Department of Veterans Affairs
Agency Has Exceeded Contracting Goals for Veteran-Owned Small Businesses, but It Faces Challenges with Its Verification Program Gao ID: GAO-10-458 May 28, 2010The Veterans Benefits, Health Care, and Information Technology Act of 2006 (the 2006 Act) requires the Department of Veterans Affairs (VA) to give priority to veteran-owned and service-disabled veteran-owned small businesses (VOSB and SDVOSB) when awarding contracts to small businesses. The 2006 Act also requires GAO to conduct a 3-year study of VA's implementation of the act. GAO evaluated (1) the extent to which VA met its prime contracting goals for VOSBs and SDVOSBs in fiscal years 2007-2009; (2) VA's progress in implementing procedures to verify the ownership, control, and status of VOSBs and SDVOSBs in its mandated database; and (3) VA's progress in establishing a review mechanism of prime contractors' subcontracts with VOSBs and SDVOSBs. GAO obtained and analyzed data on VA's prime and subcontracting accomplishments, and reviewed a sample of verified businesses to identify any deficiencies in VA's verification program.
While VA exceeded its contracting goals with VOSBs and SDVOSBs for the past 3 years, it faces challenges in continuing to meet its other small business contracting goals and monitoring agreements with other agencies that conduct contract activity on VA's behalf. While VA was able to exceed its contracting goals for VOSBs and SDVOSBs, its contracting with women-owned small businesses and HUBZone firms fell short of its goals during this period. In addition, GAO's review of interagency agreements found that VA lacked an effective process to ensure that interagency agreements include required language that the other agency comply, to the maximum extent feasible, with VA's contracting goals and preferences for VOSBs and SDVOSBsand to monitor the extent to which agencies comply with the requirements. VA has made limited progress in implementing an effective verification program. While the 2006 Act requires VA to use the veteran preferences authorities only to award contracts to verified businesses, VA's regulation does not require that this take place until January 1, 2012. In fiscal year 2009, 25 percent of the contracts awarded using veteran preferences authorities went to verified businesses. To date, VA has verified about 2,900 businesses--approximately 14 percent of businesses in its mandated database of VOSBs and SDVOSBs. Among the weaknesses GAO identified in VA's verification program were files missing required information and explanations of how staff determined that control and ownership requirements had been met. In addition, VA's procedures call for site visits to further investigate the ownership and control of higher-risk businesses, but the agency has a large and growing backlog of businesses awaiting site visits. Furthermore, VA contracting officers awarded contracts to businesses that had been denied verification. Finally, although site visit reports indicate a high rate of misrepresentation, VA has not developed guidance for referring cases of misrepresentation for investigation and enforcement action. Such businesses would be subject to debarment under the 2006 Act. To ensure a thorough and effective verification program, VA needs robust procedures for reviewing businesses, an effective system to ensure that contracting officers do not use veteran preferences authorities with denied businesses, and clear guidance for referring businesses potentially abusing the program. VA has developed a mechanism to review prime contractors' subcontracts with VOSBs and SDVOSBs, but the agency has not yet implemented it. For the past 3 years, VA fell substantially short of achieving subcontracting goals for VOSBs and SDVOSBs. The agency acknowledged shortcomings in this area and intends to use a review mechanism to confirm all subcontracting activities by prime contractors with approved subcontracting plans for a sampling of contracts awarded in fiscal year 2010. VA expects increased performance for subcontracting goal attainment as a result. It is too soon to assess the effectiveness of VA's subcontracting efforts.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: William B. Shear Team: Government Accountability Office: Financial Markets and Community Investment Phone: (202) 512-4325GAO-10-458, Department of Veterans Affairs: Agency Has Exceeded Contracting Goals for Veteran-Owned Small Businesses, but It Faces Challenges with Its Verification Program
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
May 2010:
Department of Veterans Affairs:
Agency Has Exceeded Contracting Goals for Veteran-Owned Small
Businesses, but It Faces Challenges with Its Verification Program:
GAO-10-458:
GAO Highlights:
Highlights of GAO-10-458, a report to congressional committees.
Why GAO Did This Study:
The Veterans Benefits, Health Care, and Information Technology Act of
2006 (the 2006 Act) requires the Department of Veterans Affairs (VA)
to give priority to veteran-owned and service-disabled veteran-owned
small businesses (VOSB and SDVOSB) when awarding contracts to small
businesses. The 2006 Act also requires GAO to conduct a 3-year study
of VA‘s implementation of the act. GAO evaluated (1) the extent to
which VA met its prime contracting goals for VOSBs and SDVOSBs in
fiscal years 2007-2009; (2) VA‘s progress in implementing procedures
to verify the ownership, control, and status of VOSBs and SDVOSBs in
its mandated database; and (3) VA‘s progress in establishing a review
mechanism of prime contractors‘ subcontracts with VOSBs and SDVOSBs.
GAO obtained and analyzed data on VA‘s prime and subcontracting
accomplishments, and reviewed a sample of verified businesses to
identify any deficiencies in VA‘s verification program.
What GAO Found:
While VA exceeded its contracting goals with VOSBs and SDVOSBs for the
past 3 years, it faces challenges in continuing to meet its other
small business contracting goals and monitoring agreements with other
agencies that conduct contract activity on VA‘s behalf. While VA was
able to exceed its contracting goals for VOSBs and SDVOSBs, its
contracting with women-owned small businesses and HUBZone firms fell
short of its goals during this period. In addition, GAO‘s review of
interagency agreements found that VA lacked an effective process to
ensure that interagency agreements include required language that the
other agency comply, to the maximum extent feasible, with VA‘s
contracting goals and preferences for VOSBs and SDVOSBs and to monitor
the extent to which agencies comply with the requirements.
VA has made limited progress in implementing an effective verification
program. While the 2006 Act requires VA to use the veteran preferences
authorities only to award contracts to verified businesses, VA‘s
regulation does not require that this take place until January 1,
2012. In fiscal year 2009, 25 percent of the contracts awarded using
veteran preferences authorities went to verified businesses. To date,
VA has verified about 2,900 businesses––approximately 14 percent of
businesses in its mandated database of VOSBs and SDVOSBs. Among the
weaknesses GAO identified in VA‘s verification program were files
missing required information and explanations of how staff determined
that control and ownership requirements had been met. In addition, VA‘
s procedures call for site visits to further investigate the ownership
and control of higher-risk businesses, but the agency has a large and
growing backlog of businesses awaiting site visits. Furthermore, VA
contracting officers awarded contracts to businesses that had been
denied verification. Finally, although site visit reports indicate a
high rate of misrepresentation, VA has not developed guidance for
referring cases of misrepresentation for investigation and enforcement
action. Such businesses would be subject to debarment under the 2006
Act. To ensure a thorough and effective verification program, VA needs
robust procedures for reviewing businesses, an effective system to
ensure that contracting officers do not use veteran preferences
authorities with denied businesses, and clear guidance for referring
businesses potentially abusing the program.
VA has developed a mechanism to review prime contractors‘ subcontracts
with VOSBs and SDVOSBs, but the agency has not yet implemented it. For
the past 3 years, VA fell substantially short of achieving
subcontracting goals for VOSBs and SDVOSBs. The agency acknowledged
shortcomings in this area and intends to use a review mechanism to
confirm all subcontracting activities by prime contractors with
approved subcontracting plans for a sampling of contracts awarded in
fiscal year 2010. VA expects increased performance for subcontracting
goal attainment as a result. It is too soon to assess the
effectiveness of VA‘s subcontracting efforts.
What GAO Recommends:
To help address requirements in the 2006 Act, GAO recommends that the
Secretary of VA develop an effective process to ensure that
interagency agreements comply with requirements; develop and implement
a plan that ensures a more thorough and effective verification
program; monitor contract awards made using veteran preference
authorities; and develop guidance for staff to make determinations
about businesses misrepresenting themselves. In commenting on a draft
of this report, VA agreed with GAO‘s recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-10-458] or key
components. For more information, contact William Shear at (202) 512-
8678 or shearw@gao.gov.
Contents:
Letter:
Background:
VA Exceeded Its Veteran Contracting Goals since FY07, but It Faces
Challenges in Meeting Its Other Small Business Goals and Monitoring
Interagency Agreements:
VA Has Made Limited Progress in Implementing Its Verification Program
and Has Not Developed a Thorough and Effective Program:
VA Has Not Met Subcontracting Goals for VOSBs and SDVOSBs but Has
Developed a Review Process to Help Increase Subcontracting
Achievements:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: VetBiz.gov Screenshot and Verified Logo:
Appendix III: Department of Veterans Affairs' Contracting with Veteran-
Owned Small Businesses:
Appendix IV: Comments from the Department of Veterans Affairs:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Small Business Reauthorization Act's Governmentwide Goals for
Specific Types of Small Businesses:
Table 2: VA's Contracting Awards to VOSBs and SDVOSBs, FY07 through
FY09:
Table 3: Summary of VA's Interagency Agreements with Federal Agencies,
Entered on or after January 1, 2009:
Table 4: VA's VOSB and SDVOSB Subcontracting Goals and
Accomplishments, FY07 through FY09:
Figures:
Figure 1: VA's Percentage of Contracting Dollars to VOSBs, FY07
through FY09:
Figure 2: VA's Percentage of Contracting Dollars to SDVOSBs, FY07
through FY09:
Figure 3: VA's Use of Veteran Preferences Authorities (VOSB and SDVOSB
Set-Aside and Sole-Source) Contracting Awards, FY07 through FY09:
Figure 4: VA's Set-Aside and Sole-Source Awards to VOSBs and SDVOSBs,
FY07 through FY09:
Figure 5: VOSB Contracting Dollars and VOSB/SDVOSB Set-aside and Sole-
source Contracting Dollars by Small Business Category, FY09:
Figure 6: VA's Level of Contracting with Various Small Business
Categories, FY06 through FY09:
Figure 7: VA Contracting with WOSB and HUBZone Businesses, FY07
through FY09:
Figure 8: Timeline of Major Events Related to the Verification Program:
Figure 9: Verification Applications That Were Received and Finalized:
Figure 10: VA's Two-Step Process for Reviewing Verification
Applications:
Figure 11: Screenshot of VetBiz.gov Search for a Business:
Figure 12: Service-Disabled Veteran-Owned Small Business Verified Logo:
Abbreviations:
BIRLS: Beneficiary Identification Records Locator Subsystem:
CATS: Complaints Automated Tracking System:
CCR: Central Contractor Registration:
CVE: Center for Veterans Enterprise:
DOI: Department of the Interior:
DSBS: Dynamic Small Business Search:
EPLS: Excluded Parties List System:
FAR: Federal Acquisition Regulation:
FPDS-NG: Federal Procurement Data System-Next Generation:
FSS: Federal Supply Schedule:
FY: fiscal year:
GSA: General Services Administration:
HUBZone: historically underutilized business zone:
OAL: Office of Acquisition and Logistics:
OIG: Office of Inspector General:
OMB: Office of Management and Budget:
ORCA: Online Representations and Certifications Application:
OSDBU: Office of Small and Disadvantaged Business Utilization:
SBA: Small Business Administration:
SDVOSB: service-disabled veteran-owned small business:
SPAWAR: Department of the Navy, Space and Naval Warfare Systems Center:
VA: Department of Veterans Affairs:
VAAR: Veterans Affairs Acquisition Regulation:
VOSB: veteran-owned small business:
WOSB: women-owned small business:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
May 28, 2010:
The Honorable Daniel K. Akaka:
Chairman:
The Honorable Richard Burr:
Ranking Member:
Committee on Veterans' Affairs:
United States Senate:
The Honorable Stephanie Herseth Sandlin:
Chairwoman:
The Honorable John Boozman:
Ranking Member:
Subcommittee on Economic Opportunity:
Committee on Veterans' Affairs:
House of Representatives:
The Department of Veterans Affairs (VA) awarded contracts for more
than $6.1 billion to veteran-owned small businesses (VOSB) and service-
disabled veteran-owned small businesses (SDVOSB) from fiscal years
(FY) 2007 through 2009. The Veterans Benefits, Health Care, and
Information Technology Act of 2006 (Pub. L. No. 109-461 or the 2006
Act) requires that VA give priority to these two categories of small
businesses when awarding contracts to small businesses and provides
for the use of limited competition contract awards (sole-source and
set-aside) to achieve contracting goals that VA is required to
establish under the 2006 Act.[Footnote 1] Additionally, the law
requires VA to maintain a database of VOSBs and SDVOSBs and verify the
ownership, control, and veteran or service-disabled status of
businesses listed in the database. Businesses must be listed in the
database to receive contracting preferences for VOSBs and SDVOSBs.
Finally, the 2006 Act requires VA to establish a subcontracting review
mechanism to ensure that prime contractors actually awarded
subcontracts to service-disabled or other veteran-owned businesses.
Specifically, under this review mechanism, VA must confirm subcontract
awards that it counts toward its small business subcontracting goal
achievements.
As required by the 2006 Act, we conducted a 3-year study on VA's
efforts to meet its contracting goals for VOSBs and SDVOSBs.[Footnote
2] As part of the study, we briefed Members of Congress in 2008, 2009,
and 2010.[Footnote 3] This report discusses (1) the extent to which VA
met its prime contracting goals for VOSBs and SDVOSBs in FY07, FY08,
and FY09, and the challenges VA faced in meeting these goals; (2) VA's
progress in implementing procedures to verify the ownership, control,
and, if applicable, service-disability status of firms in its mandated
database of VOSBs and SDVOSBs; and (3) VA's progress in establishing a
review mechanism for prime contractors' subcontracts with VOSBs and
SDVOSBs.
