[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]







 
AN EXAMINATION OF CONTINUED CHALLENGES IN VA'S VETS FIRST VERIFICATION 
                                PROCESS

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

                             JOINT HEARING

                               before the

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 of the

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

                                and the

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                      WEDNESDAY, NOVEMBER 4, 2015

                               __________

                           Serial No. 114-43

                               __________

       Printed for the use of the Committee on Veterans' Affairs
       
       
       
       
       
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                     COMMITTEE ON VETERANS' AFFAIRS

                     JEFF MILLER, Florida, Chairman

DOUG LAMBORN, Colorado               CORRINE BROWN, Florida, Ranking 
GUS M. BILIRAKIS, Florida, Vice-         Minority Member
    Chairman                         MARK TAKANO, California
DAVID P. ROE, Tennessee              JULIA BROWNLEY, California
DAN BENISHEK, Michigan               DINA TITUS, Nevada
TIM HUELSKAMP, Kansas                RAUL RUIZ, California
MIKE COFFMAN, Colorado               ANN M. KUSTER, New Hampshire
BRAD R. WENSTRUP, Ohio               BETO O'ROURKE, Texas
JACKIE WALORSKI, Indiana             KATHLEEN RICE, New York
RALPH ABRAHAM, Louisiana             TIMOTHY J. WALZ, Minnesota
LEE ZELDIN, New York                 JERRY McNERNEY, California
RYAN COSTELLO, Pennsylvania
AMATA COLEMAN RADEWAGEN, American 
    Samoa
MIKE BOST, Illinois
                       Jon Towers, Staff Director
                Don Phillips, Democratic Staff Director

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATION

                    MIKE COFFMAN, Colorado, Chairman

DOUG LAMBORN, Colorado               ANN M. KUSTER, New Hampshire, 
DAVID P. ROE, Tennessee                  Ranking Member
DAN BENISHEK, Michigan               BETO O'ROURKE, Texas
TIM HUELSKAMP, Kansas                KATHLEEN RICE, New York
JACKIE WALORSKI, Indiana             TIMOTHY J. WALZ, Minnesota

                      COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman

STEVE KING, Iowa                     NYDIA VELAZQUEZ, New York, Ranking 
BLAINE LUETKEMEYER, Missouri             Member
RICHARD HANNA, New York              YVETTE CLARK, New York
TIM HUELSKAMP, Kansas                JUDY CHU, California
TOM RICE, South Carolina             JANICE HAHN, California
CHRIS GIBSON,New York                DONALD PAYNE, Jr, New Jersey
DAVE BRAT, Virginia                  GRACE MENG, New York
AMATA COLEMAN RADEWAGEN,             BRENDA LAWRENCE, Michigan
    American Samoa                   ALMA ADAMS, North Carolina
STEVE KNIGHT, California             SETH MOULTON, Massachusetts
CARLOS CURBELO, Florida              MARK TAKAI, Hawaii
MIKE BOST, Illinois
CRESENT HARDY, Nevada
                    Kevin Fitzpatrick Staff Director
            Stephen Dennis Deputy Staff Director for Policy
             Jan Oliver Deputy Staff Director for Operation
                      Barry Pineles Chief Counsel
                  Michael Day Minority Staff Director

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

                            C O N T E N T S

                              ----------                              

                      Wednesday, November 4, 2015

                                                                   Page

An Examination Of Continued Challenges in VA's Vets First 
  Verification Process...........................................     1

                           OPENING STATEMENTS

Mike Coffman, Chairman...........................................     1
Richard Hanna, Committee on Small Business.......................     2
Nydia Velazquez, Ranking Member of Small Business Committee......     3
Ann M. Kuster, Ranking Member....................................     5
Dr. Tim Huelskamp, Member........................................    17

                               WITNESSES

Mr. William Shear, Director, Financial Markets and Community 
  Investment, U.S. Government Accountabililty Office.............     6
    Prepared Statement...........................................    28
Mr. Quentin Aucion, Assistant Inspector General for 
  Investigations, Office of the Inspector General................     7
    Prepared Statement...........................................    46

        Accompanied by:

    Gregory Gladhill, Audit Manager, Los Angeles Office of Audits 
        and Evaluations, Office of the Inspector General

Mr. Tom Leney, Executive Director, Office of Small and 
  Disadvantaged Business Utilization, Department of Veterans 
  Affairs........................................................     9
    Prepared Statement...........................................    55


AN EXAMINATION OF CONTINUED CHALLENGES IN VA'S VETS FIRST VERIFICATION 
                                PROCESS

                              ----------                              


                      Wednesday, November 4, 2015

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
                                  Subcommittee on Oversight
                                        and Investigations,
                                                   Washington, D.C.
    The Subcommittees met, pursuant to notice, at 10:35 a.m., 
in Room 334, Cannon House Office Building, Hon. Mike Coffman 
[Chairman of the Subcommittee on Oversight and Investigations] 
presiding.
    Present from the Subcommittee on Oversight and 
Investigations: Representatives Coffman, Huelskamp, Kuster, 
Rice, and Walz.
    Present from the Subcommittee on Contracting and Workforce: 
Representatives Hanna, King, Kelly, Velazquez, Lawrence, and 
Clarke.

           OPENING STATEMENT OF CHAIRMAN MIKE COFFMAN

    Mr. Coffman. Good morning. I would like to welcome everyone 
to today's joint hearing titled An Examination of Continued 
Challenges in VA's Vets First Verification Process.
    I am pleased to host Chairman Richard Hanna and his fellow 
Members of the Subcommittee on Contracting and Workforce for 
the House Committee on Small Business for this joint hearing.
    We are again today to examine the challenges that persist 
with VA's implementation of the verification process for Vets 
First set-asides. Since 2006, this Committee has held repeated 
hearings while OIG and GAO have issued multiple reports 
highlighting the lack of progress with this program.
    In our previous joint hearing in 2013, I noted that my 
Subcommittee received frequent complaints from service-
disabled, veteran-owned small businesses about the length of 
time and scope of examination for veterans undergoing the 
verification process.
    We still hear these complaints all too frequently. 
According to VA's Center for Verification and Evaluation or 
CVE, risk team applications are being processed within the 
regulatory timeframe 98 percent of the time with an error rate 
of less than one percent.
    What CVE does not report is that it resets the clock for 
applicants it convinces to withdraw and then reapply to avoid 
the six-month suspension if they had allowed their initial 
applications to be denied for lack of supporting documentation.
    GAO estimates that accounting for such re-application, 15 
percent of applications took more than four months to receive a 
determination. Unfortunately, VA is adept at gaming the numbers 
based on incorrect data that VA entered into the Federal 
procurement database system or, more importantly, required data 
that was never entered into the system.
    VA has received an A on the small business procurement 
score card every year reported since fiscal year 2011 and has 
exceeded its goal with regard to service-disabled veterans, 
veteran-owned small businesses.
    However, in a hearing before this Committee on June 23, 
2015, Mr. Jan Frye, VA's senior procurement executive, 
testified that VA seriously overstated its compliance with 
government-wide small business goals and VA officials at the 
highest levels knew that the data was false at the time they 
submitted it. Business opportunities that should normally be 
reserved for service-disabled veterans are jeopardized by false 
data.
    Apart from data manipulation, CVE continues to face serious 
problems. Even after multiple reports, GAO indicated that CVE 
still has not established a cost-effective, veteran-friendly 
verification process or acquired an IT system that meets its 
needs. VA paid a contractor $871,000 for such an IT solution 
only to cancel the contract on October 2014.
    Significantly, GAO has also found that VA lacks a 
comprehensive operational plan with specific actions and 
milestone dates for managing and achieving long-term 
objectives. Lack of an adequate operational plan is a serious 
problem, especially for an agency that runs most day-to-day 
businesses through contract employees rather than those within 
the Federal Civil Service system.
    It is important that CVE get this right. According to 
procurement data gathered by OIG for fiscal year 2015, VA 
procurements totaled $91.5 billion of which $3.9 billion went 
to veteran-owned small businesses and of that $3.9 billion, 
$3.5 went to service-disabled, veteran-owned small businesses.
    Notwithstanding CVE's verification efforts, fraud by 
ineligible contractors remains a priority for OIG. Fortunately, 
OIG has had success in obtaining prosecutions by DOJ.
    Lastly, I note that the Supreme Court will hear a challenge 
next week to VA's misinterpretation of the rule of two 
requirements that essentially guts the contract award 
preference for Vets First set-asides. VA should be leading the 
effort for the Vets First Program, not trying to undermine it.
    I now recognize Chairman Hanna for his opening statement.

