aucoin. I can give you----
Ms. Rice. I guess the number does not matter but just----
Mr. Aucoin. [continuing]. We have 72 companies debarred.
Ms. Rice. Okay, so 72 companies. But you, so out of how
many investigations? I mean, is every ineligible fraudulent
company debarred?
Mr. Aucoin. Every time that we determine that the crime did
in fact occur we will make that referral. You know, I know that
you are a former prosecutor. You understand that intent is the
hardest thing in proving a crime. Once we get over the hump of
proving the intent, I think that, one, we are very close to
getting a criminal prosecution that is appealing to the
prosecutor. But also it is clear that some suspension and
debarment action needs to be taken.
Ms. Rice. Well I cannot tell you how in favor of debarments
and fines and penalties, I am, because when you hit people
where it hurts the most, that is an actual deterrent. I am not
talking about jail, although clearly that former employee
deserved to go to prison.
Mr. Aucoin. Yes.
Ms. Rice. But I think, it just seems to me that there are
steps that we can take to not allow so much money to go out and
be taken away from legitimate, you know, service-disabled
veteran small businesses or veteran-owned small businesses,
right? I mean----
Mr. Aucoin. Yes.
Ms. Rice. Thank you. I yield back.
Mr. Coffman. Thank you, Ms. Rice. Mr. Kelly, you are now
recognized.
Mr. Kelly. Thank you, Mr. Chairman. Mr. Leney, I want to go
back to the 60 days to complete the process and to your comment
saying that is in the best interest of that veteran, that small
businessperson. What percentage of those applications are
resubmitted after their initial submission?
Mr. Leney. I will have to take that question for the
record. I cannot give you exact data. But most applications go
through the first time. When we have a predetermination finding
we allow them to correct it. If it is going to require a
complete reevaluation we give them the opportunity to receive a
determination or to withdraw. Again, this is a courtesy to the
veteran.
Mr. Kelly. Yes, those things, as a veteran and as a former
district attorney, those things that are generally courtesies
to the veterans kind of scare me sometimes. Because that is an
easy way to also make your numbers. People did it with
maintenance in the military, and lots of other ways. But what
process do you have in place that during that 60 days you
actually talk to that veteran and look at the packet and say
you need these things to thoroughly complete it? Do you have
anything in place that tries to do that before the 60 days
without dismissing or withdrawing and resubmitting?
Mr. Leney. Yes sir, we do. In fact our predetermination
findings program is the evaluator speaks with the veteran, lays
out all the findings and those issues that would make the
veteran ineligible, gives the veteran an opportunity to explain
them. In some cases they can be explained. In some cases they
require a change in the business model and we allow the veteran
to make that change.
Mr. Kelly. All right. Going back, Mr. Director, I
understand that during your tenure, or during your tenure, the
Center for Verification and Evaluation has had three different
directors and the last two have been acting directors.
Additionally, from March of 2014 until September, 2015 there
was a vacancy in the CVE deputy director position. How have in
spite of all these key leadership positions being vacant, or
changing rapidly, or many times during that period, how have
you, what steps have you take to form a strategic plan that
allows you to operate and to fix all these things to make it as
smooth as possible?
Mr. Leney. We have operated under a plan to fix these
things. We have fixed them. Yes, it is true I have had two
acting directors. However, the fact that they were acting
directors has not adversely affected our abilities to perform
the mission. I have an excellent federal staff in the Center
for Verification and Evaluation. We have now just closed on the
announcement for a new director. The reason we had an acting,
we did not have a deputy director, is because the deputy
director was acting as the director for a period of time. But
we now have a new deputy director and the job announcement just
closed and we will be assessing for a new director here
shortly.
Mr. Kelly. And I apologize. I am bad with name
pronunciation. Mr. Aucoin? Just on, I know the pass through is
the primary thing that you have identified the way that people
abuse. Is there another or other key areas that people
routinely use besides the pass through to try to get around the
system?
Mr. Aucoin. There is a scheme that is commonly referred to
as ``rent a vet''. They get a veteran who would be eligible and
they prop the veteran up as a figurehead in the business. And
the veteran essentially does nothing, no decisionmaking, and
has no ownership. But the fraudulent business makes it appear
that the veteran is in charge. And that is one of the schemes
that is used. Not as common as pass through, but that is one of
the schemes.
Mr. Kelly. Mr. Chairman, I yield back.
Mr. Coffman. Thank you, Mr. Kelly. Mr. King, you are now
recognized.