To determine the extent to which VA met contracting goals for FY07
through FY09, we obtained and analyzed data on contracts from the
Small Business Administration's (SBA) Goaling Reports and VA
contracting data from the Federal Procurement Data System-Next
Generation (FPDS-NG).[Footnote 4] We also used these data to determine
whether other federal agencies met VA's contracting goals and
preferences for VOSBs and SDVOSBs pursuant to a statutory requirement
governing agreements between VA and any governmental entity to acquire
goods or services.[Footnote 5] We found these data to be sufficiently
reliable for the purposes of this report. To determine VA's progress
in implementing procedures to verify the veteran status, control, and
ownership of business, we reviewed the agency's verification
guidelines as well as procedures for reviewing applications and
conducting site visits. Additionally, we conducted a file review of a
sample of verified businesses to determine the extent to which VA
followed its procedures and to identify any deficiencies in VA's
verification process. To determine VA's progress in establishing a
subcontracting review mechanism, we reviewed data from SBA's Goaling
Reports and the Electronic Subcontracting Reporting System to
determine whether goals for subcontracting with VOSBs and SDVOSBs were
met. Furthermore, we interviewed agency officials to obtain
information about the subcontracting review mechanism and reviewed the
agency's associated documents. See appendix I for additional
information on our scope and methodology.
We conducted this performance audit from October 2007 through May
2010, in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Background:
The Small Business Reauthorization Act of 1997 sets a governmentwide
goal for small business participation of not less than 23 percent of
the total value of all prime contract awards--contracts that are
awarded directly by an agency--for each fiscal year.[Footnote 6] This
act also sets goals for participation by specific types of small
businesses (see table 1). The statutorily mandated, governmentwide
prime and subcontracting goal for SDVOSBs is 3 percent of all federal
contract dollars.[Footnote 7] There is no governmentwide numerical
goal for VOSBs.
Table 1: Small Business Reauthorization Act's Governmentwide Goals for
Specific Types of Small Businesses:
Type of small business: Small disadvantaged businesses, including 8(a)
businesses;
Definition: Majority-owned and whose management and daily business is
controlled by one or more individuals who are socially and
economically disadvantaged;
Annual prime contracting goals: 5%.
Type of small business: Women-owned small businesses;
Definition: Majority-owned and whose management and daily business
operations are controlled by one or more women;
Annual prime contracting goals: 5.
Type of small business: Service-disabled veteran-owned small
businesses;
Definition: Majority-owned and whose management and daily business
operations are controlled by one or more service-disabled veterans;
Annual prime contracting goals: 3.
Type of small business: Businesses located in historically
underutilized business zones (HUBZone);
Definition: Owned and controlled by individuals operating in qualified
HUBZones. A principal office must be located within a HUBZone and at
least 35 percent of the business' employees must reside in a HUBZone;
Annual prime contracting goals: 3.
Source: Small Business Act.
[End of table]
The 2006 Act provided VA with unique authority to award contracts to
VOSBs and SDVOSBs on a priority basis to increase contracting
opportunities for these businesses.[Footnote 8] This authority,
referred to in this report as the "goals and preferences authority,"
applies only to VA. Among other things, the 2006 Act requires VA to
establish annual contracting goals for VOSBs and SDVOSBs not less than
the governmentwide goal and to give preference to these businesses
when awarding contracts. In FY07, VA set prime contracting goals of 7
percent for VOSBs and 3 percent for SDVOSBs. VA increased these goals
for FY08 and FY09, to 10 percent for VOSBs and 7 percent for SDVOSBs.
The law also requires VA to maintain a database of verified VOSBs and
SDVOSBs and to confirm subcontract awards that it counts toward its
small business goals. While the Federal Acquisition Regulation (FAR)
is the overall governmentwide regulation governing agency
acquisitions, the Veterans Affairs Acquisition Regulation (VAAR)
governs acquisitions made under the 2006 Act. Under the VAAR,
preference for awarding contracts must be made in the following order
of priority: (1) SDVOSBs, (2) VOSBs, (3) HUBZones or 8(a) businesses,
and (4) any other small business contracting preference.
VA's Office of Small and Disadvantaged Business Utilization (OSDBU),
in conjunction with its Office of Acquisition and Logistics (OAL), is
responsible for the development of policies and procedures to
implement and execute the contracting goals and preferences under the
2006 Act. Additionally, OSDBU serves as VA's advocate for small
business concerns; provides outreach and liaison support to businesses
(large and small) and other members of the private sector for
acquisition-related issues; and is responsible for monitoring VA's
implementation of socioeconomic procurement programs, such as
encouraging contracting with women-owned small businesses (WOSB) and
HUBZone businesses. OSDBU is responsible for the development of VA
policies and programs related to small business concerns, including
the following:
* educating and training VA staff, including advising contracting
officials on procurement strategies to ensure equitable opportunities
for small business concerns;
* negotiating prime and subcontracting goals; and:
* training, counseling, and assisting small businesses in their
understanding of federal and agency procurement procedures, including
advising businesses on marketing their products and services to VA and
other federal agencies.
The Center for Veterans Enterprise (CVE), within OSDBU, seeks to help
veterans interested in forming or expanding their own small
businesses. CVE also helps VA contracting offices identify veteran-
owned small businesses and works with SBA's Veterans Business
Development Officers and Small Business Development Centers on
veterans' business financing, management, and technical assistance
needs. Additionally, CVE is responsible for implementing VA's
verification program and maintains the database, known as VetBiz.gov,
of verified businesses required by the 2006 Act. VetBiz.gov allows
business owners to register and apply online for verification to CVE
and also functions as a searchable database for contracting officers
and the public. Once CVE approves a business, the business name
appears with a verified logo within the database (see appendix II for
more information). Once verified, a firm retains that status for 1
year.
VA Exceeded Its Veteran Contracting Goals since FY07, but It Faces
Challenges in Meeting Its Other Small Business Goals and Monitoring
Interagency Agreements:
VA exceeded its VOSB and SDVOSB contracting goals since FY07 and made
significant use of its veteran preferences authorities but faces
challenges in continuing to meet its other small business contracting
goals and monitoring interagency agreements. For example, VA's
continued success in contracting with VOSBs and SDVOSBs has coincided
with difficulties in meeting other small business goals, such as WOSB
and HUBZone goals. Beginning January 1, 2009, agreements into which VA
enters with federal agencies to acquire goods or services on VA's
behalf must include language requiring the agencies to comply, to the
maximum extent feasible, with VA's VOSB and SDVOSB contracting goals
and preferences when acquiring goods or services. We found that one
interagency agreement into which VA entered after January 1, 2009, did
not contain the required language. VA does not have an effective
process in place to ensure that all interagency agreements include the
required language. Without an effective process to review interagency
agreements for the required language, VA may not fully comply with the
requirements of the 2006 Act and cannot be assured that the agencies
in its interagency agreements are aware of the need to make maximum
feasible efforts to contract with VOSBs and SDVOSBs.
VA Exceeded Its VOSB and SDVOSB Prime Contracting Goals since FY07 and
Increased Its Use of Veteran Preferences Authorities:
For FY07, VA established a contracting goal for VOSBs at 7 percent--
that is, VA's goal was to award 7 percent of its total procurement
dollars to VOSBs. In FY07, VA exceeded this goal and awarded 10.4
percent of its contracting dollars to VOSBs (see figure 1). VA
subsequently increased its VOSB contracting goals to 10 percent for
FY08 and FY09 and exceeded those goals as well--awarding 14.7 percent
of contracting dollars to VOSBs in FY08 and 19.7 percent in FY09.
Figure 1: VA's Percentage of Contracting Dollars to VOSBs, FY07
through FY09:
[Refer to PDF for image: horizontal bar graph]
Fiscal year: 2007;
Percentage of contracting dollars to VOSB: Goal: 7%;
Percentage of contracting dollars to VOSB: Actual: 10.4%.
Fiscal year: 2008;
Percentage of contracting dollars to VOSB: Goal: 10%;
Percentage of contracting dollars to VOSB: Actual: 14.7%.
Fiscal year: 2009;
Percentage of contracting dollars to VOSB: Goal: 10%;
Percentage of contracting dollars to VOSB: Actual: 19.7%.
Source: GAO analysis of FPDS-NG data.
[End of figure]
For FY07, VA established a contracting goal for SDVOSBs equivalent to
the governmentwide goal of 3 percent and exceeded that goal by
awarding 7.1 percent of its contracting dollars to SDVOSBs (see figure
2). VA subsequently increased this goal to 7 percent for FY08 and FY09
and exceeded the goal in those years as well. Specifically, VA awarded
11.8 and 16.7 percent of its contracting dollars to SDVOSBs in FY08
and FY09, respectively.
Figure 2: VA's Percentage of Contracting Dollars to SDVOSBs, FY07
through FY09:
[Refer to PDF for image: horizontal bar graph]
Fiscal year: 2007;
Percentage of contracting dollars to VOSB: Goal: 3%;
Percentage of contracting dollars to VOSB: Actual: 7.1%.
Fiscal year: 2008;
Percentage of contracting dollars to VOSB: Goal: 7%;
Percentage of contracting dollars to VOSB: Actual: 11.8%.
Fiscal year: 2009;
Percentage of contracting dollars to VOSB: Goal: 7%;
Percentage of contracting dollars to VOSB: Actual: 16.7%.
Source: GAO analysis of FPDS-NG data.
[End of figure]
In nominal dollar terms, VA's contracting awards to VOSBs increased
from $1.2 billion in FY07 to $2.8 billion in FY09, while at the same
time, SDVOSB contracting increased from $832 million to $2.4 billion
(see table 2).
Table 2: VA's Contracting Awards to VOSBs and SDVOSBs, FY07 through
FY09:
VOSBs[A]:
FY07: $1.2 billion;
FY08: $2.1 billion;
FY09: $2.8 billion.
SDVOSBs:
FY07: $832 million;
FY08: $1.7 billion;
FY09: $2.4 billion.
Source: GAO analysis of SBA Goaling Reports and FPDS-NG data.
[A] Figures for VOSBs include SDVOSBs.
[End of table]
The increase of awards to VOSBs and SDVOSBs largely was associated
with the agency's greater use of the goals and preferences authorities
established by the 2006 Act. For example, veteran set-aside and sole-
source awards represented 39 percent of VA's total VOSB contracting
dollars in FY07. However, in FY09, VA's use of these veteran
preferences authorities increased to 59 percent of all VOSB
contracting dollars. In nominal dollar terms, VA's use of these
veteran preferences authorities increased by $1.2 billion over the
past 3 years (see figure 3).
Figure 3: VA's Use of Veteran Preferences Authorities (VOSB and SDVOSB
Set-Aside and Sole-Source) Contracting Awards, FY07 through FY09:
[Refer to PDF for image: line graph]
VOSB and SDVOSB set-aside and sole-source contracting awards:
Fiscal year: 2007;
Amount: $473 million.
Fiscal year: 2008;
Amount: $1,169 million.
Fiscal year: 2009;
Amount: $1,676 million.
Source: GAO analysis of FPDS-NG data.
[End of figure]
VA's use of set-aside and sole-source awards for SDVOSBs contributed
to an even greater extent to the increase in awards to these
businesses from FY07 through FY09.[Footnote 9] For each of these
years, more than 90 percent of contracts to SDVOSBs were awarded
through set-aside and sole-source mechanisms (see figure 4).
Additionally, as of February 2010, almost all contracting officers (93
percent) had received training on the goals and preferences
authorities. According to VA officials and documents, the training
includes guidance on VA's final rule implementing the 2006 Act; the
contracting order of priority; set-aside and sole-source procedures;
market research procedures for VOSB and SDVOSB businesses; and
guidelines applying to subcontracting, joint ventures, and interagency
acquisition agreements. OAL continued training contracting officers in
March 2010.
Figure 4: VA's Set-Aside and Sole-Source Awards to VOSBs and SDVOSBs,
FY07 through FY09:
[Refer to PDF for image: stacked vertical bar graph]
Fiscal year: 2007;
VOSB sole-source: $17 million;
VOSB set-aside: $7 million;
SDVOSB sole-source: $174 million;
SDVOSB set-aside: $275 million.
Fiscal year: 2008;
VOSB sole-source: $47 million;
VOSB set-aside: $22 million;
SDVOSB sole-source: $486 million;
SDVOSB set-aside: $614 million.
Fiscal year: 2009;
VOSB sole-source: $44 million;
VOSB set-aside: $56 million;
SDVOSB sole-source: $555 million;
SDVOSB set-aside: $1,021 million.
Source: GAO analysis of FPDS-NG data.
[End of figure]
In contrast, VA's use of general contracting authorities--that is,
governmentwide contract mechanisms to provide a simplified process for
acquiring goods--for VOSBs (including SDVOSBs) consistently decreased
from FY07 through FY09. For example, VA's use of its other contracting
authorities decreased from 52 percent of all VOSB (including SDVOSB)
contracts in FY07 to 38 percent in FY09. In FY09, VA awarded $1.1
billion in contracting dollars to VOSBs without the use of any set-
aside or sole-source mechanisms. In these cases, the majority of these
awards were made using governmentwide contracts, such as the Federal
Supply Schedule (FSS), and governmentwide agency contracts.[Footnote
10] See appendix III for more detailed information on the contracting
dollars and percentages that VA awarded to VOSBs in FY07 through FY09.