               OPENING STATEMENT OF RICHARD HANNA

    Mr. Hanna. Thank you.
    Chairman Coffman and I held our first joint hearing on the 
Department of Veterans Affairs' verification of veterans that 
service disability veterans-owned businesses. We are here today 
to find out what progress has been made and what challenges 
remain.
    Let's start with a little good news. First, the Small 
Business Administration in 2014, Federal Government met the 
three percent goal for prime contracts to service-disabled, 
veteran-owned businesses. That means, as Chairman Coffman said, 
nearly $14 billion in contracts, three and a half roughly 
billion dollars spent with the VA. These are real contracts for 
service-disabled veterans.
    The bad news is that the VA Vets First Contracting Program 
is still in turmoil. Even though VA buys almost every other 
thing than weapon systems, only a third of firms owned by 
service-disabled veterans registered with the SBA are also 
verified by the VA.
    For veterans, the number drops to less than 20 percent even 
though there are no benefits to registering as a veteran-owned 
business with the SBA. Why aren't these companies trying to do 
business with the VA, the one agency directed to contract with 
veterans and service-disabled veterans first?
    I suspect that part of the answer is that it is still hard 
to do business with the VA. While the verification process 
seems to have gotten speedier, it lacks the comprehensive 
original plan. Indeed, while VA told us in 2013 that they were 
going to revisit their regulations--this is for you, Mr. 
Leney--the written statement for today's hearing contains the 
same promise during the same hearing.
    VA promised that there was a next generation system under 
development with an initial operation capability that would be 
operational in 2013. There is still no system.
    It has been nearly two years since the VA told staff that 
they were going to have SBA take over the appeals process, but 
still there is no agreement in place. We owe our veterans more 
than that.
    The National Veteran Small Business Week next week, there 
are two important days for our veterans. While we all know 
November 11 is Veterans Day, you also know, as Chairman Coffman 
mentioned, there is a Supreme Court case, Kingdomware 
Technologies versus the United States.
    I know that Chairman Coffman, Ranking Member Velazquez, and 
Ranking Member Kuster and I as well as many others signed on 
the amicus brief in support of that case.
    Essentially they are saying that we should be allowed to do 
less for veterans and service-disabled, veteran-owned 
businesses than Congress legislated when it created the Vets 
First Program. Given this argument, if I were a veteran-owned 
business, I would think twice about spending the time and money 
necessary to be verified to participate in the Veterans First 
Program.
    Again, I want to thank all our witnesses for being here 
today, and I look forward to some concrete solutions and honest 
answers. So thank you.
    Mr. Coffman. Thank you, Chairman Hanna.
    I now yield to Ranking Member Nydia Velazquez of the Full 
Committee on Small Business for her opening statement.

              OPENING STATEMENT OF NYDIA VELAZQUEZ

    Ms. Velazquez. Thank you, Chairman, Ranking Members and 
Members of both Committees.
    It is my pleasure to be sitting in for Mr. Takano, 
especially we discuss a topic as important as our Nation's 
veterans.
    With Veterans Day next week, we honor the sacrifices our 
veterans have made for this country. Over the last century, 
these brave Americans have fought in Afghanistan, Iraq, 
Vietnam, Korea, and Europe for not only our freedoms but for 
the freedoms of others.
    While many lost their lives, the surviving 22 million men 
and women include 5.5 million who were disabled during their 
service. These courageous individuals deserve not only our 
enduring gratitude but also the opportunity to build a new life 
after their many years of military service.
    One of the most important tools we have to accomplish this 
mission is the Service-Disabled, Veteran-Owned Small Business 
Procurement Program.
    In 2015, this initiative awarded more than 100,000 
contracts worth over $13 billion to SDV small firms. These 
awards accounted for over 3.5 percent of all Federal contracts 
meeting the statutory goal of three percent for the third year 
in a row.
    Additionally, though, the numbers are not final. It appears 
that the goal will also be reached for fiscal year 2015. While 
these accomplishments should be applauded, it should also be 
pointed out that it comes on the heels of allegations of fraud 
and abuse at the Department of Veterans Affairs.
    Earlier this year, we heard testimony from the VA's senior 
procurement executive indicating that various individuals at 
the VA were procuring billions of dollars worth of goods with 
purchase cards thereby circumventing competition requirements 
as well as the small business reserve. These allegations have 
left us to question the VA's performance in small business 
contracting.
    Today's hearing focuses on another area that has been 
problematic for the VA, its process for verifying and 
certifying SDV businesses to its Vets First Program. Previously 
GAO has found that non-SDV firms have won SDV contracts. This 
included front companies posing as veterans, pass-throughs, and 
outright fraud. As a result, millions of dollars were diverted 
away from legitimate SDV businesses.
    To prevent these abuses, GAO recommended that a 
verification system be implemented. Over time, VA has complied 
with this and we have seen an improvement in the process.
    As we will hear today, verification times have gone down by 
more than 50 percent to an average of 42 days. And the VA has 
increased its number of site visits to 606 in fiscal year 2015.
    However, there are still areas that need work. For example, 
the VA still lacks an operational plan for the process and 
there continues to be strong reliance on contractors to verify 
firms.
    Addressing these failings and ensuring SDV procurement 
programs work as intended is long past due. With an 
unemployment rate of more than seven percent for veterans of 
the wars in Iraq and Afghanistan, it is essential that all 
veterans' resources are properly managed and overseen.
    Given that entrepreneurship remains a viable career path 
for many of these men and women, programs like the one we are 
discussing today are critical to reduce the unemployment rate 
for veterans.
    I think I can speak for all the Members here today in 
saying that we will do whatever it takes to help service-
disabled veterans overcome the challenges they face in today's 
economy.
    With that, I want to thank the witnesses for appearing 
before our Subcommittee this morning. I thank the Chairman and 
yield back.
    Mr. Coffman. Thank you, Ranking Member Velazquez.
    I now yield to Ranking Member Kuster for her opening 
statement.

               OPENING STATEMENT OF ANN M. KUSTER

    Ms. Kuster. Thank you, Chairman Coffman.
    Welcome, Chairman Hanna and Ranking Member Velazquez.
    I appreciate this opportunity to update the VA's 
verification processes for certifying veteran-owned small 
businesses and service-disabled, veteran-owned small 
businesses.
    Since 2013, as we have heard when this Subcommittee held a 
hearing on the issue, VA has been making some progress in 
addressing many of the concerns raised. VA has also taken steps 
to implement new processes and look for ways to improve the 
certification process.
    However, we understand that there are problems that 
continue to persist and areas that we need to explore going 
forward.
    It is encouraging to see that the VA has developed a 
strategic plan for the long-term management of this program and 
has adopted a case management system so that a veteran applying 
for certification can speak directly with the person at VA 
performing the assessment and address any issues early in the 
process.
    At the same time, however, I am concerned about high 
leadership turnover, low staffing levels, and VA's lack of a 
plan with specific actions, milestones, and measures of 
progress to manage its efforts to implement the changes. I am 
also worried that VA lacks an IT system to adequately support 
case management for its verification program.
    Unfortunately, an inability to properly oversee and 
implement sound processes and issues with collection and 
analysis of accurate data seem to be themes we see time and 
time again before this Subcommittee.
    Today I am interested to hear about the specific steps that 
VA plans to take to address these issues, how the VA is 
measuring and demonstrating progress, and when we can expect to 
see measurable, positive outcomes.
    VA must strike the right balance here. On the one hand, VA 
must ensure its verification process is vet friendly and not 
overly burdensome for our veterans. On the other hand, VA must 
prevent fraud and ensure fairness for all veterans-owned 
businesses with the certification.
    This certification grants our veterans distinct advantages 
when competing for VA contracts and government contracts. And 
we all want to ensure that these advantages are truly afforded 
to small businesses owned by veterans and disabled veterans.
    Our Committees in VA must work together to ensure the VA 
has the resources it needs and that the proper accountability 
measures are in place to achieve this balance so that our 
taxpayer dollars are well spent and so that our small 
businesses owned by veterans and service-disabled veterans are 
able to prosper and receive the preferences that we as a Nation 
intend them to receive.
    Thank you, Mr. Chairman. I yield back.
    Mr. Coffman. Thank you, Ranking Member Kuster.
    I now welcome our witnesses to the table. Today we will 
hear from Mr. William Shear, Director of Financial Markets and 
Community Investments, United States Government Accountability 
Office. Mr. Shear has frequently testified before both 
Committees and we look forward to hearing his testimony today.
    Mr. Quentin Aucoin, Assistant Inspector General for 
Investigations, VA Office of the Inspector General. Mr. Aucoin 
is the agent in charge of criminal investigations including 
those involving fraud in the SDVOSB Program. He is accompanied 
by Mr. Gregory Gladhill, Auditor/Manager, Los Angeles Office of 
Audits and Evaluations.
    Mr. Tom Leney, Executive Director, Office of Small and 
Disadvantaged Business Utilization, United States Department of 
Veterans Affairs. Mr. Leney is responsible for promoting small 
business participation at VA with a particular focus on 
service-disabled, veteran-owned small businesses and veteran-
owned small businesses.
    All of your complete written statements will be made part 
of the hearing record. I ask the witnesses to please stand and 
raise your right hand.
    [Witnesses sworn.]
    Mr. Coffman. Very well. Please be seated.
    Mr. Shear, you are now recognized for five minutes.

