By Matthew Weigelt

Apr 21, 2010

The head of the Small Business Administration today said the agency has cracked down on companies posing as if they were owned by service-disabled veterans, a scheme uncovered by a recent investigation.

The Government Accountability Office exposed fraud in several of SBA's small-business programs, including the program that sets aside contracts for small companies owned by service-disabled veterans.

GAO said at least 10 fake service-disabled, veteran-owned small businesses had swindled roughly $100 million from SBA's set-aside contracts. For example, one company wasn't owned by a service-disabled veteran, and another subcontracted all of its work to a large foreign company, GAO said in November.
SBA Administrator Karen Mills today said SBA has investigated the 10 companies and is looking to prosecute them. For other imposters, Mills said SBA will be more aggressive in suspending and debarring companies from receiving federal contracts.

"We call that going after the bad actors," she told the House Small Business Committee.

GAO has said one of the major problems behind the fraud in the veterans' program is that SBA and other contracting departments don't have a database with lists of people who are service-disabled veterans.

Mills said SBA now has joined with the Veterans Affairs Department to use to its database of veterans' information to better identify who actually is and is not a service-disabled veteran.
"We're working on the front end," she said.

To further combat fraud, SBA now gives companies that are found lying about their ownership 30 days to remove their names from the Central Contractor Registration System, so they can't scam other agencies, Mills said.

"If they don't do it, we will, so an ineligible firm can't stay on there, which was something that we found was a problem," she said.
Peggy Gustafson, SBA's inspector general, told the committee she believes Mills is serious about cracking down on companies and enforcing rules. But she said officials need to hand out tougher punishments.

She said a company rarely is debarred from government contracting, unless there's been a conviction of a crime.
"And that's not really what the law is," Gustafson said. "I think it's really important to start kicking people out of the program before they're going to jail."
 
Related stories:

Fake firms rip off SBA set-aside program for $100M

Bill would jail crooks who wrongly get set-aside contracts 

House panel told of abuses in VA set-aside program