Mr. King. Thank you, Mr. Chairman. And I thank the
witnesses, and I appreciate this hearing. And I wanted to
compliment Ms. Rice on her questioning and I see that she has
had to leave. But I like the direction that she went with that,
being a prosecutor. I would take this, I will go to Mr. Aucoin
first, but I take this beyond that. She said that, you know, a
permanent bar or a bar forever for those who have gamed the
system. Of course, I am all for that. Her reference was there
is very little, appears to be no vetting up front. That may or
may not be the case. But here is where I would like to know
what is the certification when someone applies for a government
contract under a, say, a combat disabled vet or a service-
disabled vet? What is the certification up front? What is the
background check on that for verification of that
certification? And you testified that when they fail on the
contract that is often when you find out, or if a competing
contractor identifies and blows the whistle so to speak.
Mr. Aucoin. Right.
Mr. King. They blow the whistle to who? Who acts on it?
What kind of cooperation are you getting out of the Justice
Department? Let me stop with that for a moment and then follow
up.
Mr. Aucoin. That is quite a list. First of all, the
certification is done through the CVE, that falls under Mr.
Leney. We are not getting the number of referrals that we once
did that says this business just is not eligible for either a
veteran-owned small business certification or service-disabled
veteran-owned small business. Those type of allegations just
have not come in as frequently as they once did when the
Veterans First Contracting Program initially started.
As far as the reception that we are getting from Department
of Justice, they are entertaining our cases. It has not always
been an easy sell. Because if the contract is to build a
parking garage, for instance, that is a fairly complex process.
If you have a business that can do that and they deliver it and
then in midstream you find out they did a pass through, the
Government is going to get something in return for expending
that money. But you have now eliminated a legitimate veteran-
owned small business from doing that work. The money is passed
through. You have not developed the capabilities of a veteran-
owned small business to compete down the road.
Mr. King. If I might, Mr. Aucoin, I am aware of those
circumstances where an individual contractor or even a group of
contractors have gone out and found the straw man to be their
front----
Mr. Aucoin. Right.
Mr. King [continuing]. in a disadvantaged business
enterprise and whatever category it might be. And that sets up
straw companies.
Mr. Aucoin. Yes.
Mr. King. And then the participation level of the
requirement, I do not remember the percentage of that. Did
anybody testify to the percentage of the contract that has to
be performed by the disadvantaged business?
Mr. Leney. Fifty-one percent.
Mr. King. Okay, and that is the number. And so then the
subcontracts are to total up to be less than 51 percent. Then
because of that answer I go to Mr. Leney, as Ms. Rice spoke
about this being debarred for life, how many of these contracts
we are talking about here are not bonded?
Mr. Leney. You are referring to construction contracts----
Mr. King. Well, but also beyond that. Supply contracts,
unbonded supply contracts seem to me to be an open door for
people to get in. And the only verification is after the fact.
Construction contracts, though, would be the first part of the
answer.
Mr. Leney. I think it is important to distinguish here
between the verification of ownership and control, which is
what the Center for Verification and Evaluation does and is the
focus of this hearing, and the acquisition actions that are
taken by a--you can have a company that is owned and controlled
by a veteran who fails to meet the limitations on
subcontracting, and that is what Mr. Aucoin has been referring
to as the bulk of the OIG investigations. But the CVE does not
get into that, that is not their area of responsibility.
Mr. King. So, okay, of course that does not answer my
question. But I turn back to Mr. Aucoin. Do you know, are you
aware, are any of the witnesses aware of the distinctions
between what percentage of the construction contracts are
bonded for performance and payment and bid bonds, and the
distinction of that. If you have got a prime contractor that is
bonded in that fashion, then their finances have been vetted by
the bonding company. So is there a problem in this area at all
that you are aware of?
Mr. Aucoin. I do not know the answer to that. We will have
to take that for the record.
Mr. King. Okay. And I would say then perhaps I could turn
this in to Mr. Shear. Are you aware of any problem in this
particular area?
Mr. Shear. In terms of bonding? Or do you----
Mr. King. Well and what percentage of the contracts, we are
down now to construction contracting and it is six seconds. So
is there an awareness of what percentage of the construction
contracts themselves that are being performed by disadvantaged
businesses that are military veterans that are bonded versus
those that are not bonded?
Mr. Shear. No, we have not looked at individual contract
actions.