                   STATEMENT OF WILLIAM SHEAR

    Mr. Shear. Thank you.
    Chairmen Coffmen and Hanna, Ranking Members Kuster and 
Velazquez, and Members of the Committees, I am pleased to be 
here this morning to discuss our ongoing work on the Department 
of Veterans Affairs' efforts to verify the eligibility of 
veteran-owned small businesses including service-disabled, 
veteran-owned small businesses to receive contracting 
preferences with VA.
    My testimony discusses preliminary observations on first, 
VA's progress in establishing a timely and consistent 
verification program and improving communication with veterans 
and, second, the steps VA has taken to identify and address 
verification program challenges and long-term goals.
    Based on our preliminary observations, VA has made 
significant improvements to its verification process and 
communication with veterans since our 2013 report. VA reported 
reduced average application processing times. In addition, we 
reviewed a randomly selected sample of verification 
applications and found that VA followed its procedures for 
reviewing applications.
    The agency has also conducted post-verification site visits 
to 606 firms in fiscal year 2015 to check the accuracy of 
verification decisions and help ensure continued compliance 
with program regulations. In addition, VA has made several 
changes to improve veterans' experiences with the program.
    With respect to the steps VA has taken to identify and 
address verification program challenges and long-term goals, VA 
has multiple efforts underway to make its verification program 
more cost effective and veteran friendly, but our preliminary 
results indicate that lacks a comprehensive operational plan to 
guide its efforts.
    For instance, VA intends to restructure part of its 
verification process and in August 2015 began a pilot that 
gives veterans a case manager to serve as one point of contact. 
VA plans to fully transition to this new process by April 2016.
    VA also plans to change the program's organizational 
structure and hire a director for the program which has had 
three different directors, the last two of which have been 
acting directors, since 2011.
    Finally, VA plans to replace the program's outdated case 
management system but has faced delays due to contractor 
performance issues. Efforts are underway to develop a new 
system.
    VA has developed a high-level operating plan for its OSDBU, 
but the plan does not include an integrated schedule with 
specific actions and milestone dates for achieving the multiple 
program changes underway or discuss how these various efforts 
might be coordinated within OSDBU.
    Our work over the years on organizational transformations 
states that organizations should set implementation goals and a 
timeline to show progress. Such a plan is vital to managing 
multiple efforts to completion and achieving long-term program 
objectives, particularly when senior level staffing for the 
verification program has lacked continuity. We continue to 
assess these issues and will report our results early next 
year.
    Again, thank you for the opportunity to participate in this 
hearing. I would be happy to answer any questions.

    [The prepared statement of William Shear appears in the 
Appendix]

    Mr. Coffman. Thank you, Mr. Shear.
    Mr. Aucoin, you are now recognized for five minutes.

                  STATEMENT OF QUENTIN AUCOIN

    Mr. Aucoin. Thank you, Mr. Chairman.
    Mr. Chairman and Mr. Chairman, Ranking Members, and Members 
of the Subcommittees, thank you for the opportunity to discuss 
the VA Office of Inspector General's work related to veteran-
owned small business and service-disabled, veteran-owned small 
business programs.
    My testimony today will focus on OIG investigations of 
allegations that companies and individuals have fraudulently 
obtained Government noncompetitive set-aside contracts by 
misrepresenting their status as veteran-owned small businesses, 
service-disabled, veteran-owned small businesses, and through 
other pass-through schemes which deprive legitimate, eligible 
veteran-owned businesses from obtaining contracts they have 
earned through their honorable military service.
    My written testimony highlights many examples of recent OIG 
cases that have been successfully prosecuted. I am accompanied 
here today by Mr. Gregory Gladhill. He's an audit manager from 
our Los Angeles Office of Audit and Evaluations.
    The purpose of the Veterans First Contracting Program is to 
ensure that legitimately-owned and controlled veteran-owned 
small businesses and service-disabled, veteran-owned small 
businesses are able to compete for set-aside contracts as well 
as stimulate small business communities and to create economic 
growth.
    However, the program's set-side advantages have made it a 
target for abuse and sometimes fraud by ineligible contractors 
using various deceptive schemes to acquire lucrative VA 
contracts.
    We have opened 386 preliminary predicated investigations 
and 168 full investigations regarding allegations of veteran-
owned small business fraud and service-disabled, veteran-owned 
small business fraud since 2008.
    Currently we have 50 preliminary investigations open and 70 
full investigations open. Many of these are being worked 
jointly with the Small Business Administration's Office of 
Inspector General, others with the General Services 
Administration's Office of Inspector General, and we have other 
Federal law enforcement agencies that are also working with us 
jointly.
    Since 2008, our VOSB and SDVOSB investigations have 
resulted in the indictment of 56 individuals and five 
companies. For those defendants charged, 44 have been convicted 
to date. Furthermore, courts of jurisdiction have levied 
approximately $15 million in fines against these defendants and 
companies and ordered them to pay approximately $6.6 million in 
restitution.
    We consider these results a significant achievement because 
Federal prosecutions in these areas were historically 
difficult. It has been difficult to convince Federal 
prosecutors that the Government is, in fact, a victim when the 
services or products are delivered.
    But in these particular instances, it is the program and 
the legitimate veterans who are being cheated. We have been 
able to convey that, and by doing so, we have obtained 
successful prosecutions.
    In addition to the criminal and civil prosecutions, our 
special agents pursue suspensions and debarments against 
individuals and companies involved where there is evidence or 
cause for such action. Since fiscal year 2008, we have achieved 
72 suspensions and debarments.
    Presently most of our investigations involve pass-through 
schemes where an eligible business obtains a contract but 
passes the business through to an ineligible contractor. The 
eligible business performs little or no work under the contract 
it passes through.
    This is specifically in violation of the requirements under 
the contract. Federal acquisition thresholds and limitations on 
subcontracting for VOSB and SDVOSB contracts specifically 
prohibit this.
    A second type of fraud we look at is a scheme that is 
commonly referred to as ``rent-a-veteran''. To be eligible for 
participation in the Veterans First Contracting Program, the 
regulations require one or more veterans or service-disabled 
veterans unconditionally direct, control, and own 51 percent of 
the business. In the rent-a-vet schemes, an individual who is 
otherwise not eligible is controlling the business and the 
veteran is only used as a front to obtain the work.
    In this scheme, the true owner of the company conspires 
with the veteran to have the veteran assume ownership in name 
only. A variation of this scheme also involves the 
establishment of new firms for the sole purpose of obtaining 
set-aside contracts in an inappropriate manner.
    We have also investigated cases where veterans who are not 
service-disabled or in some cases individuals who are not 
veterans falsely self-certify their business. These businesses 
improperly benefit from the receipt of VOSB or SDVOSB contracts 
and they potentially block eligible veterans from competing for 
or obtaining these contracts.
    Lastly, we have investigated several cases where corrupt VA 
employees have steered business to ineligible contractors and 
making it appear as if they were SDVOSB contracts.
    In closure, our work demonstrates that the OIG has 
developed significant resources to investigate these 
individuals and companies who use these deceptive schemes. We 
take these allegations seriously and we pursue them 
aggressively so that individuals who seek to defraud the VA and 
cheat eligible veterans will see this as a deterrent factor and 
they will not engage in activities to deprive legitimate 
veterans for the contracts that they should get.
    Mr. Chairmen, this concludes my statement. We would be 
pleased to answer any questions that you or any other Members 
of the Committees may have.

    [The prepared statement of Quentin Aucoin appears in the 
Appendix]

    Mr. Coffman. Thank you, Mr. Aucoin, for your testimony.
    Mr. Leney, you are now recognized for five minutes.

