Proposed legislation targets abuse of veterans' small-business program

A congressman wants to protect the government’s small-business program for veterans by requiring federal officials to verify companies before letting them into the program.

A provision in the Veteran-Owned Small Business Contracting Fairness Act (H.R. 6022) states that a company cannot be included in the database of small businesses owned by service-disabled veterans until government officials determine that company executives are telling the truth about being service-disabled veterans.

Rep. Joe Courtney (D-Conn.), who introduced the bill July 30, wants federal officials to verify the companies' status to cut down on fraud.

The Government Accountability Office has conducted several investigations into fraud in the Small Business Administration’s development programs. The programs allow various types of small companies to receive set-aside contracts with limited competition. The investigations have uncovered problems with verifying a company’s eligibility. In October 2009, GAO reported $100 million in fraud or abuses of the program for service-disabled veterans, based on 10 case-study firms.

Most recently, GAO auditors submitted several fake companies for inclusion in SBA programs and found that SBA officials didn’t verify that the fake companies' principal offices were based in economically depressed regions, as required. For one of the companies, GAO auditors told SBA its office was in the Alamo in Texas, according to the report.

“A simple Internet search by SBA could have revealed these as phony applications,” states a report by Gregory Kutz, GAO’s managing director of forensic audits and special investigations.

"The GAO report confirmed what I heard from veteran-owned businesses in eastern Connecticut — that there was no effective process in place for validating whether businesses that claimed to be veteran-owned were actually so," Courtney said.

He also tackles the issue of preferences for certain small-business programs, but he goes about it differently from other small-business advocates.

Most advocates have worked to eliminate the requirement to give first preference to companies in SBA’s Historically Underutilized Business Zone program. The law states that contracting officers “shall” consider the HUBZone businesses for set-aside contracts. After doing that, contracting officers “may” then consider the other programs for service-disabled veterans and other types of small businesses.

The difference is a single word. Recent attempts to equalize the programs have sought to switch the HUBZone’s “shall” to a “may” in the statute. It would allow the contracting officer the choice of giving first preference to any of the programs by making them all equal under the law.

But Courtney's bill would change the “may” to a “shall.” In other words, it would raise the veterans program to the same level as the HUBZone program’s preference.

The bill has been sent to the House's Small Business and Veterans' Affairs committees for consideration.