Mr. King. Thank you. And my comment into this Committee
then, Mr. Chairman, is that is a very serious topic to look
into. The bonding companies are a private sector solution to
this. They set the terms on that, the premiums on the bonding
and according to the degree of risk on a certified financial
statement. So if we have a, we have straw men that step forward
if they do not have the capital they will not get the bond. And
I just ask that this Committee take a look at that perhaps in a
future hearing. And I appreciate the attention and I yield back
the balance of my time.
Mr. Coffman. You have a very good point. Thank you, Mr.
King. Mr. Leney, per the VA's acquisition regulations 819.307,
all that is necessary for SBA to take over deciding status
protests from CVE is for CVE to execute an interagency
agreement with SBA. Why did the VA's general counsel approve
the VA acquisition regulation but tell you a new law is
necessary?
Mr. Leney. I cannot speak to the former. All I can speak to
is what I was told by the Office of General Counsel We can take
that for the record and we will provide a comprehensive
response.
Mr. Coffman. Yes, I would very much like to see that
opinion from the General Counsel.
Mr. Leney. We will provide that.
Mr. Coffman. Mr. Leney, CVE's VIP database shows that less
than ten percent of verified businesses are doing business with
VA. Why are you allowing CVE to distract from your primary
mission as Small Business Director, particularly since having
CVE under OSDBU is not compliant with the Small Business Act?
Mr. Leney. To answer the last part first, we do not believe
that my oversight of the CVE is not in compliance with the
Small Business Act. We believe that the verification process is
an important enabler for small businesses to do business with
the VA. And it is very much, we seek to very much integrate
that with providing opportunities for veteran-owned small
businesses. We however do not restrict people from applying for
verification to those firms that are doing business or seek to
do business with the VA.
Mr. Coffman. Given the large budget for CVE this would seem
to be a very poor rate of return for VA's investment. What have
you done to turn this around? And what quantitative results
have you achieved?
Mr. Leney. The actual costs of verification are going down
and we anticipate significant further savings as we institute
both a new information system and a transformed process.
Mr. Coffman. Mr. Shear, it seems to me that VA's failure to
develop a comprehensive operating plan has some similarities
with the conclusion in your 2013 report regarding the VA's
failure to develop a comprehensive strategic plan. What
similarities do you see at these two points of time? Also,
please elaborate on what VA has done since 2013 and the areas
that still need attention with respect to the planning for the
verification program?
Mr. Shear. Thank you for the question. Let me address it in
two parts, starting with 2013. When we first started that
engagement we thought by that time after the passage of time
since the 2006 act, we would be testing a system to see how
well it was working. Whether it was doing its job, whether it
was consistent, things like that. And we found out that there
was no stable system. So then we backed up. And we asked, have
you thought strategically about what this system is supposed to
do and how to develop it? And there was no strategic plan. So
that was basically part of the outcome. And sometimes you say,
well, GAO is big on planning. Well, we are. It is for a reason.
It is saying, establish your goals and how you are going to
achieve them.
So after our report there was a strategic plan, which is
basically a fairly high level type of approach of what your
goals are and how you hope to achieve them and what types of
measures you will have to see whether you are reaching them. So
what we have now is a planning problem.
So it is still a planning problem. It is a planning problem
when certain transformation or something new or a number of new
things are starting to happen. And then you just say there are
so many moving parts here and there is just a lack of
coordination among those parts, especially with the turnover
and the small number of government employees. It just
especially raises the concern. But just generally, even in the
absence of those things, when you have a number of moving parts
you always need a plan, whatever you want to name it, you have
to know what are you going to do at certain times, what things
feed into the other pieces, and create some clarity on where
you are going and exactly how you are going to do it.
Mr. Coffman. Thank you, Mr. Shear. Chairman Hannah, you are
now recognized.
Mr. Hanna. Thank you, Mr. Chairman. Mr. Shear in your
written statement you said it is not clear if OSDBU will
develop an overall plan that captures and integrates the
various efforts it has been undertaking that are managed by the
CVE and other program teams within OSDBU, unquote.
As you know the Small Business Committee has long been
concerned that OSDBU is focusing on areas other than those
explicitly stated in the Small Business Act. But should we be
concerned that this marriage of CVE and OSDBU is diluting the
ability of each to focus on its core mission and deliver
results? Are the organizations within OSDBU and other CVE
involved in the verification process, if that is clear?
Mr. Shear. You asked a great question. And based on our
audit work I cannot answer it completely. But let me just make
some observations, if I could, Mr. Chairman?