                     STATEMENT OF TOM LENEY

    Mr. Leney. Thank you, Mr. Chairman.
    Chairman Coffman, Chairman Hanna, Ranking Member Kuster, 
Ranking Member Velazquez, and Members of the Subcommittees, 
thank you for inviting me to testify regarding what the VA has 
done to address the challenges in our VA Veterans First 
Verification Program.
    The VA has made substantial progress in improving the 
verification program since the last GAO report of 2013. In 
February 2015, GAO began its newest audit of the program. Their 
statement of facts reflects many of the improvements made by 
the CVE since the 2013 report.
    In short, by the end of 2015, applications were being 
processed within the regulatory timeframe 99.8 percent of the 
time with an approval rate of 94 percent. Initial applications 
were processed in an average of 41 days, well below the 
regulatory target of 60 days.
    Success in codifying its processes resulted in CVE earning 
the ISO 9001 certification. OSDBU has also implemented a 
rigorous internal audit and continuous improvement process and 
CVE has taken action to close 95 percent of all of our internal 
audit findings to date.
    In addition to the codification of its processes, GAO found 
that all of CVE records are now secured, controlled, and filed 
in accordance and compliance with NARA standards.
    As a part of the oversight of the program, CVE conducts 
post-verification audits to monitor ongoing compliance. In 
2015, CVE conducted 606 such audits revealing a noncompliance 
rate of approximately four percent and a determination error 
rate of less than one percent.
    These statistics reflect the higher accuracy of 
determinations and the widespread compliance by veteran-owned 
small businesses with the program.
    The extensive program of audits also addresses concern 
raised by various stakeholders regarding program ineligibility 
or possible fraudulent activities. CVE has implemented a 
process for responding to allegations and conducting 
investigations where sufficient evidence is provided to support 
those allegations.
    We work closely with the Office of Inspector General to 
identify fraud and indications of fraud are aggressively 
pursued by the VA Office of Inspector General with our support.
    We have examined the lessons learned from the 
implementation of the current verification regulations and 
conducted considerable stakeholder outreach. VA has drafted 
changes to the rule to improve clarity and more closely align 
it to common business practices.
    The draft of the rule is currently under final review and 
we expect it to be published next Friday in the Federal 
Register. And the comment period will end on the 16th of 
January 2016.
    Since 2013, we have expanded our efforts to communicate 
with veterans about the program. Our Verification Assistance 
Program consists of several elements now. We now provide access 
to more than 320 counselors located around the country at no 
cost to the veteran to assist them with the process.
    We have expanded a series of verification assistance 
briefs, our frequently asked questions and fact sheets that 
explain the process and the regulatory requirements. We have 
also expanded our customer service center where veterans can 
speak with CVE representatives.
    CVE created a self-assessment tool that takes the veteran 
through every step of the process and every element of the 
regulation. We host pre-application workshops and town halls 
each month to educate veterans on requirements and the process 
and to obtain feedback.
    Firms currently receive predetermination findings 
notifications and have the opportunity to fix issues or 
withdraw without penalty. CVE sends out pre-expiration notices 
at 120, 90, and 30 days prior to expiration and follows up with 
phone calls at 90 and 30 days to make sure that the veterans 
know what their status is.
    Although CVE has made great improvements in processing time 
and customer assistance, we have not been satisfied. As part of 
Secretary McDonald's MyVA initiative, we have undertaken a 
transformation of the verification process to improve the 
veteran experience.
    We reached out to veterans via focus groups and surveys to 
identify pain points that remain in the process and are in the 
midst of a trial that addresses those pain points.
    Feedback to date reflects strong support for the new 
process and we expect it to be fully implemented no later than 
the end of April of 2016. That is the milestone we have 
established.
    GAO has reported that the CVE's case management data system 
had shortcomings that hindered our ability to operate, oversee, 
and monitor the verification process. In 2013, GAO recommended 
that we modify or replace the system. We made improvements to 
the current system to address short-term issues and established 
plans to replace it with a case management system that will 
support the new process currently under trial.
    In conclusion, the VA has made significant progress in its 
Vets First Verification Program. We have overcome many of the 
challenges and vulnerabilities that were originally raised by 
the GAO and OIG reports. And we continue to improve in order to 
align with Secretary McDonald's MyVA initiative.
    These improvements will continue to enable veterans to gain 
access to the VA program, the results of more than $3.8 billion 
in procurement dollars going to veterans, more than 20 percent 
of our total spend and approximately 30 percent of the total 
Federal Government spend with veteran-owned small businesses.
    Thank you for this opportunity and I look forward to your 
questions.

    [The prepared statement of Tom Leney appears in the 
Appendix]