According to SBA's Goaling Program, a small business can qualify for
one or more small business categories, and an agency may take credit
for a contract awarded under multiple goaling categories. For example,
if a small business is owned and controlled by a service-disabled
woman veteran, the agency may take credit for awarding a contract to
this business under the VOSB, SDVOSB, and WOSB goaling categories. In
addition, all awards made to SDVOSBs also count toward VOSBs goal
achievement. In FY09, of the $2.8 billion awarded to VOSBs, the
majority (63 percent) applied to both VOSBs and SDVOSBs and no other
goaling category (see figure 5). Furthermore, of the $1.7 billion
awarded through the use of veteran preferences authorities (VOSB and
SDVOSB set-aside and sole-source) in FY09, an even greater majority
(77 percent) applied solely to the VOSB and SDVOSB goaling categories
(see figure 5).
Figure 5: VOSB Contracting Dollars and VOSB/SDVOSB Set-aside and Sole-
source Contracting Dollars by Small Business Category, FY09:
[Refer to PDF for image: 2 pie-charts]
VOSB:
VOSB and SDVOSB: 63%;
VOSB, SDVOSB, and small disadvantaged business, including 8(a)
program: 13%;
VOSB only: 11%;
Other: 6%;
VOSB, SDVOSB, and HUBZone: 5%;
VOSB, SDVOSB, and WOSB: 3%.
VOSB/SDVOSB set-aside and sole-source:
VOSB and SDVOSB: 77%;
VOSB, SDVOSB, and small disadvantaged business, including 8(a)
program: 7%;
VOSB, SDVOSB, and HUBZone: 5%;
Other: 5%;
VOSB only: 3%;
VOSB, SDVOSB, and WOSB: 3%.
Source: GAO analysis of FPDS-NG data.
[End of figure]
VA's Continued Success in Contracting with VOSBs and SDVOSBs Coincides
with Challenges in Meeting Its Other Small Business Goals:
Although VA exceeded its contracting goals for VOSBs and SDVOSBs in
FY07 through FY09, it did not meet its goals in other small business
categories for that period. For example, VA's contracting with WOSBs
and HUBZone businesses decreased since the implementation of the 2006
Act (see figure 6). More specifically, VA contracting with WOSBs
decreased from $584 million in FY07 to $488 million in FY09.
Additionally, VA contracting with HUBZone businesses decreased from
$388 million in FY07 to $305 million in FY09.
Figure 6: VA's Level of Contracting with Various Small Business
Categories, FY06 through FY09:
[Refer to PDF for image: multiple line graph]
Pub. L. No. 109-461 enacted (December 2006).
Fiscal year: 2006;
VOSB: $616 million;
SDVOSB: $356 million;
Small disadvantaged business: $819 million;
WOSB: $480 million;
HUBZone: $322 million.
Fiscal year: 2007;
VOSB: $1,217 million;
SDVOSB: $832 million;
Small disadvantaged business: $1,029 million;
WOSB: $584 million;
HUBZone: $388 million.
Fiscal year: 2008;
VOSB: $2,070 million;
SDVOSB: $1,654 million;
Small disadvantaged business: $1,121 million;
WOSB: $566 million;
HUBZone: $389 million.
Fiscal year: 2009;
VOSB: $2,841 million;
SDVOSB: $2,405 million;
Small disadvantaged business: $807 million;
WOSB: $488 million;
HUBZone: $305 million.
Source: GAO analysis of FPDS-NG data.
[End of figure]
Furthermore, for the past 2 years VA failed to meet its 5 percent goal
for WOSBs (see figure 7). In FY08, VA's total contracting dollars with
WOSBs was 4 percent, and, in FY09, it was 3.4 percent. Additionally,
VA failed to meet its 3 percent goal for contracting with HUBZone
businesses for the past 2 years. For example, VA awarded 2.8 percent
of its contracting dollars to HUBZone businesses in FY08, and awarded
2.1 percent in FY09.
Figure 7: VA Contracting with WOSB and HUBZone Businesses, FY07
through FY09:
[Refer to PDF for image: 2 horizontal bar graphs]
WOSB:
Fiscal year: 2007;
Percentage of contracting dollars, goal: 5%;
Percentage of contracting dollars, actual: 5.0%.
Fiscal year: 2008;
Percentage of contracting dollars, goal: 5%;
Percentage of contracting dollars, actual: 4.0%.
Fiscal year: 2009;
Percentage of contracting dollars, goal: 5%;
Percentage of contracting dollars, actual: 3.4%.
HUBZone:
Fiscal year: 2007;
Percentage of contracting dollars, goal: 3%;
Percentage of contracting dollars, actual: 3.3%.
Fiscal year: 2008;
Percentage of contracting dollars, goal: 3%;
Percentage of contracting dollars, actual: 2.8%.
Fiscal year: 2009;
Percentage of contracting dollars, goal: 3%;
Percentage of contracting dollars, actual: 2.1%.
Source: GAO analysis of FPDS-NG data.
[End of figure]
VA officials acknowledged that the implementation of the contracting
priority required by the 2006 Act has led to a decrease in awards to
WOSB and HUBZone businesses.[Footnote 11] As we have previously
stated, VA's regulations implementing the 2006 Act require contracting
officers to award contracts according to the following order of
priority: (1) SDVOSBs, (2) VOSBs, (3) HUBZones or 8(a) businesses, and
(4) any other small business contracting preference. According to
OSDBU officials, if contracting officers can easily identify VOSBs
that also qualify as WOSB or HUBZone businesses (because a business
can qualify for one or more small business categories), percentages of
awards in all goal categories may increase. However, women veterans
currently represent 8 percent of the entire veteran population,
creating a challenge for VA to achieve the WOSB goal.
VA has taken some recent steps to increase contracting opportunities
for WOSB and HUBZone businesses. For example, in 2009, VA and SBA
formed a working group to develop training sessions, resources, and
marketing materials targeted to WOSB and HUBZone firms that also may
be VOSBs and SDVOSBs. The marketing and education materials focus on
explaining the nature of contracting preferences for VOSBs and SDVOSBs
and the benefits of registering and applying for verification through
VetBiz.gov. Additionally, OSDBU will continue to host monthly meetings
in which VA vendors learn about FSS and how the vendors may be
integrated into the system. Finally, according to VA, OSDBU has
updated the agency's Web site to provide assistance for contracting
officers to help identify small businesses that fall into the various
small business categories when awarding FSS contracts. Additionally,
CVE has updated the VetBiz.gov database so that contracting officers
can more readily locate VOSBs and SDVOSBs that also fall into the
other small business categories. However, it remains to be seen
whether VA's recent efforts will be successful in increasing
contracting opportunities for other small business categories.
VA Faces Challenges in Monitoring Interagency Agreements for the Use
of Contracting Preferences:
The Veterans' Benefits Improvement Act of 2008 (Pub. L. No. 110-389 or
the 2008 Act) amended the 2006 Act's provisions to require that any
agreements into which VA enters with other government entities to
acquire goods or services on VA's behalf on or after January 1, 2009,
require the agencies to comply, to the maximum extent feasible, with
VA's contracting goals and preferences for VOSBs and SDVOSBs.[Footnote
12] Since January 1, 2009, VA has entered into six interagency
agreements (see table 3).
Table 3: Summary of VA's Interagency Agreements with Federal Agencies,
Entered on or after January 1, 2009:
Agency: General Services Administration (GSA);
Description of services (number of agreements): Assisted acquisition
services for information technology equipment, services, and support
(four agreements);
Amount: $137.1 million.
Agency: Department of the Interior (DOI);
Description of services (number of agreements): Assisted acquisition
services for information technology services, research and
development, supplies, renovations and alternations, and financial
assistance and professional services (one agreement);
Amount: $2.6 million.
Agency: Department of the Navy, Space and Naval Warfare Systems Center
(SPAWAR);
Description of services (number of agreements): Technical support for
analysis, planning, program review, and engineering services for
information management and information technology initiatives (one
agreement);
Amount: $154.5 million.
Source: GAO analysis of VA documents.
Note: According to our analysis of FPDS-NG data, GSA's contracting
activities exceeded VA's contracting goals for SDVOSBs (20 percent)
and VOSBs (31 percent); DOI did not award any contracts to VOSBs or
SDVOSBs; and SPAWAR data will not be available until the end of FY10.
The dollars obligated in FPDS-NG do not reflect the total contracting
dollars for the agreements because some contract actions covered by
the interagency agreement may not have been awarded by the end of FY09.
[End of table]
Additionally, VA has an interagency agreement with the U.S. Army Corps
of Engineers, but the agreement was signed in September 2007.
Therefore, the provisions of the 2008 Act are not applicable.[Footnote
13] According to agency officials, VA has agreements in place with
additional federal agencies, but all were entered into before January
1, 2009. Therefore, the provisions of the 2008 Act also are not
applicable. VA issued guidance to all contracting officers about
managing interagency acquisitions in March 2009.[Footnote 14] However,
the agreement with the Department of the Interior (DOI) did not
include the required language addressing VA's contracting goals and
preferences until it was amended on March 19, 2010, after we informed
the agency that the agreement was not in compliance with Pub. L. No.
110-389. According to VA officials, the agency's acquisition and
contracting attorneys are responsible for reviewing interagency
agreements for compliance with these requirements. Additionally, the
interagency agreement language comes from Office of Management and
Budget (OMB) templates. However, VA does not have an effective process
in place to ensure that all interagency agreements include the 2008
Act's required language and to monitor the extent to which agencies
comply with the requirements. For example, agency officials could not
tell us whether contracts awarded under these agreements met the
SDVOSB and VOSB preferences. Without a plan or oversight activity,
such as monitoring, VA cannot be assured that agencies have made
maximum feasible efforts to contract with VOSBs or SDVOSBs.
VA Has Made Limited Progress in Implementing Its Verification Program
and Has Not Developed a Thorough and Effective Program:
VA has made limited progress in implementing a program to verify the
veteran status, control, and ownership of businesses. As of April 8,
2010, VA had verified about 2,900 businesses--approximately 14 percent
of VOSBs and SDVOSBs in the VetBiz.gov database. While VA has adopted
policies and procedures to review businesses and began to implement a
risk-based approach to conducting site visits, it has not met the
requirement in the 2006 Act that it only use its veteran preferences
authorities with verified businesses when awarding these types of
contracts. Additionally, our review identified a number of weaknesses
in the verification program. For example, files supporting verified
businesses contained missing information and explanations of how staff
determined that control and ownership requirements had been met has
made it difficult to know whether verified businesses are truly owned
and controlled by service-disabled veterans or veterans. VA's
procedures call for site visits to further investigate the ownership
and control of higher-risk businesses, but the agency has a large and
growing backlog of businesses awaiting site visits. VA has denied
verification to more than 150 businesses but does not have a process
in place to monitor contracting awards to effectively ensure that
contracting officers do not use veteran preferences authorities to
award contracts to denied businesses. Initial site visit findings also
indicated misrepresentation by some business owners, but VA has not
developed guidance for staff to follow when misrepresentation may have
occurred. The weaknesses in VA's verification process reduce
assurances that verified firms are veteran-owned and -controlled small
businesses, and VA does not have an effective process to ensure that
contracting officers do not use veteran preferences authorities with
denied businesses or to ensure that VA staff take appropriate action
against businesses that may be misrepresenting their VOSB or SDVOSB
status.
VA Has Been Slow to Develop a Thorough Verification Program and Has
Not Developed a Plan or Established Time Frames for Full
Implementation:
In May 2008--approximately 1½ years after Pub. L. No. 109-461 was
enacted--VA began verifying businesses and published interim final
rules in the Federal Register, which included eligibility requirements
and examination procedures, but did not finalize the rules until
February 2010 (see figure 8).[Footnote 15] According to VA officials,
CVE initially modeled its verification program on SBA's HUBZone
program; however, CVE reconsidered verification program procedures
after we reported on fraud and weaknesses in the HUBZone
program.[Footnote 16] More recently, in December 2009, the agency (1)
finalized changes to the VAAR that included an order of priority
(preferences) for contracting officers to follow when awarding
contracts and (2) trained contracting officers on the preferences and
the VetBiz.gov database from January through March, 2010.[Footnote 17]
Figure 8: Timeline of Major Events Related to the Verification Program:
[Refer to PDF for image: timeline]
December 2006:
Pub. L. No. 109-461 enacted.
May 2008:
VA published interim final rule for verification program VA began
verifying businesses
July 2009:
Contractor began study reviewing VA‘s verification program.
October 2009:
VA began site visits for verification program.
November 2009:
Contractor issued report (including recommendations) to VA about
verification program.
December 2009:
VA published final rule to revise the VAAR to implement sections of
Pub. L. No. 109-461.
January - March 2010:
VA contracting officers trained in VAAR final rule.
February 2010:
VA published final rule for verification program.
Source: GAO analysis of various VA documents.
[End of figure]
Leadership and staff vacancies plus a limited overall number of
positions have also contributed to the slow pace of implementation of
the verification program. For approximately 1 year, leadership in
OSDBU was lacking because the former Executive Director retired, and
the position remained vacant from January 2009 until January 2010.
Furthermore, one of two leadership positions directly below the
Executive Director has been vacant since October 2008, and the other
position has been filled temporarily by an Acting Director. The agency
also faced delays in obtaining contracting support, which slowed
implementation of the verification program. More than 1 year after the
agency began verifying businesses, a contractor began conducting site
visits (which further investigate control and ownership of businesses
as part of the verification process). As of April 2010, CVE had 6.5
full-time-equivalent position vacancies, and VA officials told us
existing staff have increased duties and responsibilities that
contributed to slowed implementation.[Footnote 18]
The slowness in implementing the verification program appears to have
contributed to VA's inability to meet the requirement in the 2006 Act
that it only use its veteran preferences authorities to contract with
verified businesses. Currently, contracting officers can use the
veteran preferences authorities with both self-certified and verified
businesses listed in the VetBiz.gov database. However, in its December
2009 rule, VA committed to only awarding contracts using the veteran
preferences authorities to verified businesses starting on January 1,
2012.[Footnote 19] According to our analysis of FPDS-NG data, in FY09,
the majority of contracting awards (75 percent) made under veteran
preferences went to unverified businesses. In March 2010, the recently
appointed Executive Director of OSDBU acknowledged in a congressional
hearing the large undertaking and some challenges with starting a new
program like the verification program.[Footnote 20]
As of April 8, 2010, VA had verified about 2,900 businesses--
approximately 14 percent of VOSBs and SDVOSBs in the VetBiz.gov
database. VA has been processing an additional 4,701 applications, but
the number of incoming applications continues to grow (see figure 9).