We have looked at OSDBUs at the Committee's request. And it
is very important what the mission of the OSDBU is, and that
they have stature in their agency, and that they are focused on
expanding opportunities in the Federal contracting work space.
It is all part of the whole apparatus around the Small Business
Act. That is what the focus should be.
I do not think that if part of that is a policing function
that it necessarily disqualifies the OSDBU, and this is not a
statutory interpretation, it is not like our General Counsel
has reached a statutory determination. But it may not
disqualify the OSDBU if part of its actions are engaged in some
type of policing action. But the very good question that you
ask, which we have not evaluated and I do not think others
have, is in cases where an OSDBU might have a broader kind of
reign and level of responsibilities. In the extreme is the
situation that Mr. Leney is in, that it raises an issue as far
as what is the focus of this office. So I cannot talk about the
particulars. I do not know how much of his time or of the
OSDBU's time goes into the various activities, or how focused
it is on expanding opportunities for small businesses,
including service-disabled veteran-owned small businesses. But
you raise a very good issue.
Mr. Hanna. Thank you. I yield back the balance of my time.
Mr. Coffman. Thank you, Chairman Hannah. One more question
for Mr. Shear. Based on evidence to date from VA's site to
verify firms, do you think VA has sufficient information to
make informed choices about the extent to which the
verification program has effectively identified only eligible
firms?
Mr. Shear. Thank you.
Mr. Coffman. Please use the microphone.
Mr. Shear. I am sorry?
Mr. Coffman. Please turn your microphone on. Is it on?
Mr. Shear. It is on.
Mr. Coffman. Okay.
Mr. Shear. I will turn it off and back on. Okay. Now can
you hear me?
Mr. Coffman. Go ahead.
Mr. Shear. Okay. Thank you. Sometimes the simplest numbers
are used. And as we reported based on site visits there were
only a couple of firms that were found where the decision made
at the time of verification was incorrect. We also found that
there were a relatively small number of firms based on site
visits where the verification, where basically the verified
firm was no longer eligible, which goes to the issue that
sometimes businesses change over time. But based on that what I
am presuming is that the site visits are performing the way
they are supposed to be. It is a very comprehensive look at a
business. So based on that, it seems like the program is
working fairly well at making verification decisions, at least
not verifying firms that should not be verified. There are
questions that if, as these changes go on and certain changes
are made in the whole verification process of how much do we
need site visits to make sure that the decisions are being made
correctly? But based on those simple numbers it suggests that
VA is not verifying firms that are not eligible.
Mr. Coffman. Thank you, Mr. Shear. Our thanks to the panel.
You are now excused and I will go over to Chairman Hannah for
his closing remarks.
Mr. Hanna. Thank you. After our last hearing on this topic
Chairman Coffman showed real leadership and introduced the
Improving Opportunities to Service-Disabled Veterans-Owned
Small Business Act of 2013. I believe you are going to speak to
that in a moment. I look forward to seeing that reintroduced.
There are a lot more questions here than answers. I am curious
why we cannot keep someone in this position. We have had three
different directors in a very short period of time. It would
seem to be an easy position to fill but apparently they are
not. But with that I look forward to signing the legislation
that your legislative counsel required and I thank you for
being here today, all of you.
Mr. Coffman. Thank you. Thank you, Chairman Hannah. Today
we have had a chance to hear about the serious challenges that
still exist in the verification process administered by CVE.
From the testimony provided and questions asked today, it is
clear that given all the years that have passed since this
program was set up, and the resources that have been added to
CVE, it is reasonable that we would expect that VA be further
along than this.
As such, this hearing was necessary to accomplish a number
of items. Number one, to identify the challenges that persist
with CVE in its verification of vet status and with VA
implementation of the Vets First goals. Two, to hear about
continuing enforcement efforts by OIG in combating fraudulent
awards to ineligible contractors. Three, to determine what
steps need to be taken to move toward full and fair
implementation of the Vets First Set-Aside program. Four, the
hearing was also necessarily to emphasize the importance of
legislation I plan to introduce shortly that unifies the
definition of VOSB and SDVOSB; unifies VA and SBA regulations;
and finally creates an appeal process through the SBA Office of
Hearings and Appeals.
I ask unanimous consent that all Members have five
legislative days to revise and extend their remarks and include
extraneous material. Without objection, so ordered. I would
like to once again thank all of our witnesses and audience
members for joining us today in today's conversation. With
that, this hearing is adjourned.
[Whereupon, at 12:05 p.m., the Subcommittees were
adjourned.]
APPENDIX
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