    Mr. Coffman. Mr. Leney, CVE has about 16 full-time 
equivalent Federal employees and 156 contractors with a budget 
of $16.1 million for fiscal year 2015 coming from the supply 
fund.
    Why has VA not formalized a more appropriate and 
transparent funding methodology for CVE?
    Mr. Leney. We have formalized a transparent funding 
mechanism for CVE. My office, the Office of Small and 
Disadvantaged Business Utilization, including CVE is funded 
through the VA Supply Fund. And that fund, I believe, is 
transparent to the Congress and we provide and are willing to 
provide whatever information the Congress would like on details 
on how we utilize that budget dollars.
    Mr. Coffman. Mr. Shear, in your testimony, you indicate VA 
lacks an operating plan and an integrated schedule and that it 
also lacks a plan of action and milestone dates for achieving 
program changes.
    What are your major concerns resulting from the lack of 
such an integrated schedule?
    Mr. Shear. There are a lot of moving pieces here where 
everything is going on at the same time. First you are going to 
a case management system that is being tested. Then there is 
development of an IT system that presumably would be based on 
what type of case management system you were putting in place. 
But that is going on at the same time.
    You are going through an organizational change at the same 
time. And so with those different pieces going on and with the 
idea that there hasn't been stability in senior leadership, 
there is only, as you just said, 15 or 16 actually government 
workers that are involved here, these types of transitions 
really take an awful lot of coordination.
    How do all the pieces fit together? And we just don't see 
any clarity on that.
    Mr. Coffman. Thank you.
    Mr. Aucoin, the OIG has successfully pursued some fraud 
cases related to veteran-owned small businesses.
    Can you share your insight into this problem?
    Mr. Aucoin. Yes, sir. Presently the majority of the cases 
that we are seeing are pass-through type of cases. We do have a 
large number of those. These cases are labor intensive. They 
are difficult to investigate. But I believe the payoff on these 
cases is huge.
    We are talking about corruption of a program designed to 
allow eligible veterans to get these set-aside contracts, 
getting the money back to the Department, and also serving as a 
deterrent so that other folks won't try this type of fraud. 
It's really important.
    Mr. Coffman. How much of it? I know that we have had 
hearings, other hearings about the procurement problems within 
the VA and the ability of procurement Officers to circumvent 
the competitive process through these credit card purchases, 
mounting credit card purchases.
    How much does that affect this particular program?
    Mr. Aucoin. We have had some crossover. We had one 
particular case in New Jersey that involved a senior 
engineering employee. Half of this $6 million scheme involved 
corruption of the SDVOSB process. Steering that business 
inappropriately allowed him to steer the business to a company 
he helped set up and he got about $1.2 million in kickbacks 
from the fraud.
    Mr. Coffman. Okay. Thank you, Mr. Aucoin.
    Chairman Hanna, you are now recognized.
    Mr. Hanna. Mr. Leney, just quickly, could you respond to 
what amounted to an accusation that your agency games the 
numbers to make the dates look better?
    Mr. Leney. That is not a true statement. The VA does not 
game its numbers. The department has acknowledged that in the 
past, we have had purchase actions that have not been recorded 
in FPDS and have not been brought under FAR-based contracts.
    It is not clear the impact of those actions on veteran-
owned small business. In fact, the bulk of those actions are 
what we call non-VA care purchases that go to doctors' offices. 
And I can't tell you what percentage of doctors' offices are 
veteran-owned or part of the Federal Government process.
    Mr. Hanna. So the answer is that you don't do anything to 
change the time it takes you to approve or disapprove in any 
way?
    Mr. Leney. Sir, I don't understand.
    Mr. Hanna. Well, we are talking about the approval process, 
the length of time it takes you to approve a veteran or not.
    What I heard Mr. Shear say, unless I am mistaken, was that 
certain things are done to change that date by making someone 
reapply and cancel their original application.
    Mr. Leney. Thank you. I now understand.
    We have improved the process. The regulation gives us 60 
days to complete the process. What we have been able to do is 
enable the veteran to take as much time as they need to provide 
us with documentation that we need in order to make a 
determination.
    We have now allowed veterans to withdraw by giving them a 
predetermination finding. Originally when you submitted your 
application, that application was evaluated and you received a 
determination letter which then if you were found to be 
ineligible resulted in a six month period of time before you 
could come back in.
    We now provide that information to the veteran and allow 
them to withdraw. It is a courtesy to the veteran. And some 
firms withdraw two and three times, but we do that for the 
veteran.
    Mr. Hanna. Okay. I understand.
    When I walked in the room, you and I spoke briefly. And you 
had indicated to me that Congress needs to have legislation in 
order for you to change the nature of the appeal process, that 
basically veterans are appealing to the same individual who 
made the original decision, whatever that decision was. 
Obviously it was a negative one for them or they wouldn't 
appeal.
    But, yet, under your Acquisition Regulation 819.3, it is 
clear that you have the ability to go--in fact, you can forward 
all status protest to the Small Business Administration.
    But you don't agree with that, I take it?
    Mr. Leney. We forward all size determinations to the Small 
Business Administration. We have no objection to utilizing a 
different appeal process. I am, in fact, the appeal authority 
for verification appeals.
    We have talked with the SBA. I have spoken personally with 
the Office of Hearing and Appeals. We have no particular 
problem with utilizing the Office of Hearing and Appeals. 
Unfortunately when we worked through this process, our Office 
of General Counsel has informed me that this will require a 
legislative change in order for a process within the VA to have 
an appeal to another----
    Mr. Hanna. So that I understand you, you are perfectly 
content having that done by the SBA?
    Mr. Leney. I have no objection and----
    Mr. Hanna. But you----
    Mr. Leney [continuing]. I am not aware of any change----
    Mr. Hanna [continuing]. believe that this Congress has to 
change the law in order to allow you to do that even though 
your own regulations suggest that you----
    Mr. Leney. Our own regulations do not allow us to provide 
that appeal authority outside the Department of Veteran 
Affairs. And the Office of General Counsel has informed me we 
will require legislation to do that. But I am not aware and I 
am certainly not opposed to using the Office of Hearing and 
Appeals.
    In fact, we have examined every Office of Hearing and 
Appeals' decision over the last three years to make sure that 
we are aligned with their interpretations of the regulation 
since----
    Mr. Hanna. It has got to be a little awkward to be the 
originator of the decision and also the person or the group 
that one has to appeal to.
    Mr. Leney. I don't consider the current appeal process to 
be optimal. However, I am separated from, while the Center for 
Verification and Evaluation works for me, I am not part of the 
center. So it is an appeal to a higher authority, if you will.
    But, again, I have no issue or no problem with using the 
Office of Hearing and Appeals. We need your help with 
legislation.
    Mr. Hanna. Thank you. My time is expired.
    Mr. Coffman. Thank you, Chairman Hanna.
    Ranking Member Velazquez, you are now recognized.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Shear, there continues to be high reliance on 
contractors to perform the verification functions with only 15 
full-time Federal employees overseeing all contractors. 
Additionally, many of the contractors are classified by VA as 
key personnel.
    Is it at all concerning that VA lacks the capabilities 
internally to run its verification program?
    Mr. Shear. There are a number of concerns that can be 
raised about this arrangement with such a small number of 
government workers. One thing is that when you have government 
staff, you have the ability to train the staff and to develop 
the capacity over time to conduct the function. And that is 
being lost by saying we are going to go out and contract 
whenever we need people with certain qualifications.
    So that is one of the first concerns. There are concerns 
with overseeing--here I might be answering another question, 
but there might be concerns when you do use contractors to have 
the capability to actually oversee those contractors. So those 
would be two of the issues that I would highlight.'
    Ms. Velazquez. So in your opinion, does VA have the 
expertise to oversee all of these contractors?
    Mr. Shear. We observe that there is a very small number of 
people who are engaged in the program. So I can't point to the 
people and just say that they are not capable.
    There are certain contracts we see being used both in terms 
of operating the program and in terms of evaluation to try to 
determine where the program should go where it is of concern of 
whether these 15 or so employees really have the capacity to 
oversee those contracts.
    Ms. Velazquez. Thank you.
    Mr. Leney, some question whether contractors should even be 
performing this work because it can be deemed inherently 
governmental or at the very least a conflict of interest.
    Mr. Leney, what controls do you have in place to ensure 
that there is no improper use of applicant information by the 
contractors?
    Mr. Leney. We have internal controls to ensure that the 
information that is provided to CVE as part of the verification 
process remains confidential. All contractors that are involved 
in the program sign nondisclosure agreements.
    We have multiple check points. All verification 
applications are reviewed by a Federal employee. We utilize 
contractors because it gives us flexibility and we are able to 
acquire high-quality.
    Ms. Velazquez. But what mechanisms do you have in place to 
oversee that first, they have the training because they are 
conducting on-site visits, right?
    Mr. Leney. Yes.
    Ms. Velazquez. They perform IT to application reviews. Do 
they have the training? Do they have the expertise? And then 
what type of oversight mechanisms do you have in place to make 
sure that the access to the information and the data that they 
have is not used improperly?
    Mr. Leney. We know that they are trained because we train 
them. We train all of our staff, our Federal reviewers, our 
evaluators, our site visitors to the same standard. All of them 
are required to be qualified and certified to do the job. They 
are trained to exactly the same standard.
    Ms. Velazquez. Okay.
    Mr. Leney. Utilizing contractors, I have lawyers. Every 
single evaluator is a lawyer. Many of them have MBAs. So we are 
able to acquire high-quality people through a contracting 
mechanism much more quickly and efficiently than we would if we 
were hiring federal staff.
    Ms. Velazquez. Thank you, sir.
    Mr. Aucoin, Mr. Leney's testimony indicated that the 
verification program has a 61 percent approval rate when 
businesses request reconsideration of their application.
    Has your office investigated whether these businesses are 
receiving appropriate levels of scrutiny in their 
reconsideration?
    Mr. Aucoin. The Office of Investigations has not addressed 
that particular issue. But I would ask Mr. Gladhill if he has 
something he can speak to in that area.
    Mr. Gladhill. Yes. The Office of Audits and Evaluations 
currently has not looked at that rate, but in fiscal year 2017, 
we will be doing a follow-up review of the verification 
process. We will consider that for part of our methodology.
    Ms. Velazquez. Thank you.
    Thank you, Mr. Chairman.