As of March 2010, CVE estimated that it had received more than 10,000
applications for verification since it started verifying businesses in
May 2008.
Figure 9: Verification Applications That Were Received and Finalized:
[Refer to PDF for image: multiple line graph]
Date: May 2008;
Applications received: 44;
Applications finalized: 8.
Date: September 2008;
Applications received: 865;
Applications finalized: 123.
Date: December 2008;
Applications received: 1,361;
Applications finalized: 344.
Date: March 2009;
Applications received: 2,220;
Applications finalized: 917.
Date: June 2009;
Applications received: 3,750;
Applications finalized: 1,804.
Date: September 2009;
Applications received: 5,946;
Applications finalized: 2,612.
Date: December 2009;
Applications received: 8,081;
Applications finalized: 3,430.
Date: March 2010;
Estimated applications received: 10,098;
Estimated applications finalized: 4,199.
Source: GAO analysis of CVE-provided data.
Note: The "applications finalized" figures include applications
approved, denied, and finalized for other reasons.
[End of figure]
According to the 2006 Act, VA must maintain a database of verified
businesses and, in doing so, must verify the veteran or service-
disability status, control, and ownership of each business.[Footnote
21] The rules that VA developed pursuant to this requirement require
VOSBs and SDVOSBs to register in VetBiz.gov to be eligible to receive
contracts awarded using veteran preferences authorities.[Footnote 22]
The small businesses must be owned and controlled by eligible parties,
and the business must qualify as "small" under federal size standards.
[Footnote 23] According to VA's rules, an applicant must meet the
following five eligibility requirements for verification: (1) be owned
and controlled by a veteran or service-disabled veteran for a VOSB or
SDVOSB, respectively; (2) demonstrate good character (any small
business that has been debarred or suspended is ineligible); (3) make
no false statements (any small business that knowingly submits false
information is ineligible); (4) have no federal financial obligations
(any small business that has failed to pay significant financial
obligations to the federal government is ineligible); and (5) not have
been found ineligible due to an SBA protest decision.[Footnote 24]
VA has a two-step process to make the eligibility determinations for
verification. Under the first step, CVE staff review veteran status
and, if applicable, service-disability status and publicly available,
primarily self-reported information about control and ownership for
all businesses that apply for verification (see figure 10). Business
owners submit an application (VA Form 0877), which asks for basic
information regarding the ownership of the company seeking
verification, through VetBiz.gov and, upon request, must provide
supporting documents to CVE.[Footnote 25] When applicants submit their
VA Form 0877, they also must be able to provide, upon request, other
items for review, such as financial statements, tax returns, articles
of incorporation or organization, lease and loan agreements, payroll
records, and bank account signature cards. Typically, these items are
reviewed at the business during the second step of the review process--
site visits, which can be announced or unannounced--but CVE staff may
also request that the applicant send copies of other items for review
during the first step. Apart from site visits, the CVE review is
centralized--all staff and files are located in Washington, D.C.
Under the second step, reviews or site visits are conducted to further
investigate control and ownership for select high-risk businesses. In
September 2008, VA adopted a risk-based approach to conducting site
visits by implementing risk guidelines to determine which businesses
would merit site visits.[Footnote 26] Staff are required to conduct a
risk assessment for each business and assign a level of risk ranging
from 1 to 4--with 1 being a high-risk business and 4 being a low-risk
business. When VA staff conduct a risk assessment, they are to follow
the agency's risk guidelines, which include criteria such as previous
government contracting dollars awarded, business license status,
annual revenue, and percentage of veteran-ownership. For example, if a
business has previous VA contracts totaling more than $5 million,
staff must assign that business a risk level of 1 (high). Or, if a
business is missing an active or business license in good standing,
staff must assign a risk level of 2 (elevated). VA then uses these
risk assessments to identify businesses for site visits. According to
VA, it intends to examine all businesses assigned a high-or elevated-
risk level during a site visit or other means, such as extensive
document review and telephone interviews with the businesses' key
personnel.
Figure 10: VA's Two-Step Process for Reviewing Verification
Applications:
[Refer to PDF for image: illustration]
Step 1: Veteran status and publicly available, primarily self-reported
information about control and ownership is checked:
Verification application submitted:
Veteran business owner: VetBiz.gov (VA Form 0877): CVE staff;
Request and review of additional information (if needed).
Risk level assigned after information is recorded and reviewed:
* Enter business owner's information into CVE's internal database;
* Check veteran and, if applicable, service-disability status and
determine whether business owner may receive federal government
contracts.
* Check for control and ownership information:Business license,
Central Contractor Registration, Dynamic Small Business Search, Dun &
Bradstreet reports, Online Representations and Certifications,
USAspending.gov, business Web site (if available).
* Assign risk level according to agency‘s risk guidelines.
Verification application file: CVE$ quality reviewer: Higher risk
businesses go to step 2.
Step 2: Site visit:
Site visit: Applicant‘s business:
Further investigate control and ownership:
* Interview key personnel;
* Conduct in-depth document review;
* Assess day-to-day management;
* Determine overall assessment.
Sources: GAO analysis of CVE-provided data; Art Explosion (images).
[End of figure]
VA plans to refine its verification processes to address
recommendations from a contractor's review of the program and best
practices identified in federal, state, or private-sector programs. In
July 2009, VA hired an outside contractor to assess the verification
program's processes, benchmark VA's program to other similar programs,
and provide recommendations to VA on how to improve the program. VA
received the contractor's report and recommendations in November 2009.
[Footnote 27] The contractor recommended that VA require business
owners to submit key documents as part of the application for
verification--such as business and professional licenses, copies of
previous tax records, and lease or operating agreements. (VA currently
requires businesses to have these documents on file for a possible
review.) The contractor further recommended that VA upgrade its data
system to expand its functionality to allow business owners to submit
the documentation electronically and store electronic copies of the
information. For example, the contractor recommended that VA adopt
case-management software to better manage the flow of applications and
interface with the VetBiz.gov database. According to the contractor's
analysis of CVE's workforce and the growing application volume, CVE
would need an additional 13 full-time positions to conduct
verifications--even after it made necessary improvements to reduce
processing times for applications.[Footnote 28] VA officials told us
that they plan to implement the contractor's recommendations to
require business owners to submit documentation as part of their
initial application and to upgrade their data systems.[Footnote 29]
(We further discuss data systems issues later in this report.)
However, VA did not have a plan or specific time frames for
implementing a thorough and effective verification program, including
filling vacant staff positions, providing concrete steps and milestone
dates for addressing the contractor's recommendations, and hiring
additional positions to conduct verifications. A plan, including
specific time frames for completing improvements, would help VA meet
the requirements in the 2006 Act that it maintain a database of
verified businesses, and that VA contracting officers only use the
veteran preferences authorities to award contracts to verified
businesses.
Files Supporting Verified Businesses Were Missing Information and
Limited Procedures Made It Difficult to Know:
Whether All Eligibility Requirements Were Met:
Based on our review of a random sample of the files for 112 businesses
that VA had verified by the end of FY09, an estimated 48 percent of
the files lacked the required information or documentation that CVE
staff followed key verification procedures.[Footnote 30] Specifically,
* 20 percent were missing some type of required information, such as
evidence that veteran status had been checked or that a quality review
had taken place;
* 39 percent lacked information about how staff justified
determinations that control and ownership requirements were met; and:
* 14 percent were missing evidence that either a risk assessment had
taken place or the risk assessment that occurred did not follow the
agency's risk guidelines.[Footnote 31]
The overall estimated 20 percent of cases missing some type of
required information included files missing evidence that veteran
status was checked, eligibility to receive federal government
contracts was checked, application forms were complete and signed, or
a quality review had taken place. According to CVE's verification
procedures, staff should check the Veteran Benefits Administration's
Beneficiary Identification Records Locator Subsystem (BIRLS) to
determine veteran and service-disability status and record that BIRLS
was checked in their internal database. Although CVE staff must check
BIRLS for each applicant, we found about 16 percent of files lacked
information on whether staff had checked the system to determine
veteran or service-disability eligibility. Additionally, we found 15
percent of files lacked information on whether CVE staff had checked
the Excluded Parties List System (EPLS)--which is used to determine
whether the business owner is eligible to receive federal contracts.
[Footnote 32] Also, 3 percent of the files lacked a completed or
signed verification application (VA Form 0877), and 5 percent lacked
documentation that a quality review had taken place. According to the
verification procedures, staff must check each VA Form 0877 for
completeness at the beginning of the process, and each file should
undergo a quality review at the end of the process.
Additionally, our file review found that in an estimated 39 percent of
cases, staff obtained information from a public database but failed to
record in the file what information they had reviewed to determine
whether control and ownership requirements had been met. According to
CVE's verification procedures, staff are to review publicly available,
primarily self-reported information about control and ownership for
each business. For example, staff are to check for previous federal
contracts by reviewing information available on USAspending.gov, check
for certifications by reviewing the Online Representations and
Certifications Application (ORCA), and review company history through
Dun & Bradstreet reports.[Footnote 33] In addition, staff are to
review information about each business in the following databases:
VetBiz.gov, Central Contractor Registration (CCR), and Dynamic Small
Business Search (DSBS)--all of which contain information self-reported
by business owners.[Footnote 34] According to the verification
procedures, staff are required to record business status or
discrepancies about information obtained through each public database
searched.
Finally, based on our file review sample, for an estimated 14 percent
of cases, the files were missing evidence that a risk assessment had
taken place, or staff incorrectly assigned a risk level lower than
warranted. For example, 4 percent of cases in this group were missing
risk levels, and 8 percent of cases incorrectly were assigned a low-or
moderate-risk level--they had missing business licenses, which
according to the risk guidelines warranted assigning an elevated-risk
level. According to VA, staff received on-the-job training about the
risk guidelines and assigned risk levels are checked for accuracy
during the quality review, but VA officials also have observed
incorrectly assigned risk levels. VA officials told us that the staff
have been learning how to better assign the risk levels, and errors
have been reduced since the agency hired a full-time staff person as a
risk manager in February 2009. Incorrectly assigning risk levels
reduces the chance that the agency is accurately identifying
businesses for site visits, which, in turn, may lead to some
businesses not receiving a site visit when it otherwise would be
warranted.
We found that data system limitations appear to be contributing
factors to weaknesses identified in our review of files. For example,
data entry into CVE's internal database is largely done manually,
which can result in missing information or data entry errors.
Furthermore, CVE's internal database does not contain controls to
ensure that only complete applications that have received a quality
review move forward. Internal control standards for federal agencies
require that agencies effectively use information technology in a
useful, reliable, and continuous way.[Footnote 35] According to agency
officials, two efforts are under way to enhance CVE's data systems.
First, CVE plans to enhance its data systems to automatically check
BIRLS for veteran status and EPLS for good character, and to store the
information obtained. According to CVE, these changes will require
outside contractor assistance. On March 18, 2010, VA released a
solicitation for a contract that closed on April 16, 2010. Once a
contract is awarded, CVE staff told us that the upgrades will be ready
to implement in about 12 months. Second, CVE plans to adopt case-
management software--as recommended in the contractor's report--to
help manage its verification program files. According to VA officials,
CVE is considering a software application currently used by another VA
department.[Footnote 36] The new system will allow CVE to better track
new and renewal verification applications and manage the corresponding
case files. Furthermore, the new software will ensure that quality
reviews take place by not allowing an application to move forward if
it contains any missing information. However, as we have previously
discussed, VA does not have specific time frames for putting the case-
management system in place.
Furthermore, CVE's verification procedures do not provide guidance for
staff to follow in the event that they determine information is
missing or discrepancies exist after reviewing public databases. Staff
do not have specific guidance to follow about the circumstances under
which they might need to request additional information directly from
business owners. Based on our file review, we found in 79 percent of
cases, staff relied solely on information from the public databases
but asked for documentation from a business owner in the remaining
cases. In these examples, we found staff requested copies of active
business licenses, articles of incorporation, operating agreements,
stock certificates, or tax documents for further review. The
verification procedures instruct staff to "request a copy of all
required documents needed to make a sound decision" but do not provide
examples of conditions under which staff should request documents as
evidence to support control or ownership determinations. Furthermore,
the procedures do not require staff to document their assessments of
whether eligibility requirements had been met. Internal control
standards for federal agencies require that agencies collect and
maintain documentation to confirm information in support of their
programs.[Footnote 37] According to VA officials, staff verbally
discuss assessments during a daily meeting but do not document these
discussions.