    Mr. Coffman. Thank you, Ranking Member Velazquez.
    Ranking Member Kuster, you are now recognized.
    Ms. Kuster. Thank you, Mr. Chairman.
    And I will direct my questions to Mr. Leney. Apparently, 
the IT contract for the case management system has been 
canceled on performance grounds.
    What is your plan to ensure the case management system is 
supported with necessary IT capability and when can we expect 
to see an IT system in place to support the CVE's verification 
program?
    Mr. Leney. That is correct, Congresswoman. We did cancel 
the procurement of our follow-on case management system. We 
were concerned about the performance on the contract. And as 
stewards of the American taxpayer, we cannot allow a contract 
to continue forward if we don't believe it is going to result 
in----
    Ms. Kuster. How did it take $800,000 worth of the contract 
before you determined that?
    Mr. Leney. Because a contractor was able to complete a 
portion of the contract and then we were able to determine in 
the course of that that they would not be able to complete and 
they were not delivering on the rest of the contract.
    Ms. Kuster. Were they qualified when they were chosen?
    Mr. Leney. Yes. They were qualified through the procurement 
process.
    Ms. Kuster. And what is it that you got for that sum, over 
$800,000 of taxpayer money?
    Mr. Leney. We got some of their earlier deliverables. But 
when they failed to meet subsequent deliverables and we 
realized they had made a change in their subcontracting 
arrangements, we did not have confidence they would be able to 
complete the contract.
    Ms. Kuster. Well, let me ask you this. Where do we go from 
here and is there any value to the taxpayer of that $800,000? 
Has anything been salvageable?
    Mr. Leney. Yes. We were able to salvage the analysis of the 
baseline system that they provided. We have worked--we work 
very closely with the Office of Information Technology through 
the PMAS process. So we have put together an extensive and 
detailed plan for the acquisition and implementation of a new 
system.
    Ms. Kuster. And what is the timeline for that?
    Mr. Leney. The timeline for that is 2017. What remains, 
however, is we have been asked by the Supply Fund to go back to 
the Supply Fund and reinitiate the fundamental business case.
    We did a business case for the original system. They have 
asked us to provide them with a new business case for the 
follow-on system. We had anticipated doing a pilot here in the 
first quarter of 2016, but I will require approval by the 
Supply Fund board to do that.
    Ms. Kuster. So I am going back to Mr. Shear's comment. We 
have a lot of moving parts and you are trying to change to a 
case management model while you are in the process of 
redeveloping this IT program.
    Are you able to move forward with the transition to the 
case management model before the IT for case management is in 
place?
    Mr. Leney. Yes. In fact, one of the reasons we have not 
pursued more aggressively the change in the case management 
system is as part of our MyVA effort, our fundamental change in 
the verification process.
    We are in the midst of a trial. That will be complete here 
by the end of the first quarter of the fiscal year. We will 
have a new process in place with contracts by April and we will 
be able to adapt the verification case management system to 
support that.
    Ms. Kuster. So further on that, my question is, have you 
performed an analysis of the SBA verification process versus 
the VA verification process because just speaking on behalf of 
veterans and business owners, this seems like incredibly over-
burdensome government regulation that is timely, costly?
    And I don't see it serving any additional purposes. If the 
SBA manages to get these verifications done at a higher rate in 
a more efficient manner, why don't we just adopt their system 
or better yet----
    Mr. Leney. The SBA does not have----
    Ms. Kuster. [continuing]. why don't we just say if you are 
verified, you can have the contract?
    Mr. Leney. Two important points. We have done a detailed 
examination of both the SBA regulation and our regulation and 
determined there is no material differences between the two 
currently. There will be some differences when our rule change 
goes into effect as we seek to make our rule more consistent 
with normal business practices.
    Secondly, the SBA has no verification program. The only 
time the SBA looks at a veteran-owned small business is in 
response to a status protest. Last year, they did about 40. We 
did about 4,500 verifications. The difference between the SBA 
and the VA is we verify, they do not.
    And we believe that--you have heard Mr. Aucoin. You know, 
we think it is, A, you have mandated that we do it and we 
support that because we think it is very important that the 
$3.9 billion that goes to veteran-owned small businesses goes 
to people who are the real deal. It is real money to real vets.
    Ms. Kuster. Well, I don't disagree with that. I just wish 
we could do it more efficiently and more effectively. So----
    Mr. Leney. Ma'am, I think we are.
    Ms. Kuster [continuing]. Appreciate your efforts. Thank 
you.
    Mr. Leney. I think we are.
    Mr. Coffman. Thank you, Ranking Member Kuster.
    Dr. Huelskamp, you are now recognized.
    Dr. Huelskamp. Thank you, Mr. Chairman.
    I would like to continue following up on that line of 
questions of Mr. Leney and talking about the SBA.
    Does the CVE coordinate and communicate with the SBA to 
determine companies that are too large and should be removed 
from your database?
    Mr. Leney. Yes, sir, we do. All issues with respect to size 
are referred to the SBA. The SBA is the only organization 
within the Federal Government that is authorized to make size 
determinations.
    We do not make those determinations. If in the course of 
our examinations, we believe that the company is not small, we 
refer those companies to the SBA.
    Dr. Huelskamp. You say that is the case, but I see at least 
a couple companies brought to my attention that SBA has 
determined they are a large business.
    Do you monitor their published decisions on this?
    Mr. Leney. Yes, we do, sir.
    Dr. Huelskamp. Okay. Well, we have a case of a construction 
company in Flemington, New Jersey and beginning in 2012 
determined to be a large business.
    Yet, here it is three years later, you are still 
disagreeing with that SBA decision?
    Mr. Leney. To explain that, sir, what happens is the SBA 
makes a size determination with respect to a particular North 
American industry code in a particular procurement. To be 
eligible for verification, you need to have at least one--be 
considered to be small in at least one NAICS code. For example, 
a firm could--one NAICS code----
    Dr. Huelskamp. I don't want to get into details. So you are 
saying you have different definitions of small and large 
business?
    Mr. Leney. No, sir, we do not. We have the same 
definitions. It is--their determinations are much narrower than 
ours.
    Dr. Huelskamp. Same definition, but narrower? I am missing 
the point.
    Mr. Leney. Yes, sir. When they do a size determination, it 
is with respect to particular industry sector.
    Dr. Huelskamp. All right. Well, I would like a little 
follow-up on that----
    Mr. Leney. And we would be happy to follow-up.
    Dr. Huelskamp [continuing]. Because apparently they 
disagree. There are two companies here where they say they are 
a big business and you say they are not under the same 
definition, is that----
    Mr. Leney. I can't speak to the individual company. I am 
happy to look into that and provide you with an answer for the 
record, sir.
    Dr. Huelskamp. Okay. I would like to follow-up on that.
    Mr. Leney. Yes, sir.
    Dr. Huelskamp. And, secondly, with Mr. Aucoin, I appreciate 
your testimony and the department's support of our efforts in, 
I believe it is House Bill 3015 to fix some of these problems, 
so I appreciate that and this verification process.
    You do outline a few areas in which you see the fraud, 
whether it is the rent-a-vet scheme, you know, whether it is 
the false pass-through schemes, or you do indicate a few cases 
of corrupt VA employees.
    In particular, back on the issue with the Machinga 
situation----
    Mr. Aucoin. Yes.
    Dr. Huelskamp. [continuing]. How was that discovered where 
a corrupt VA employee received $1.2 million in kickbacks just 
sentenced to 46 months in prison? I mean, can you quickly 
describe how that was found out and how that will be avoided in 
the future?
    Mr. Aucoin. It was discovered as part of another similar 
investigation. While we were conducting the investigation, 
information regarding that scheme came to light. And once the 
lead came to our attention we did a thorough investigation. The 
scheme was wide ranging. It was a $6 million scheme and quite 
complex. But it came to light while we were doing a very 
similar investigation.
    Dr. Huelskamp. So you just happened, somebody happened to 
stumble upon this. Well how was that, I mean I want you to be 
brief, how was that hidden? How will that be found out in 
future situations? I am particularly concerned when Mr. Leney, 
I think he mentioned that he was the single final appeal on 
some part of this process.
    Mr. Aucoin. Right.
    Dr. Huelskamp. Do we have that type of authority 
established in one individual rather than a Committee elsewhere 
in the VA?
    Mr. Aucoin. I do not know the answer to that. I will take 
that one for the record.
    Dr. Huelskamp. Okay. So again, how will this be avoided, 
the Machinga situation, in the future?
    Mr. Aucoin. The biggest area we look at is pass throughs. 
That right now is just the biggest area of fraud. And I think 
that there is currently some things under consideration 
legislation-wise regarding a certification. At the time of 
contracting, it would be great if there was a bright line. We 
are a country of bright lines. If the veteran that is eligible 
saw this bright line and said, look, you are going to have to 
do this right, and these are the rules in one place. And under 
the penalties of Title 18 Section 1001, you certify that you 
are going to do it right. That would put a bright line there so 
that folks would not get trouble, but also it would give us a 
better tool to address this, whether it is for debarment, 
suspension, or judicial action. And I think that is presently 
under consideration now.
    Dr. Huelskamp. And I appreciate that. It is H.R. 3016. I 
appreciate the prosecution side of that. I would like a little 
feedback of how you discover the problem.
    Mr. Aucoin. Yes.
    Dr. Huelskamp. I mean, not, you know, this is a corrupt VA 
employee steering megamillion dollar contracts to his buddies, 
I guess, and somehow we just stumble upon that? I mean, it 
shows that there are some serious problems in the program when 
that can occur. And I would like a few more details on how we 
avoid that in the future. So I appreciate the work you all did 
in finding that situation, and the FBI did prosecute that. But 
that is very troubling to me, that that can somehow continue to 
occur.
    Mr. Aucoin. Right.
    Dr. Huelskamp. So thank you. I yield back.
    Mr. Aucoin. We have some proactive work in that area. But 
most of our referrals come from contractors who are eligible 
and they find out that someone else who they believe is not 
eligible got the contract. And it is kind of a self-governing 
system among eligible veterans. They say I know these folks are 
not eligible, and I wanted to get that work because I am 
eligible, and I want to make this referral. And the bulk of our 
allegations presently come in , in that way.
    Dr. Huelskamp. Okay. I yield back. Thank you, Mr. Chairman.
    Mr. Coffman. Thank you, Dr. Huelskamp. Ms. Rice, you are 
now recognized.
    Ms. Rice. Thank you, Mr. Chairman. Mr. Aucoin, I just 
wanted to follow up on what Dr. Huelskamp was asking you about. 
So a lot of these cases, these investigations, start with an 
eligible--well, you tell me what percentage starts with an 
eligible contractor informing you or someone at the VA that 
someone who has been awarded a contract is ineligible?
    Mr. Aucoin. Right now the majority of our cases do 
originate in that fashion, yes.
    Ms. Rice. So I guess what my question is, what are we doing 
wrong here? I mean, I am hearing a lot of, what are we doing--
well, first of all I think everyone would agree that the 
Veterans First contracting program is a worthwhile program.
    Mr. Aucoin. Yes.
    Ms. Rice. That needs to, the integrity of which needs to be 
maintained if it is going to serve the purpose, right?
    Mr. Aucoin. Yes.
    Ms. Rice. So why, it seems to me like there is absolutely 
no vetting done up front and it is not until we hear about 
someone who did not get a contract and we get a tip that an 
investigation starts. Why is there no ability to identify 
ineligible fraudulent contractors earlier?
    Mr. Aucoin. Well, I would not say there is not a vetting 
process. When the Veterans First Contracting Program first 
started we did have a number of folks that just were not 
eligible at all. They were not veterans and they certainly were 
not disabled veterans, and we did have a number of cases like 
that. But our work load has shifted. Now most of the cases we 
see are pass throughs, where they are eligible but they just do 
not do it correctly. We do have occasional instances where 
there are corrupt VA employees who will steer the contract to 
someone who is not eligible. But again, the vast majority of 
our work now are pass through schemes.
    Ms. Rice. So you are saying that it is impossible to 
disqualify that scenario because it is not until the actual 
contract is being implemented----
    Mr. Aucoin. That is correct.
    Ms. Rice [continuing]. that you see the fraud?
    Mr. Aucoin. Right. And again, speaking of bright lines, it 
would be advantageous if at the time the contract is signed it 
advises the contractor that they are responsible for following 
all of the regulations for performing a certain percentage of 
the work depending on the type of contract. It is different for 
construction versus other services. But you have to follow the 
regulations. If you pass through and you do none of the work or 
very little of the work, that is a violation in the middle of 
the contracting action. You are eligible up front, but you 
basically made yourself ineligible by fraud in the middle of 
the contract.
    Ms. Rice. One of the biggest--well, I agree that making it 
a penalty, right, making them sign the legislation that we were 
talking about is actually very, a great idea to act as a 
deterrent. But the other deterrent, I think, is that when you 
catch people that they are actually debarred forever, forever, 
right? I mean, can you just explain the whole debarment process 
and how effective--I forget the number. How many debarments 
were there?
    Mr. Aucoin. I can give you----
    Ms. Rice. I guess the number does not matter but just----
    Mr. Aucoin. [continuing]. We have 72 companies debarred.
    Ms. Rice. Okay, so 72 companies. But you, so out of how 
many investigations? I mean, is every ineligible fraudulent 
company debarred?
    Mr. Aucoin. Every time that we determine that the crime did 
in fact occur we will make that referral. You know, I know that 
you are a former prosecutor. You understand that intent is the 
hardest thing in proving a crime. Once we get over the hump of 
proving the intent, I think that, one, we are very close to 
getting a criminal prosecution that is appealing to the 
prosecutor. But also it is clear that some suspension and 
debarment action needs to be taken.
    Ms. Rice. Well I cannot tell you how in favor of debarments 
and fines and penalties, I am, because when you hit people 
where it hurts the most, that is an actual deterrent. I am not 
talking about jail, although clearly that former employee 
deserved to go to prison.
    Mr. Aucoin. Yes.
    Ms. Rice. But I think, it just seems to me that there are 
steps that we can take to not allow so much money to go out and 
be taken away from legitimate, you know, service-disabled 
veteran small businesses or veteran-owned small businesses, 
right? I mean----
    Mr. Aucoin. Yes.
    Ms. Rice. Thank you. I yield back.
    Mr. Coffman. Thank you, Ms. Rice. Mr. Kelly, you are now 
recognized.
    Mr. Kelly. Thank you, Mr. Chairman. Mr. Leney, I want to go 
back to the 60 days to complete the process and to your comment 
saying that is in the best interest of that veteran, that small 
businessperson. What percentage of those applications are 
resubmitted after their initial submission?
    Mr. Leney. I will have to take that question for the 
record. I cannot give you exact data. But most applications go 
through the first time. When we have a predetermination finding 
we allow them to correct it. If it is going to require a 
complete reevaluation we give them the opportunity to receive a 
determination or to withdraw. Again, this is a courtesy to the 
veteran.
    Mr. Kelly. Yes, those things, as a veteran and as a former 
district attorney, those things that are generally courtesies 
to the veterans kind of scare me sometimes. Because that is an 
easy way to also make your numbers. People did it with 
maintenance in the military, and lots of other ways. But what 
process do you have in place that during that 60 days you 
actually talk to that veteran and look at the packet and say 
you need these things to thoroughly complete it? Do you have 
anything in place that tries to do that before the 60 days 
without dismissing or withdrawing and resubmitting?
    Mr. Leney. Yes sir, we do. In fact our predetermination 
findings program is the evaluator speaks with the veteran, lays 
out all the findings and those issues that would make the 
veteran ineligible, gives the veteran an opportunity to explain 
them. In some cases they can be explained. In some cases they 
require a change in the business model and we allow the veteran 
to make that change.
    Mr. Kelly. All right. Going back, Mr. Director, I 
understand that during your tenure, or during your tenure, the 
Center for Verification and Evaluation has had three different 
directors and the last two have been acting directors. 
Additionally, from March of 2014 until September, 2015 there 
was a vacancy in the CVE deputy director position. How have in 
spite of all these key leadership positions being vacant, or 
changing rapidly, or many times during that period, how have 
you, what steps have you take to form a strategic plan that 
allows you to operate and to fix all these things to make it as 
smooth as possible?
    Mr. Leney. We have operated under a plan to fix these 
things. We have fixed them. Yes, it is true I have had two 
acting directors. However, the fact that they were acting 
directors has not adversely affected our abilities to perform 
the mission. I have an excellent federal staff in the Center 
for Verification and Evaluation. We have now just closed on the 
announcement for a new director. The reason we had an acting, 
we did not have a deputy director, is because the deputy 
director was acting as the director for a period of time. But 
we now have a new deputy director and the job announcement just 
closed and we will be assessing for a new director here 
shortly.
    Mr. Kelly. And I apologize. I am bad with name 
pronunciation. Mr. Aucoin? Just on, I know the pass through is 
the primary thing that you have identified the way that people 
abuse. Is there another or other key areas that people 
routinely use besides the pass through to try to get around the 
system?
    Mr. Aucoin. There is a scheme that is commonly referred to 
as ``rent a vet''. They get a veteran who would be eligible and 
they prop the veteran up as a figurehead in the business. And 
the veteran essentially does nothing, no decisionmaking, and 
has no ownership. But the fraudulent business makes it appear 
that the veteran is in charge. And that is one of the schemes 
that is used. Not as common as pass through, but that is one of 
the schemes.
    Mr. Kelly. Mr. Chairman, I yield back.
    Mr. Coffman. Thank you, Mr. Kelly. Mr. King, you are now 
recognized.
    Mr. King. Thank you, Mr. Chairman. And I thank the 
witnesses, and I appreciate this hearing. And I wanted to 
compliment Ms. Rice on her questioning and I see that she has 
had to leave. But I like the direction that she went with that, 
being a prosecutor. I would take this, I will go to Mr. Aucoin 
first, but I take this beyond that. She said that, you know, a 
permanent bar or a bar forever for those who have gamed the 
system. Of course, I am all for that. Her reference was there 
is very little, appears to be no vetting up front. That may or 
may not be the case. But here is where I would like to know 
what is the certification when someone applies for a government 
contract under a, say, a combat disabled vet or a service-
disabled vet? What is the certification up front? What is the 
background check on that for verification of that 
certification? And you testified that when they fail on the 
contract that is often when you find out, or if a competing 
contractor identifies and blows the whistle so to speak.
    Mr. Aucoin. Right.
    Mr. King. They blow the whistle to who? Who acts on it? 
What kind of cooperation are you getting out of the Justice 
Department? Let me stop with that for a moment and then follow 
up.
    Mr. Aucoin. That is quite a list. First of all, the 
certification is done through the CVE, that falls under Mr. 
Leney. We are not getting the number of referrals that we once 
did that says this business just is not eligible for either a 
veteran-owned small business certification or service-disabled 
veteran-owned small business. Those type of allegations just 
have not come in as frequently as they once did when the 
Veterans First Contracting Program initially started.
    As far as the reception that we are getting from Department 
of Justice, they are entertaining our cases. It has not always 
been an easy sell. Because if the contract is to build a 
parking garage, for instance, that is a fairly complex process. 
If you have a business that can do that and they deliver it and 
then in midstream you find out they did a pass through, the 
Government is going to get something in return for expending 
that money. But you have now eliminated a legitimate veteran-
owned small business from doing that work. The money is passed 
through. You have not developed the capabilities of a veteran-
owned small business to compete down the road.
    Mr. King. If I might, Mr. Aucoin, I am aware of those 
circumstances where an individual contractor or even a group of 
contractors have gone out and found the straw man to be their 
front----
    Mr. Aucoin. Right.
    Mr. King [continuing]. in a disadvantaged business 
enterprise and whatever category it might be. And that sets up 
straw companies.
    Mr. Aucoin. Yes.
    Mr. King. And then the participation level of the 
requirement, I do not remember the percentage of that. Did 
anybody testify to the percentage of the contract that has to 
be performed by the disadvantaged business?
    Mr. Leney. Fifty-one percent.
    Mr. King. Okay, and that is the number. And so then the 
subcontracts are to total up to be less than 51 percent. Then 
because of that answer I go to Mr. Leney, as Ms. Rice spoke 
about this being debarred for life, how many of these contracts 
we are talking about here are not bonded?
    Mr. Leney. You are referring to construction contracts----
    Mr. King. Well, but also beyond that. Supply contracts, 
unbonded supply contracts seem to me to be an open door for 
people to get in. And the only verification is after the fact. 
Construction contracts, though, would be the first part of the 
answer.
    Mr. Leney. I think it is important to distinguish here 
between the verification of ownership and control, which is 
what the Center for Verification and Evaluation does and is the 
focus of this hearing, and the acquisition actions that are 
taken by a--you can have a company that is owned and controlled 
by a veteran who fails to meet the limitations on 
subcontracting, and that is what Mr. Aucoin has been referring 
to as the bulk of the OIG investigations. But the CVE does not 
get into that, that is not their area of responsibility.
    Mr. King. So, okay, of course that does not answer my 
question. But I turn back to Mr. Aucoin. Do you know, are you 
aware, are any of the witnesses aware of the distinctions 