According to our file review, in the 21 percent of cases in which
staff did request information because they may have found a
discrepancy in the publicly available information, staff made the
request directly to the business owners, instead of using third-party
sources to validate information.[Footnote 38] Publicly available,
primarily self-reported information may not be reliable to determine
whether control and ownership requirements have been met. In October
2009, our investigators reported on the governmentwide SDVOSB
procurement program (administered by SBA, along with federal procuring
activities) and found fraud and abuse among some SDVOSBs.[Footnote 39]
For example, in 10 case studies, we showed that SDVOSBs fraudulently
received sole-source and set-aside contracts--and that 5 of the 10
businesses receiving VA contracts were found ineligible because of
issues with management and control. While CVE's process to review
publicly available, primarily self-reported information may be
consistent with SBA's process for the governmentwide SDVOSB program,
these 5 cases provide evidence that self-reported information may not
always be reliable for determining control of a business.
Without timely improvements to CVE's data systems and controls in
place to ensure the completeness and accuracy of information, the
verification program remains at higher risk for error, lacks quality
control, and makes it difficult to know whether eligibility
requirements were met. Furthermore, the verification procedures do not
include guidance that would help staff to assess control and
ownership, particularly in examples of missing information or
discrepancies among public databases or within self-reported
information. Without enhancements to its verification procedures that
include clear guidance for staff to follow when reviewing applications
and require an assessment of each eligibility requirement, it is
difficult to know whether eligibility requirements have been met and
whether verified businesses legitimately qualified as VOSBs or SDVOSBs.
VA Faces a Growing Backlog for Site Visits, and Early Results Suggest
a High Rate of Possible Misrepresentations, but VA Has Not Yet Taken
Actions Based on Findings:
VA started verifying businesses in May 2008 but did not start
conducting site visits until October 2009. As of April 8, 2010, VA had
used contractors to conduct 71 site visits but an additional 654 high-
and elevated-risk businesses awaited visits. Because of this delay, VA
currently has a large backlog of businesses awaiting site visits and
some higher-risk businesses have been verified months before their
site visit occurred or were scheduled to occur. According to VA
officials, the agency plans to use contractors to conduct an
additional 200 site visits between May and October, 2010. However, the
current backlog will grow over future months.
According to site visit reports, approximately 40 percent of the
visits resulted in evidence that control or ownership requirements had
not been met, but, as of April 2010, CVE had not canceled any
business' verification status. The verification program rules contain
procedures for cancellation of verified status. Also, according to VA
officials, CVE will follow the cancellation procedures for any
business for which the site visit findings contradict the original
verification determination. Because some businesses are verified
months before their site visits occurred and findings were developed,
it is difficult to know whether the businesses actually met control
and ownership requirements when they were verified. By not
incorporating site visit findings in a timely manner and canceling
verification status as necessary, some businesses receive an
unwarranted verified status and may receive veteran preferences
contracts, thereby taking contracting opportunities away from
businesses that, in fact, are owned and controlled by veterans or
service-disabled veterans.
Contracting Officers Incorrectly Used Veteran Preferences Authorities
to Award Contracts to Ineligible Businesses:
We also found that businesses received veteran preferences contracts
after they had been denied verification. According to VA data, 154
businesses had been denied verification as of March 4, 2010. According
to our analysis of these data, the key reasons for denial of
applications included business owners failed to submit the required
documentation (44 percent), control requirements were not met (30
percent), ownership requirements were not met (12 percent), and other
eligibility requirements were not met (14 percent).[Footnote 40]
As we have previously stated in this report, the 2006 Act provided VA
with unique authority to award veteran preferences contracts, and,
under the VAAR, contracting officers must only use these preferences
with firms listed in the VetBiz.gov database (from Jan. 1, 2012, only
with verified businesses). However, according to our analysis of FPDS-
NG data, we found that 11 (of 154) denied businesses had received
veteran preferences contracts. According to these data, VA contracting
officers had awarded contracts totaling almost $4 million using the
veteran preferences authorities--after CVE had denied these businesses
verification. According to VA officials, denied businesses should be
removed from the VetBiz.gov database, and contracting officers are
required to check the database before awarding a contract to ensure
that the business is listed as either verified or self-certified.
However, according to VA officials, contracting officers may not be
diligently checking the VetBiz.gov database before using the veteran
preferences authorities to award contracts. According to VA officials,
contracting officers received guidance in June 2007 and received
training on the 2006 Act's authorities between January and March,
2010.[Footnote 41] While contracting officers have been trained in the
veteran preferences authorities and are required to check the
VetBiz.gov database prior to making an award, they still have
incorrectly used veteran preferences authorities with denied
businesses. According to VA, there is no function within the agency's
electronic contract management system to stop a contracting officer
from awarding veteran preferences contracts to denied businesses.
Without a more effective system in place to ensure that contracting
officers only use veteran preferences authorities with verified or
self-certified businesses, VA will continue to make awards to
ineligible businesses (those denied verification), thereby taking
contracting opportunities away from eligible businesses.
VA Has Not Developed Guidance That Would Aid Compliance with the
Enforcement Provision of the 2006 Act Relating to Misrepresentation by
Businesses:
As we have previously stated, approximately 40 percent of businesses
that received site visits did not meet ownership or control
eligibility requirements and may have misrepresented themselves.
Contractors that performed the site visits were required to submit
reports on the results to VA within 7 business days of the site
visits. According to these reports, evidence of misrepresentation
dates to October 2009, but VA had not taken actions against these
businesses as of April 9, 2010. According to VA's Office of Inspector
General, it has received one referral (on Apr. 5, 2010) as a result of
the verification program.[Footnote 42] Staff have made no requests for
debarment as a result of verification program determinations as of
April 9, 2010.[Footnote 43]
Under the 2006 Act, any "business concern that is determined by the
Secretary to have misrepresented the status of that concern as a small
business concern owned and controlled by veterans or as a small
business concern owned and controlled by service-disabled veterans —
shall be debarred from contracting with the Department for a
reasonable period of time."[Footnote 44] The VAAR states that VA may
debar businesses that have misrepresented themselves for up to 5
years.[Footnote 45] Additionally, under the verification program
rules, whenever CVE determines that a business owner submitted false
information, the matter will be referred to the Office of Inspector
General for review, and CVE will request that debarment proceedings be
initiated.[Footnote 46] However, beyond the directive to staff to make
a referral and request debarment proceeding, VA does not have detailed
guidance in place (either in the verification program procedures or
the site visit protocol) that would instruct staff under which
circumstances to make a referral or a debarment request.[Footnote 47]
Such guidance would help to ensure that VA complies with this
provision of the 2006 Act. Without detailed guidance in place to help
staff determine whether businesses have misrepresented themselves,
enforcement actions for misrepresentation will not occur and
businesses will continue to abuse the program.
VA Has Not Met Subcontracting Goals for VOSBs and SDVOSBs but Has
Developed a Review Process to Help Increase Subcontracting
Achievements:
VA has developed a mechanism to review prime contractors' subcontracts
with VOSBs and SDVOSBs, but the agency has not yet implemented it. VA
currently focuses its oversight of subcontracting activities on prime
contractors with subcontracting plans, mainly by reviewing their
electronic reports of subcontracting activity. Large businesses with
federal contracts of $550,000 or more ($1 million for construction)
generally must have subcontracting plans that include goals for
subcontracting with VOSBs, SDVOSBs, and other types of small
businesses.[Footnote 48] The 2006 Act requires that VA "establish a
review mechanism to ensure that, in the case of a subcontract of a
Department contract that is counted for purposes of meeting a goal
established pursuant to this section, the subcontract was actually
awarded to a business concern that may be counted for purposes of
meeting that goal." For FY07, VA set agencywide goals for all
subcontracts awarded of 7 percent for VOSBs and 3 percent for SDVOSBs;
for FY08 and FY09, VA set goals of 10 percent for VOSBs and 7 percent
for SDVOSBs. According to SBA data, VA has not met its own goals for
subcontracts awarded to VOSBs and SDVOSBs since FY07 (see table 4).
VOSB and SDVOSB subcontractor participation did not exceed 1 percent
of all subcontracts awarded in FY08 and FY09.[Footnote 49] In July
2009, VA's top leadership acknowledged that the agency had fallen far
short of its subcontracting goals and publicly committed to take more
aggressive measures to improve its subcontracting record with VOSBs
and SDVOSBs.[Footnote 50]
Table 4: VA's VOSB and SDVOSB Subcontracting Goals and
Accomplishments, FY07 through FY09:
VA subcontracting goal (percent): [Empty];
VA subcontracting goal (percent): [Empty].
VA subcontracting goal (percent):
FY07: VOSB: 7.0%;
FY07: SDVOSB: 3.0%;
FY08: VOSB: 10.0%;
FY08: SDVOSB: 7.0%;
FY09: VOSB: 10.0%;
FY09: SDVOSB: 7.0%.
Accomplishment in dollars[A]:
FY07: VOSB: $44.0 millions;
FY07: SDVOSB: $8.0 millions;
FY08: VOSB: $99.0 millions;
FY08: SDVOSB: $9.0 millions;
FY09: VOSB: $45.0 millions;
FY09: SDVOSB: $13.0 millions.
Accomplishment as a percentage;
FY07: VOSB: 0.4%;
FY07: SDVOSB: 0.1%;
FY08: VOSB: 1.0%;
FY08: SDVOSB: 0.1%;
FY09: VOSB: 0.6%;
FY09: SDVOSB: 0.2%.
Sources: SBA's Procurement Subcontracting Report and SBA's analysis of
Electronic Subcontracting Reporting System data.
[A] Figures are rounded.
[End of table]
VA has created a form--VA Form 0896a--that it plans to use to collect
subcontracting information from its prime contractors. OMB approved
the form on January 15, 2010. Initially, VA plans to use a hard-copy
version of VA Form 0896a and ultimately collect data from prime
contractors through the Internet. At the close of each fiscal year, VA
staff will provide the form to prime contractors with approved
subcontracting plans. Once prime contractors complete and return the
form, VA staff will then review the form and compare it with the
information reported by prime contractors in their subcontracting
plans. VA staff also will contact the subcontractors listed on the
form to confirm that the subcontracting activity occurred as well as
confirm the dollar amount expended. VA staff then will determine
whether discrepancies exist and the reasons for the discrepancies.
Specifically, VA will attempt to determine instances in which valid
reasons for a discrepancy exist versus instances in which prime
contractors may not have made a good-faith effort to comply with their
subcontracting plans.
VA plans to centralize the subcontractor review function in its OSDBU.
Although contractors self-reported information into the SBA-maintained
Electronic Subcontracting Reporting System prior to development of
this subcontracting review mechanism, VA had not collected or
confirmed the accuracy of information on the specific dollar amount or
percentage of the contract value attributable to individual
subcontractors. Finally, VA's OSDBU plans to develop standard
operating procedures by September 2010 for its staff to ensure
consistent implementation of the review mechanism. According to VA, no
additional regulatory action is required to implement VA Form 0896a
and the review process. According to VA, the use of the form will
improve the subcontractor data that the agency uses to calculate its
goal accomplishments. VA also expects to see increases in performance
toward subcontracting goal attainment as a result of improved data
collection. Additionally, VA will count subcontracting accomplishments
only with verified businesses starting on January 1, 2012.[Footnote 51]
As of March 26, 2010, VA planned to use VA Form 0896a on a sampling of
contracts resulting from solicitations issued after January 7, 2010.
According to VA, SBA will have to certify FY10 subcontracting data
before OSDBU performs an analysis of information for contracts
resulting from these solicitations. In previous years, SBA's data
certification had taken several months or up to a year to be
available. VA officials have raised concerns that certain challenges
may slow implementation of the review mechanism. These challenges
include the limited staff resources that OSDBU has to implement the
program. VA estimated that more than 300 prime contractors may be
required to supply data, which OSDBU must analyze as we have
previously described. In FY09, VA reported that it had approved 198
new subcontracting plans. However, VA hired one full-time employee to
help one existing staff person working on this program. According to
an agency official, OSDBU will determine after implementation of the
new form whether additional personnel will be required. Furthermore,
VA has expressed concerns that prime contractors and subcontractors
initially may resist providing, or may not realize they have to
provide, information. According to VA officials, they have not
pretested the review mechanism with prime contractors but plan
outreach to prime contractors and subcontractors about the new
program. VA also plans to motivate prime contractors to complete the
form and increase subcontracting efforts with VOSBs and SDVOSBs by
adopting a new evaluation factor in addition to those factors VA
currently uses to award contracts. For example, VA's procurement staff
plans to use prime contractors' records in meeting goals detailed in
subcontracting plans when awarding future VA contracts. Finally, OSDBU
plans to use the data collected to annually provide findings to VA
leadership. Because VA has not yet implemented the review mechanism,
it is too early to assess its effectiveness.
Conclusions:
More than 3 years after it was enacted, VA has not fully implemented
significant requirements of the 2006 Act. The 2006 Act provided VA
with unique authority to award contracts to VOSBs and SDVOSBs on a
priority basis to increase contracting opportunities for these
businesses. In this regard, VA has been highly successful. Since FY07,
VA has established and exceeded its contracting goals for VOSBs and
SDVOSBs, primarily by using authorities established under the 2006
Act. However, the agency faces continuing challenges, and diminished
achievement, in meeting other small business goals. VA also faces
challenges in monitoring interagency agreements to ensure that other
agencies are making efforts to achieve its contracting goals, to the
maximum extent feasible, as required by an amendment to the 2006 Act's
provisions. VA does not have an effective process in place to ensure
that all interagency agreements include the mandated language
addressing VA's contracting goals and preferences or to monitor the
extent to which agencies comply with the requirements. By putting such
a process in place, VA could help ensure that statutory requirements
are met and that the contracting activities of other agencies also
meet VA's goals and preferences for VOSBs and SDVOSBs, to the maximum
extent feasible.