between what percentage of the construction contracts are 
bonded for performance and payment and bid bonds, and the 
distinction of that. If you have got a prime contractor that is 
bonded in that fashion, then their finances have been vetted by 
the bonding company. So is there a problem in this area at all 
that you are aware of?
    Mr. Aucoin. I do not know the answer to that. We will have 
to take that for the record.
    Mr. King. Okay. And I would say then perhaps I could turn 
this in to Mr. Shear. Are you aware of any problem in this 
particular area?
    Mr. Shear. In terms of bonding? Or do you----
    Mr. King. Well and what percentage of the contracts, we are 
down now to construction contracting and it is six seconds. So 
is there an awareness of what percentage of the construction 
contracts themselves that are being performed by disadvantaged 
businesses that are military veterans that are bonded versus 
those that are not bonded?
    Mr. Shear. No, we have not looked at individual contract 
actions.
    Mr. King. Thank you. And my comment into this Committee 
then, Mr. Chairman, is that is a very serious topic to look 
into. The bonding companies are a private sector solution to 
this. They set the terms on that, the premiums on the bonding 
and according to the degree of risk on a certified financial 
statement. So if we have a, we have straw men that step forward 
if they do not have the capital they will not get the bond. And 
I just ask that this Committee take a look at that perhaps in a 
future hearing. And I appreciate the attention and I yield back 
the balance of my time.
    Mr. Coffman. You have a very good point. Thank you, Mr. 
King. Mr. Leney, per the VA's acquisition regulations 819.307, 
all that is necessary for SBA to take over deciding status 
protests from CVE is for CVE to execute an interagency 
agreement with SBA. Why did the VA's general counsel approve 
the VA acquisition regulation but tell you a new law is 
necessary?
    Mr. Leney. I cannot speak to the former. All I can speak to 
is what I was told by the Office of General Counsel We can take 
that for the record and we will provide a comprehensive 
response.
    Mr. Coffman. Yes, I would very much like to see that 
opinion from the General Counsel.
    Mr. Leney. We will provide that.
    Mr. Coffman. Mr. Leney, CVE's VIP database shows that less 
than ten percent of verified businesses are doing business with 
VA. Why are you allowing CVE to distract from your primary 
mission as Small Business Director, particularly since having 
CVE under OSDBU is not compliant with the Small Business Act?
    Mr. Leney. To answer the last part first, we do not believe 
that my oversight of the CVE is not in compliance with the 
Small Business Act. We believe that the verification process is 
an important enabler for small businesses to do business with 
the VA. And it is very much, we seek to very much integrate 
that with providing opportunities for veteran-owned small 
businesses. We however do not restrict people from applying for 
verification to those firms that are doing business or seek to 
do business with the VA.
    Mr. Coffman. Given the large budget for CVE this would seem 
to be a very poor rate of return for VA's investment. What have 
you done to turn this around? And what quantitative results 
have you achieved?
    Mr. Leney. The actual costs of verification are going down 
and we anticipate significant further savings as we institute 
both a new information system and a transformed process.
    Mr. Coffman. Mr. Shear, it seems to me that VA's failure to 
develop a comprehensive operating plan has some similarities 
with the conclusion in your 2013 report regarding the VA's 
failure to develop a comprehensive strategic plan. What 
similarities do you see at these two points of time? Also, 
please elaborate on what VA has done since 2013 and the areas 
that still need attention with respect to the planning for the 
verification program?
    Mr. Shear. Thank you for the question. Let me address it in 
two parts, starting with 2013. When we first started that 
engagement we thought by that time after the passage of time 
since the 2006 act, we would be testing a system to see how 
well it was working. Whether it was doing its job, whether it 
was consistent, things like that. And we found out that there 
was no stable system. So then we backed up. And we asked, have 
you thought strategically about what this system is supposed to 
do and how to develop it? And there was no strategic plan. So 
that was basically part of the outcome. And sometimes you say, 
well, GAO is big on planning. Well, we are. It is for a reason. 
It is saying, establish your goals and how you are going to 
achieve them.
    So after our report there was a strategic plan, which is 
basically a fairly high level type of approach of what your 
goals are and how you hope to achieve them and what types of 
measures you will have to see whether you are reaching them. So 
what we have now is a planning problem.
    So it is still a planning problem. It is a planning problem 
when certain transformation or something new or a number of new 
things are starting to happen. And then you just say there are 
so many moving parts here and there is just a lack of 
coordination among those parts, especially with the turnover 
and the small number of government employees. It just 
especially raises the concern. But just generally, even in the 
absence of those things, when you have a number of moving parts 
you always need a plan, whatever you want to name it, you have 
to know what are you going to do at certain times, what things 
feed into the other pieces, and create some clarity on where 
you are going and exactly how you are going to do it.
    Mr. Coffman. Thank you, Mr. Shear. Chairman Hannah, you are 
now recognized.
    Mr. Hanna. Thank you, Mr. Chairman. Mr. Shear in your 
written statement you said it is not clear if OSDBU will 
develop an overall plan that captures and integrates the 
various efforts it has been undertaking that are managed by the 
CVE and other program teams within OSDBU, unquote.
    As you know the Small Business Committee has long been 
concerned that OSDBU is focusing on areas other than those 
explicitly stated in the Small Business Act. But should we be 
concerned that this marriage of CVE and OSDBU is diluting the 
ability of each to focus on its core mission and deliver 
results? Are the organizations within OSDBU and other CVE 
involved in the verification process, if that is clear?
    Mr. Shear. You asked a great question. And based on our 
audit work I cannot answer it completely. But let me just make 
some observations, if I could, Mr. Chairman?
    We have looked at OSDBUs at the Committee's request. And it 
is very important what the mission of the OSDBU is, and that 
they have stature in their agency, and that they are focused on 
expanding opportunities in the Federal contracting work space. 
It is all part of the whole apparatus around the Small Business 
Act. That is what the focus should be.
    I do not think that if part of that is a policing function 
that it necessarily disqualifies the OSDBU, and this is not a 
statutory interpretation, it is not like our General Counsel 
has reached a statutory determination. But it may not 
disqualify the OSDBU if part of its actions are engaged in some 
type of policing action. But the very good question that you 
ask, which we have not evaluated and I do not think others 
have, is in cases where an OSDBU might have a broader kind of 
reign and level of responsibilities. In the extreme is the 
situation that Mr. Leney is in, that it raises an issue as far 
as what is the focus of this office. So I cannot talk about the 
particulars. I do not know how much of his time or of the 
OSDBU's time goes into the various activities, or how focused 
it is on expanding opportunities for small businesses, 
including service-disabled veteran-owned small businesses. But 
you raise a very good issue.
    Mr. Hanna. Thank you. I yield back the balance of my time.
    Mr. Coffman. Thank you, Chairman Hannah. One more question 
for Mr. Shear. Based on evidence to date from VA's site to 
verify firms, do you think VA has sufficient information to 
make informed choices about the extent to which the 
verification program has effectively identified only eligible 
firms?
    Mr. Shear. Thank you.
    Mr. Coffman. Please use the microphone.
    Mr. Shear. I am sorry?
    Mr. Coffman. Please turn your microphone on. Is it on?
    Mr. Shear. It is on.
    Mr. Coffman. Okay.
    Mr. Shear. I will turn it off and back on. Okay. Now can 
you hear me?
    Mr. Coffman. Go ahead.
    Mr. Shear. Okay. Thank you. Sometimes the simplest numbers 
are used. And as we reported based on site visits there were 
only a couple of firms that were found where the decision made 
at the time of verification was incorrect. We also found that 
there were a relatively small number of firms based on site 
visits where the verification, where basically the verified 
firm was no longer eligible, which goes to the issue that 
sometimes businesses change over time. But based on that what I 
am presuming is that the site visits are performing the way 
they are supposed to be. It is a very comprehensive look at a 
business. So based on that, it seems like the program is 
working fairly well at making verification decisions, at least 
not verifying firms that should not be verified. There are 
questions that if, as these changes go on and certain changes 
are made in the whole verification process of how much do we 
need site visits to make sure that the decisions are being made 
correctly? But based on those simple numbers it suggests that 
VA is not verifying firms that are not eligible.
    Mr. Coffman. Thank you, Mr. Shear. Our thanks to the panel. 
You are now excused and I will go over to Chairman Hannah for 
his closing remarks.
    Mr. Hanna. Thank you. After our last hearing on this topic 
Chairman Coffman showed real leadership and introduced the 
Improving Opportunities to Service-Disabled Veterans-Owned 
Small Business Act of 2013. I believe you are going to speak to 
that in a moment. I look forward to seeing that reintroduced. 
There are a lot more questions here than answers. I am curious 
why we cannot keep someone in this position. We have had three 
different directors in a very short period of time. It would 
seem to be an easy position to fill but apparently they are 
not. But with that I look forward to signing the legislation 
that your legislative counsel required and I thank you for 
being here today, all of you.
    Mr. Coffman. Thank you. Thank you, Chairman Hannah. Today 
we have had a chance to hear about the serious challenges that 
still exist in the verification process administered by CVE. 
From the testimony provided and questions asked today, it is 
clear that given all the years that have passed since this 
program was set up, and the resources that have been added to 
CVE, it is reasonable that we would expect that VA be further 
along than this.
    As such, this hearing was necessary to accomplish a number 
of items. Number one, to identify the challenges that persist 
with CVE in its verification of vet status and with VA 
implementation of the Vets First goals. Two, to hear about 
continuing enforcement efforts by OIG in combating fraudulent 
awards to ineligible contractors. Three, to determine what 
steps need to be taken to move toward full and fair 
implementation of the Vets First Set-Aside program. Four, the 
hearing was also necessarily to emphasize the importance of 
legislation I plan to introduce shortly that unifies the 
definition of VOSB and SDVOSB; unifies VA and SBA regulations; 
and finally creates an appeal process through the SBA Office of 
Hearings and Appeals.
    I ask unanimous consent that all Members have five 
legislative days to revise and extend their remarks and include 
extraneous material. Without objection, so ordered. I would 
like to once again thank all of our witnesses and audience 
members for joining us today in today's conversation. With 
that, this hearing is adjourned.

    [Whereupon, at 12:05 p.m., the Subcommittees were 
adjourned.]

                            APPENDIX
                                
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