The agency has been slow to implement a comprehensive program to
verify the veteran status, ownership, and control of small businesses
and maintain a database of such businesses, also required by the 2006
Act. Verification is a vital control to ensure that only eligible
veteran-owned businesses benefit from the preferential contracting
authorities. VA has faced several challenges in implementing its
verification program, including a lack of leadership and a limited
number of staff positions with which to conduct verifications. VA
plans to implement recommendations that an outside contractor made to
improve the program and its data systems. However, we identified
several weaknesses in the verification program, and the agency has
been slow to fill staff vacancies and enhance its technology. By
expeditiously filling its vacant leadership and staff positions within
OSDBU, VA could better ensure that the verification program will
operate effectively and planned improvements will be achieved. Many of
the weaknesses in the files we reviewed appeared to be the result of
limitations in the software and the associated extensive reliance on
manual data entry. VA has not yet put software improvements in place.
Other weaknesses stemmed from gaps in the verification guidance and
procedures. For example, VA does not have guidance requiring staff to
document their assessment that each eligibility requirement had been
met or explaining under what circumstances to request documentation
from business owners or instances in which third-party data may be
necessary to validate self-reported information. By developing a plan
to address leadership and staff vacancies, hire additional staff as
necessary, achieve timely implementation of enhancements to data
systems, revise procedures to include additional guidance for staff,
and provide training to staff on the revised procedures, VA could make
the verification process more effective. Timely improvements in these
areas also would likely help the agency reduce backlogs--which have
continued to grow.
VA also faces other challenges with respect to ensuring that veteran
preferences authorities are only used to award contracts to eligible
businesses (those that have not been denied verification) and taking
action against businesses that have misrepresented themselves during
the verification process. According to the 2006 Act, VA must use the
veteran preferences authorities only with verified businesses.
However, VA contracting officers used the authorities to award
contracts--totaling almost $4 million--to 11 businesses that had been
denied verification. According to VA officials, contracting officers
received training on the veteran preferences authorities, but the
agency does not have an effective process in place to ensure that the
authorities are used correctly. Without such a system, VA lacks
assurance that it will not continue to make awards to ineligible
businesses (those denied verification), thereby taking contracting
opportunities away from eligible businesses. Moreover, findings from
the initial site visits indicated a high rate of misrepresentation by
VOSBs and SDVOSBs, coupled with a lack of detailed guidance about how
to handle such cases (which would be the precursor to any
investigations and enforcement actions), further suggest that the
agency will be challenged to conduct effective oversight in a program
vulnerable to fraud. Specifically, 40 percent of site visits resulted
in evidence that control and ownership requirements had not been met.
An effective process to make determinations and referrals that may
result in enforcement actions against businesses misrepresenting
themselves is of vital importance for the integrity of the program.
Thus, to conduct an effective verification program, VA's processes
would need to include not only robust reviews to ensure that only
eligible businesses are verified and therefore benefit from
contracting preferences, but also clear and detailed guidance to
ensure that ineligible businesses do not benefit from contracting
preferences by taking the appropriate enforcement actions.
Finally, the 2006 Act requires VA to establish subcontracting goals
for VOSBs and SDVOSBs and to develop a mechanism to review prime
contractors' subcontracts with these businesses. While the agency has
developed a mechanism, it has not yet implemented it. VA's
subcontracting accomplishments also have fallen short of goals for the
past 3 years. The agency has acknowledged the shortcomings in this
area and agency leadership has publicly committed to take measures to
improve VA's subcontracting record. VA intends to start using the
review mechanism in FY10 and expects to see increases in performance
toward subcontracting goal attainment as a result. However, it is too
early to assess the effectiveness of VA's subcontracting efforts.
Recommendations for Executive Action:
To facilitate the Department of Veterans Affairs' progress in meeting
and complying with the requirements of the 2006 Act, we recommend that
the Secretary of Veterans Affairs take the following four actions:
* To ensure compliance with the 2006 Act, as its provisions were
amended by the 2008 Act (Pub. L. No. 110-389), VA should develop an
effective process to ensure that agreements it enters into with other
federal agencies for contracting on its behalf to acquire goods or
services include the required language and monitor other agencies'
contracting performance under those agreements.
* To help address the requirement in the 2006 Act to maintain a
database of verified veteran-owned businesses, VA should develop and
implement a plan that ensures a more thorough and effective
verification program. Specifically, the plan should address actions
and milestone dates for achieving the following:
- promptly filling vacant positions within OSDBU, including the two
leadership positions, and hiring additional staff positions as
necessary;
- improving its verification processes and procedures to ensure
greater completeness, accuracy, and consistency in verification
reviews, including updating data systems to reduce the amount of
manual data entry by staff and revising the verification procedures to
include additional guidance for staff on maintaining the appropriate
documentation, requesting documentation from business owners or third
parties under specific circumstances, and conducting an assessment
that addresses each eligibility requirement; and:
- conducting timely site visits at businesses identified as higher
risk and taking actions based on site visit findings, including taking
prompt action to cancel business' verification status as necessary.
* To better ensure that VA meets the requirement to use veteran
preferences authorities with verified businesses only, as required by
the 2006 Act, VA should develop a more effective system to ensure that
contracting officers do not use veteran preferences authorities to
award contracts to businesses that have been denied verification, and
provide additional guidance and training to contracting officers as
necessary.
* To ensure that VA takes enforcement actions against businesses that
have misrepresented themselves, as required by the 2006 Act, VA should
develop detailed guidance that would instruct staff under which
circumstances to make a referral or a debarment request as a result of
the verification program.
Agency Comments and Our Evaluation:
We requested the Department of Veterans Affairs' comments on a draft
of this report, and the Chief of Staff from VA's Office of the
Secretary provided written comments that are presented in appendix IV.
VA also provided a technical comment that we incorporated in this
report where appropriate. VA agreed with the four recommendations and
provided information about steps that VA has already taken and some
additional actions that are under way. For example, VA stated that it
provided training from January through March, 2010, to all of its
acquisition professionals regarding the language that must be included
in all interagency agreements entered into on VA's behalf. VA also
indicated that it has made progress in filling vacant OSDBU positions,
including filling all leadership positions as of April 12, 2010, and
that all remaining vacant positions will be filled and staff will be
on board no later than the end of July 2010. VA stated that its OSDBU
anticipates requesting a significant number of additional full-time-
equivalent authorizations in the near future to support the
verification program. Additionally, VA stated that it provided
training to contracting officers on the use of veteran preferences
authorities from January through March, 2010, and will periodically
rebroadcast the training through March 2011. Finally, VA stated that
it is currently developing the process and procedures to use when
referring businesses for debarment and plans to have this in place by
October 31, 2010.
We are sending copies of this report to the appropriate congressional
committees, the Secretary of the Department of Veterans Affairs and
other interested parties. In addition, this report will be available
at no charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your offices have any questions about this report, please
contact me at (202) 512-8678 or shearw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report are
listed in appendix V.
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our report objectives were to review (1) the extent to which the
Department of Veterans Affairs (VA) met its prime contracting goals
for veteran-owned small businesses (VOSB) and service-disabled veteran-
owned small businesses (SDVOSB) in fiscal years (FY) 2007, 2008, and
2009, and what, if any, challenges VA faced in meeting these goals;
(2) VA's progress in implementing procedures to verify the ownership,
control, and, if applicable, service-disability status of firms in its
mandated database of VOSBs and SDVOSBs; and (3) VA's progress in
establishing a review mechanism of prime contractors' subcontracts
with VOSBs and SDVOSBs.
To respond to these objectives, we reviewed agency documents related
to VA's implementation of the Veterans Benefits, Health Care, and
Information Technology Act of 2006 (Pub. L. No. 109-461, sections 502
and 503), which requires VA to give priority to VOSBs and SDVOSBs when
it uses veteran preferences to award contracts.[Footnote 52]
Additionally, we reviewed regulations implementing the act, including
the Veterans Affairs Acquisition Regulation, which is the final rule
implementing the unique contracting preferences, and the final rule
implementing the verification program.[Footnote 53] We interviewed VA
officials within the Office of Acquisition and Logistics (OAL); Office
of Small and Disadvantaged Business Utilization (OSDBU); Center for
Veterans Enterprise (CVE); and Office of Inspector General (OIG).
Finally, we obtained information from OSDBU and CVE about authorized
staffing levels and current allocations for staff working on the
verification and subcontracting review programs.
To determine the extent to which VA met its prime contracting goals
for VOSBs and SDVOSBs and to what extent contracts awarded to VOSBs
and SDVOSBs were on a set-aside and sole-source basis, we reviewed
VA's agencywide contracting activity for which small businesses were
eligible and analyzed SBA's Goaling Reports for FY06 through FY08.
Because SBA's official Goaling Report was unavailable for FY09, we
obtained and analyzed Federal Procurement Data Systems-Next Generation
(FPDS-NG) data for VA contracting activities. Additionally, to assess
the extent to which VA awarded set-aside and sole-source contracts to
verified VOSBs and SDVOSBs, we compared those that were self-certified
in FY09 with a list of businesses verified by the end of FY09
(provided by CVE). We compared the list provided by CVE with FPDS-NG
data to determine VA's level of contracting with verified firms.
Finally, we conducted reasonableness checks on the FPDS-NG data and
identified any missing, erroneous, or outlying data and had an
independent analyst review all programming. We also obtained and
reviewed VA's FY09 FPDS-NG Data Quality Report, as submitted to the
Office of Management and Budget, which stated that VA's FPDS-NG data
are 86 percent accurate and 95.8 percent complete. Based on this
review, we determined the FPDS-NG data to be sufficiently reliable for
the purposes of this report.
To determine the extent to which VA agreements with other federal
agencies has language that referred to VA's contracting goals and
preferences for VOSBs and SDVOSBs as mandated by Pub. L. No. 109-461,
and amended by Pub. L. No. 110-389, we interviewed VA officials from
OAL to obtain information on any policies, procedures,
responsibilities, and oversight efforts in place to monitor compliance
with the Pub. L. No. 110-389 requirement. To determine the extent to
which these agencies awarded contracts to VOSBs and SDVOSBs, we
evaluated FPDS-NG data to obtain information about contracts awarded
by federal agencies on VA's behalf and subject to Pub. L. No. 109-461
provisions. We evaluated the accuracy and completeness of this
analysis by obtaining data from VA on contracting dollars awarded to
the Department of the Interior, the General Services Administration,
the Department of the Navy's Space and Naval Warfare Systems Center,
and the U.S. Army Corps of Engineers.
To evaluate the challenges, if any, VA faced in meeting its prime
contracting goals for VOSBs and SDVOSBs, we reviewed previous
congressional hearing transcripts that discussed VA's challenges in
meeting its contracting goals as well as emerging challenges. We also
conducted several interviews with officials from OSDBU and members of
veteran service organizations, including representatives from the
National Veterans Business Development Corporation, Association for
Service Disabled Veterans, Disabled Veteran Americans, American
Legion, Veterans of Foreign Wars, Vietnam Veterans of America, and
National Veteran-Owned Business Association.
To determine VA's progress in implementing procedures to verify firms
in its mandated database, we reviewed the agency's verification
guidelines and risk guidelines as well as procedures for reviewing
applications and conducting site visits. Additionally, we conducted a
file review of a sample of verified businesses to determine the extent
to which VA followed procedures and to identify any deficiencies in
the verification process. The study population for our review
consisted of all 1,723 businesses that had been verified between May
2008 and the end of FY09 (Sept. 30, 2009). We obtained a list of these
businesses from CVE and selected a probability sample of 112
businesses, which would allow us to estimate characteristics of all
applications verified by CVE during this period. This sample contained
approximately the same proportion of SDVOSBs as did the full study
population. We conducted the file review at CVE's offices in
Washington, D.C., during the week of November 16, 2009, and reviewed
both electronic and paper files.
Because we followed a probability procedure based on random
selections, our sample is only one of a large number of samples that
we might have drawn. Since each sample could have provided different
estimates, we express our confidence in the precision of our
particular sample's results as 95 percent confidence internal (plus or
minus 10 percentage points). This is the interval that would contain
the actual population value for 95 percent of the samples we could
have drawn. All percentage estimates from our sample have 95 percent
confidence intervals within plus or minus 10 percentage points of the
estimate.
We created a data collection instrument based on requirements from
CVE's verification procedures, pretested the instrument on sample
businesses, and then reviewed each business' file according to the
finalized instrument. For example, for each business, we reviewed the
following: the verification application (VA Form 0877), quality
control form (Control Folder Signature Sheet), the business' entry
within the agency's internal Microsoft Access database (veteran status
and eligibility to receive contracts from the federal government),
notes about public databases checked for control and ownership
information (Control Folder Review Sheet), screenshots of information
obtained from public databases searched, and the approval letter.
[Footnote 54] To determine risk levels assigned to each business, CVE
provided a comprehensive list of all verified businesses and their
assigned risk level. We used this list to obtain risk levels for the
112 businesses in our random sample. Our random sample produced
estimates with margins of error of 9 percentage points or less at the
95 percent confidence level. Based on findings from our file review
sample, we calculated percentage estimates with 95 percent confidence
intervals within plus or minus 10 percentage points of the estimated
percentage. The results of our sample are generalizable to the entire
population of applications verified by the end of FY09. We performed
the appropriate data reliability procedures for our sample. For
example, to ensure consistency in how the data collection instrument
was completed, we randomly selected 30 percent of files (34 out of
112) for which a second independent analyst peer reviewed the
information collected. We determined, based on this 30 percent random
sample, that there were very few discrepancies in how the data
collection instrument was completed, and that the data were sufficient
for the purposes of this report.
To determine why CVE denied applications, we obtained information on
the number of businesses denied verification and the reasons for
denial. CVE provided us with information for each application denied
between May 2008 and March 4, 2010, which we summarized in this
report. We also compared the denied businesses to FPDS-NG data to
determine whether any denied business had received a VOSB or SDVOSB
set-aside in FY09 or in FY10 (through Mar. 23, 2010) from VA after it
had been denied verification by CVE. We also obtained 10 (of 45) site
visit reports from CVE that contractors had prepared. We reviewed the
10 reports to determine whether any businesses failed to meet
eligibility requirements based on evidence prepared by the contractor
that conducted the site visit. Finally, we requested information and
interviewed agency officials from OAL, CVE, and VA's OIG to discuss
any processes and procedures in place to determine whether businesses
had misrepresented themselves or to refer businesses for a
investigation or debarment.
To determine the extent to which VA met its own subcontracting goals
for VOSBs and SDVOSBs and the governmentwide statutory goal for
SDVOSBs, we reviewed data from SBA Goaling Reports and the Electronic
Subcontracting Reporting System for FY07 through FY09. We reviewed
Pub. L. No. 109-461, section 502, to identify the statutorily mandated
requirement that VA set its own goals for VOSB and SDVOSB
subcontracting activities, and to identify the requirement that VA
confirm reported subcontracting activity. We conducted interviews with
OSDBU to assess VA's progress in establishing a review mechanism of
prime contractors' subcontracts with SDVOSBs and other VOSBs. Finally,
we obtained and reviewed VA Form 0896a--which is the form that VA
intends to use to implement its subcontracting review mechanism.
We conducted this performance audit from October 2007 through May
2010, in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: VetBiz.gov Screenshot and Verified Logo:
The VetBiz.gov database allows business owners to submit applications
for verification and is also a searchable database for contracting
officers and the public (see figure 11). Businesses that have been
verified appear with a verified logo (see figure 12).
Figure 11: Screenshot of VetBiz.gov Search for a Business:
[Refer to PDF for image: screen shot]
Source: GAO obtained screenshot from www.vip.vetbiz.gov (last accessed
on Mar. 29, 2010).
[End of figure]
Figure 12: Service-Disabled Veteran-Owned Small Business Verified Logo:
[Refer to PDF for image: logo]
Source: GAO obtained screenshot from www.vip.vetbiz.gov (last accessed
on Mar. 29, 2010).
[End of figure]
[End of section]
Appendix III: Department of Veterans Affairs' Contracting with Veteran-
Owned Small Businesses:
Dollars in millions:
SDVOSB set-aside:
FY07: Dollars: $275;
FY07: Percentage: 23%;
FY08: Dollars: $614;
FY08: Percentage: 29%;
FY09: Dollars: $1,100;
FY09: Percentage: 36%.
SDVOSB sole-source:
FY07: Dollars: 174;
FY07: Percentage: 14;
FY08: Dollars: 486;
FY08: Percentage: 23;
FY09: Dollars: 555;
FY09: Percentage: 20.
Veteran set-aside[A]:
FY07: Dollars: 7;
FY07: Percentage: 1;
FY08: Dollars: 22;
FY08: Percentage: 1;
FY09: Dollars: 56;
FY09: Percentage: 2.
Veteran sole-source[A]:
FY07: Dollars: 17;
FY07: Percentage: 1;
FY08: Dollars: 47;
FY08: Percentage: 2;
FY09: Dollars: 44;
FY09: Percentage: 2.
Subtotal - Pub. L. No. 109-461 authorities:
FY07: Dollars: $473;
FY07: Percentage: 39%;
FY08: Dollars: $1,200;
FY08: Percentage: 56%;
FY09: Dollars: $1,700;
FY09: Percentage: 59%.
Other set-aside or sole-source[B]:
FY07: Dollars: $109;
FY07: Percentage: 9%;
FY08: Dollars: $85;
FY08: Percentage: 4%;
FY09: Dollars: $75;
FY09: Percentage: 3%.
No set-aside:
FY07: Dollars: 624;
FY07: Percentage: 52;
FY08: Dollars: 848;
FY08: Percentage: 40;
FY09: Dollars: 1,100;
FY09: Percentage: 38.
Subtotal - Other authorities:
FY07: Dollars: $733;
FY07: Percentage: 61%;
FY08: Dollars: $933;
FY08: Percentage: 44%;
FY09: Dollars: $1,175;
FY09: Percentage: 41%.
Total contracting for VOSBs[C]:
FY07: Dollars: $1,200;
FY07: Percentage: 100%;
FY08: Dollars: $2,100;
FY08: Percentage: 100%;
FY09: Dollars: $2,800;
FY09: Percentage: 100%.
Source: GAO analysis of SBA's Goaling Reports and FPDS-NG data.
Note: Due to rounding, figures do not sum exactly to subtotals or
totals.
[A] Veteran set-aside and sole-source figures do not include SDVOSBs.
[B] Includes small business, HUBZone, 8(a), and emerging small
business set-asides or sole-source.
[C] The total contracting for VOSBs includes SDVOSBs.
[End of table]
[End of section]
Appendix IV: Comments from the Department of Veterans Affairs:
Department of Veterans Affairs:
Office of the Secretary:
May 12, 2010:
Mr. William B. Shear:
Director, Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Shear:
The Department of Veterans Affairs (VA) has reviewed the Government
Accountability Office's (GAO) draft report, Department Of Veterans
Affairs: Agency Has Exceeded Contracting Goals for Veteran-Owned Small
Businesses, but Faces Challenges with Its Verification Program (GA0-10-
458) and generally agrees with GAO's conclusions and concurs with
GAO's recommendations to the Department. The enclosure specifically
addresses each of GAO's recommendations.
VA appreciates the opportunity to comment on your draft report.
Sincerely,
Signed by:
John R. Gingrich:
Chief of Staff:
Enclosure:
[End of letter]
Enclosure:
Department of Veterans Affairs (VA) Comments to Government
Accountability Office (GAO) Draft Report: Department of Veterans
Affairs: Agency Has Exceeded Contracting Goals for Veteran-Owned Small
Businesses, but Faces Challenges with Its Verification Program (GA0-10-
458):
GAO Recommendation: To facilitate the Veterans Affairs' progress in
meeting and complying with the requirements of the 2006 Act, we
recommend that the Secretary of Veterans Affairs take the following
four actions:
Recommendation 1: To ensure compliance with the 2006 Act, as its
provisions were amended by the 2008 Act (P.L. 110-389), VA should
develop an effective process to ensure that agreements it enters with
other federal agencies for contracting on its behalf to acquire goods
or services include the required language and monitor other agencies'
contracting performance under those agreements.
VA Comment: Concur. The, Office of Acquisition and Logistics
Information Letter (IL) 001AL-09-04 issued March 23, 2009 (attached)
states that:
"Consistent with VA's Veterans First Contracting Program, all
Interagency Acquisitions (IA) shall include a provision requiring that
servicing agencies, to the maximum extent feasible, comply with the
priorities for contracting with service-disabled Veteran-owned small
businesses (SDVOSB) and Veteran-owned small businesses (VOSBs) over
other socio-economic classes of small businesses. The provision should
also state that sole source and set-aside acquisition authorities for
such small businesses are set forth in 38 U.S.C. § 8127. This
provision does not supersede or otherwise affect the authorities
provided under the Small Business Act."
Additionally, VA provided training from January ” March 2010, to all
acquisition professionals regarding the language which must be
included in all interagency agreements entered into on behalf of VA.
Recommendation 2: To help address the requirement in the 2006 Act to
maintain a database of verified veteran-owned businesses, VA should
develop and implement a plan that ensures a more thorough and
effective verification program. Specifically, the plan should address
actions and milestone dates for achieving the following:
* Promptly filling vacancies within OSDBU, including the two
leadership positions and hiring additional staff positions as
necessary;
* Improving its verification process and procedures to ensure greater
completeness, accuracy, and consistency in verification reviews
including updating data systems to reduce the amount of manual data
entry by staff and revising the verification procedures to include
additional guidance for staff on maintaining appropriate
documentation, requesting documentation from business owned or third-
parties under specific circumstances, and conducting an assessment
that addresses each eligibility requirement; and;
* Conducting timely site visits at businesses identified as higher-
risk and taking actions based upon site visit findings, including
taking prompt action to cancel business' verification status as
necessary.
VA comment: Concur. Office of Small and Disadvantaged Business
Utilization (OSDBU) has made progress filling vacant positions. As of
April 12, 2010, all three leadership positions were staffed: an SES-
level Executive Director and two GS-15-level program directors. OSDBU
is authorized 40 full-time employee (FTE) positions, and as of May 5,
2010, OSDBU had 29.5 FTE onboard. Of the remaining 10.5 FTE, OSDBU is
awaiting final Human Resources approval to hire a GS-13 Small Business
Specialist and a GS-7/8 Program Support Assistant. Presently,
interviews are being held for GS-5/6 Program Support Clerks
representing 2.5 FTE. OSDBU is awaiting issuance of certificates for
six other positions including a GS-9/11 Program Specialist, five GS-14
Team Leaders, and is anticipating that two vacancies will be filled by
the end of May 2010. The remaining 8.5 FTE will be onboard no later
than the end of July 2010. OSDBU anticipates requesting a significant
number of additional authorizations for FTE within the next three
months to support the unique elements of its mission. The uniqueness
of other programs in OSDBU will require additional staffing,
especially with regard to outreach and partnership programs. OSDBU
estimates that a mix of permanent and temporary (or contractor) FTE
will be necessary to optimize OSDBU program performance and meet
internal goals for the January 1, 2012, rollout of new Vendor
Information Pages (VIP) where only verified vendors will be visible to
users.
For the Center for Veterans Enterprise (CVE) to fulfill its unique
mission and meet the verification requirements and standards to
facilitate a smooth transition to an automated verification system, a
number of new positions will need to be created and hired; most of
these would be program specialists to support the verification
process. CVE initially had only three full-time staff for the
verification function. The backlog of applications in process has
grown steadily, to over 5,000 as of May 1, 2010. Approximately 3,000
applicants had been verified as of May 1, 2010, but note that a
substantial number of companies that indicate that a Veteran has 51
percent ownership may be questionable. OSDBU is shifting workload to
allow its CVE staff to focus more directly on the verification and
automation issues while new staff are authorized and brought onboard.
The current goal is to examine at least 6,000 applications by December
31, 2011. Additionally, we will identify at least 95 percent of the
applications received from companies that are not, in fact, owned and
controlled by a Veteran or a Service-Disabled Veteran. This will
reduce the processing time to less than 60 days from the time the
Veteran's status has been verified in VA's Beneficiary Identification
and Records Locator System.
Action Plan Tasks And Milestone Schedule:
Action: Award Contract for VIP5/Contact Management System;
Target Date: 5/30/2010.
Action: Complete the Transfer of the EVIC Call Center operations to
the Small Business Office;
Target Date: 6/1/2010.
Action: Award Sole Source Contract for Level 2 Examinations;
Target Date: 6/15/2010.
Action: OSDBU/CVE submits actionable contracting requirements to the
Office of Acquisition, Logistics and Construction for the following:
* Verification Level 2 Examinations;
* Onsite Examinations;
* Legal Assistance Services;
* Temporary clerical staff to handle backlog;
* Additional requirements to be determined;
Target Date: 6/30/2010.
Action: Solicitation for Onsite Examinations released;
Target Date: 7/2/2010.
Action: Other solicitations;
Target Date: TBD.
Action: VIP 5 Ready to Launch;
Target Date: 3/1/2011.
Action: VIP database presentation modified by regulation;
Target Date: 1/1/2012.
To date, the CVE retained contractors for the onsite examinations have
conducted 102 site visits and provided 89 completed site visit
reports. VA has exercised the contract option for 200 additional
onsite examinations. The reengineered onsite examinations protocol has
been implemented so that the contractors are now conducting site
visits in advance of the final decision to approve or deny a business
for verification. Site visit reports are reviewed and approved for
internal concurrence prior to verification summary determinations.
Processing includes not only the actual site visit and CVE's review of
the completed Site Visit report, but also preparation of the denial
letter or Notice of Proposed Cancellation, and dispatch of the letter.
Per 38 CFR Part 74.22, the business owner will have 30 days from
receipt of the letter to respond. Once the business owner's response
is received, the Director, CVE will make a decision whether to reverse
the denial/cancellation decision. CVE currently plans to conduct
approximately 15 site visits per month, starting June 1, 2010.
Recommendation 3: To better ensure that VA meets the requirement to
use veterans preferences authorities with verified businesses only, as
required by the 2006 Act, VA should develop a more effective system to
ensure that contracting officers do not use veteran preference
authorities to award contracts to businesses that have been denied
verification, and provide additional guidance and training to
contracting officers as necessary.
VA Comment: Concur. Since implementation of the Veterans First
Contracting Program's Final Rule January 7, 2010, VA provided training
to all acquisition professionals on the use of Veterans' preferences.
This training was conducted from January - March 2010. A live
broadcast of the training was held in March 2010, and is being
periodically rebroadcast through March 2011 on the VA Knowledge
Network. As a part of their market research, contracting officers are
required to view the VIP database to locate SDVOSBs and VOSBs. Vendors
currently must be listed in the VIP database to be eligible for an
award under the Veterans First Contracting Program. Businesses that
have applied for verification through OSDBU and are deemed eligible
are noted in the database with a "Verified" identifier. When a
business is denied verification, OSDBU removes that business profile
from public view in the VIP database. When checking the VIP for
registered/verified SDVOSBs and VOSBs, contracting officers will not
see businesses which have been denied verification; those profiles are
viewable by OSDBU administrators only.
Recommendation 4: To ensure that VA takes enforcement actions against
businesses that have misrepresented themselves, as required by the
2006 Act, VA should develop detailed guidance that would instruct
staff under which circumstances to make a referral or a debarment
request as a result of the verification program.
VA Comment: Concur. VA is currently developing the process and
procedures to use when referring a vendor for debarment under 38
U.S.C. 8127. The completion date for this action is October 31, 2010.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
William B. Shear, (202) 512-8678 or shearw@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Harry Medina, Assistant
Director; Paola Bobadilla; Julianne Dieterich; Beth Ann Faraguna;
Julia Kennon; John Ledford; Jonathan Meyer; Amanda Miller; Marc
Molino; Mark Ramage; Barbara Roesmann; Kathryn Supinski; Paul
Thompson; Julie Trinder; and William Woods made significant
contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 109-461 § 502 (Dec. 22, 2006), codified at 38 U.S.C. §
8127, as amended. As discussed later in this report, under a
subsequently enacted law, VA agreements with other agencies for
acquiring goods and services must contain a provision calling for the
agencies to achieve those goals to the maximum extent feasible. See
Pub. L. No. 110-389 § 806 (Oct. 10, 2008).
[2] Pub. L. No. 109-461 § 502(c).
[3] For our 2009 briefing, see GAO, Department of Veterans Affairs
Contracting with Veteran-Owned Small Businesses, GAO-09-391R
(Washington, D.C.: Mar. 19, 2009). However, we did not publish reports
discussing our 2008 and 2010 congressional briefings.
[4] The Federal Acquisition Regulation requires executive-branch
departments and agencies to collect and report procurement data to
FPDS-NG.
[5] Under a 2008 amendment to 38 U.S.C. § 8127, VA must include in
agreements or arrangements between VA and any governmental entity to
acquire goods or services a requirement that the entity will, to the
maximum extent feasible, comply with the requirements for VA
contracting contained in the section when the entity acquires such
goods or services. The provision applies to agreements entered into
after December 31, 2008. Pub. L. No. 110-389, § 806 (Oct. 10, 2008).
[6] Small Business Reauthorization Act of 1997, Pub. L. No. 105-135 §
603 (1997), codified at 15 U.S.C. § 644(g), as amended.
[7] The 3 percent requirement for SDVOSBs was included in the Veterans
Entrepreneurship and Small Business Development Act of 1999, Pub. L.
No. 106-50 (1999). In 2003, Congress passed the Veterans Benefit Act,
which established the Service-disabled Veteran-owned Small Business
Procurement Program that SBA administers along with federal procuring
agencies. The governmentwide program is intended to provide federal
contracting opportunities to qualified businesses and permits
contracting officers to award set-aside and sole-source contracts to
any small business concern owned and controlled by service-disabled
veterans to help reach the 3 percent governmentwide goal. Pub. L. No.
108-183, § 308, 117 Stat, 2651, 2662 (2003).
[8] Pub. L. No. 109-461, §§ 502, 503 (2006), codified at 38 U.S.C. §§
8127, 8128, as amended.
[9] On June 19, 2007, VA issued Information Letter 049-07-08 (Veterans
First Contracting Program) notifying all contracting officers about
the Pub. L. No. 109-461 authorities.
[10] The FSS and other governmentwide contract mechanisms provide a
simplified process for obtaining goods and services by identifying
approved contractors with which federal agencies may place orders.
According to SBA guidelines, agencies may claim credit for purchases
made with small businesses through FSS. However, VA may not use its
unique VOSB and SDVOSB contracting authorities in making purchases
through FSS.
[11] In pertinent part, section 503, codified at 38 U.S.C. § 8128(a)
provides as follows: "In procuring goods and services pursuant to a
contracting preference under this title or any other provision of law,
the Secretary shall give priority to a small business concern owned
and controlled by veterans, if such business concern also meets the
requirements of that contracting preference."
[12] Pub. L. No. 110-389 § 806 (Oct. 10, 2008). The amendment also
provides that nothing in this requirement "shall be construed to
supersede or otherwise affect the authorities provided under the Small
Business Act (15 U.S.C. § 631)."
[13] This agreement was amended in August of 2008, but Pub. L. No. 110-
389 applies only to agreements entered into on or after January 1,
2009. According to VA, its agreement with the U.S. Army Corps of
Engineers (Corps) for FY09 totaled $338 million and was for planning,
design, and construction management goods and services. According to
our analysis of FPDS-NG data, the Corps appeared to be exceeding VA's
goals by awarding approximately 47 percent of contracting dollars to
both VOSBs and SDVOSBs. However, the dollars obligated in FPDS-NG do
not reflect the total contracting dollars because some contract
actions covered by the interagency agreement may not have been awarded
by the end of FY09.
[14] Department of Veterans Affairs, Information Letter 001-AL-09-04,
Managing Interagency Acquisitions (Mar. 23, 2009).
[15] Pub. L. No. 109-461 established a transition rule that was in
effect for a 1-year period, which began when section 502 became
effective. The effective date, defined in the act as 180 days after
the date on which the law was enacted, was June 20, 2007. Pub. L. No.
109-461 § 502(b). For the 1-year period, the transition rule
established a presumption of eligibility for inclusion in the VA
database of VOSBs and SDVOSBs covered by the act for businesses that
were listed in any small business database maintained by VA. The final
rule for the verification program, with changes, became effective
February 8, 2010. 75 Fed. Reg. 6098 (Feb. 8, 2010).
[16] GAO, Small Business Administration: Additional Actions Are Needed
to Certify and Monitor HUBZone Businesses and Assess Program Results,
[hyperlink, http://www.gao.gov/products/GAO-08-975T] (Washington,
D.C.: July 17, 2008); HUBZone Program: SBA's Control Weaknesses
Exposed the Government to Fraud and Abuse, [hyperlink,
http://www.gao.gov/products/GAO-08-964T] (Washington, D.C.: July 17,
2008); and Small Business Administration: Additional Actions Are
Needed to Certify and Monitor HUBZone Businesses and Assess Program
Results, [hyperlink, http://www.gao.gov/products/GAO-08-643]
(Washington, D.C.: June 17, 2008).
[17] 74 Fed. Reg. 64619, 64620 (Dec. 8, 2009), effective January 7,
2010.
[18] In FY09, CVE was authorized 23 full-time-equivalent positions, an
increase from the 17 full-time positions authorized in FY08.
[19] 74 Fed. Reg. 64619, 64620 (Dec. 8, 2009).
[20] During the congressional hearing, representatives from veteran
service organizations also highlighted concerns with VA's verification
program, including an apparent lack of resources and delays in
obtaining contractor support to effectively carry out mandated
requirements, and complaints from business owners about delays in
obtaining verification. House Subcommittee on Economic Opportunity,
Committee on Veterans' Affairs, U.S. Department of Veterans Affairs'
Center for Veteran Enterprise, Statement of Tim J. Foreman, Department
of Veterans Affairs, Executive Director of the Office of Small
Disadvantaged Business Utilization, 111th Congress, 2nd session, March
11, 2010.
[21] 38 U.S.C. § 8127(f).
[22] According to VA, under full-and-open competition, VOSBs or
SDVOSBs do not need to be listed in the VetBiz.gov database to be
awarded a contract.
[23] Eligible parties include veterans, service-disabled veterans, and
some surviving spouses who own businesses.
[24] Ownership is defined as a firm being at least 51 percent
unconditionally and directly owned by one or more veterans or service-
disabled veterans. Control is defined as both the day-to-day
management and the long-term decision-making authority. For example,
an applicant's management and daily business operations must be
conducted by one or more veterans or service-disabled veterans to be
verified. Debarred or suspended business concerns are determined by
checking the General Services Administration-maintained database,
known as the Excluded Parties List System. See 75 Fed. Reg. at 6103-
6104.
[25] VA Form 0877 asks for information such as business name, owner
name(s), veteran or service-disabled status, Social Security
Number(s), and percentage of ownership in the business.
[26] Department of Veterans Affairs, Verification Program Risk
Guidelines (September 2008).
[27] Addx Corporation and Mahan Consulting Group, Reengineered
Verification Processes, Verification Advisory, and Assistance Services
(Nov. 16, 2009).
[28] Of CVE's 23 authorized staff positions, 9 are dedicated toward
conducting verifications. According to the contractor's
recommendation, CVE needs 22 staff positions to conduct verifications.
This results in an additional 13 staff positions over CVE's FY09
authorized level.
[29] According to a CVE memorandum, staff will identify businesses
with current VA contracts that have not submitted VA Form 0877 and
invite them to apply for verification. CVE will require these
applicants to provide documentation, such as business licenses,
articles or incorporation, corporate bylaws, and operating agreements.
"Verification Change Sheet - Priority Processing" (Mar. 11, 2010).
[30] We conducted a review of a random sample of 112 files on
businesses that VA had verified by September 30, 2009, to determine
the agency's compliance with its own application procedures. In this
report, all percentage estimates based on this sample have 95 percent
confidence intervals within plus or minus 10 percentage points of the
estimate.
[31] The percentages in the three bulleted text do not sum to 48
percent because individual files may have demonstrated one or more of
the deficiencies we noted in the bullets. For example, one file may
have been missing some type of required information, and the business
also may have been assigned an incorrect risk level.
[32] EPLS is a General Services Administration-maintained database and
contains information about entities that have been debarred,
suspended, proposed for debarment, excluded or otherwise disqualified
under the nonprocurement common rule, or otherwise declared ineligible
to receive federal contracts and other federal financial assistance.
[33] USAspending.gov, provides this information (these data are
largely from FPDS-NG) to the public, as collected from federal
agencies, in an easy-to-use Web site. ORCA is a Web-based system that
centralizes and standardizes the collection, storage, and viewing of
many FAR-required representations and certifications.
[34] CCR collects, validates, stores, and disseminates data in support
of agency acquisition missions, including federal agency contract and
assistance awards. DSBS is an SBA-maintained database that includes
information on certifications relating to 8(a) business development,
HUBZone, and small disadvantaged business status.
[35] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[36] The Complaints Automated Tracking System (CATS) application is
used by VA's Office of Resolution Management to track workplace
discrimination cases and to manage file documents. CATS is an
application that creates case files, retains them in a central secure
network setting, and archives the files for future use. The CATS
application is an SQL-based data depository, has specially designed
interface and code logic for tracking cases, and can produce reports.
[37] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[38] Examples of using third-party sources include directly obtaining
tax records from the Internal Revenue Service (after requesting
consent from business owners) or utilizing private-sector products
that may help with screening, identifying, and detecting fraud in
businesses and individuals. For example, LexisNexis offers a product
that helps to quickly, safely, and accurately authenticate the
identities of both businesses and individuals.
[39] GAO, Service-Disabled Veteran-Owned Small Business Program: Case
Studies Show Fraud and Abuse Allowed Ineligible Firms to Obtain
Millions of Dollars in Contracts, [hyperlink,
http://www.gao.gov/products/GAO-10-108] (Washington, D.C.: Oct. 23,
2009).
[40] The 14 percent included reasons such as business owners not
meeting the character of service requirements, businesses that had
lost an SBA bid protest, applications with multiple reporting
discrepancies, or businesses with invalid joint-venture agreements.
[41] Information Letter 049-07-08.
[42] VA's Office of Inspector General has received referrals about the
businesses identified in our October 2009 report (GAO-10-108), on the
governmentwide SDVOSB program, but these referrals were made as a
result of our work, not VA's verification program.
[43] One business was referred to VA's committee for FAR debarment.
The committee requested additional information, and the case remains
active. This business was identified in our October 2009 report (GAO-
10-108) on the governmentwide SDVOSB program and was found ineligible
because of issues with performance (i.e., not adhering to
subcontracting limitations), which is not a verification issue.
[44] 38 U.S.C. § 8127(g).
[45] 48 CFR 809.406-2. See 74 Fed. Reg. at 64630.
[46] 38 CFR Part 74.2. See 75 Fed. Reg. at 6103-6104.
[47] While VA contracting officers can use protests to determine
whether a business misrepresented its status, CVE staff conduct
verifications on businesses that want to be listed in the VetBiz.gov
database. These businesses may not have procurements with VA, and,
therefore, CVE staff cannot always use status protests as a means to
determine misrepresentation.
[48] FAR part 19.702.
[49] VA's accomplishments also did not meet the governmentwide
statutory goal for SDVOSB subcontract participation of 3 percent. Each
federal agency with procurement authority is responsible for meeting
this goal. Subcontracting achievements for SDVOSBs have been much less
for all federal agencies. According to SBA's FY08 subcontracting
report, only one agency achieved the SDVOSB subcontracting goal of 3
percent.
[50] Eric K. Shinseki, Secretary of Veterans Affairs, 5th Annual
National Small Business Veteran Conference (Las Vegas, Nev.: July 21,
2009).
[51] 48 CFR 819.7 (Dec. 8, 2009).
[52] Pub. L. No. 109-461, section 502 (Dec. 22, 2006), 38 U.S.C. §
8127.
[53] 48 CFR Part 819, final rule (Dec. 8, 2009) and 38 CFR Part 74,
final rule (Feb. 8, 2010).
[54] CVE had adopted its first verification application procedures in
May 2008 and revised these procedures in November 2008 and again in
August 2009. According to VA, it made no significant changes between
the November 2008 and August 2009 application procedures. However, VA
made changes between the May and November, 2008, procedures and some
applications that had been verified in this time period did not have
the same requirements--mainly the Control Folder Review and Signature
Sheets. For the purposes of our analysis, if a business' file did not
contain these items--but was reviewed and verified between May 12 and
November 17, 2008 (n=12)--we excluded the result from our data
analysis and did not consider it a missing piece of information.
[End of section]
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Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
