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Jessica Tillipman: VA proposes new verification process to combat small business fraud

Last week, the U.S. Department of Veteran Affairs (VA) proposed a new verification process to help combat small business fraud.

The government uses its procurement policies to further socio-economic goals, such as contracting programs for certain groups, including socially disadvantaged individuals, service-disabled veterans and women.

While these programs are designed to help “small, disadvantaged businesses compete in the marketplace,” they continue to remain vulnerable to fraud and abuse. As I noted in a prior post for the FCPA Blog, oversight of these important programs has been historically deficient, fostering an environment in which fraud, waste and abuse have managed to flourish.

For example, many readers may remember the story of Braulio Castillo, the former CEO of Strong Castle, Inc., “who used an injury he sustained at a military prep school to qualify for a veterans disability, 27 years after the fact.” His injury? A twisted ankle. Military service? One year at a military prep school.

Despite the fact that Mr. Castillo’s ankle was healthy enough to play college football at the University of San Diego in the years following his injury, 27 years later, he used this injury to obtain taxpayer-funded contracts reserved for veterans disabled in connection with their military service.

Who can forget the image of Representative Tammy Duckworth, an Iraq war veteran and double amputee, eviscerating Castillo during a House oversight hearing. A video of their encounter is below.

(As a disturbing albeit unrelated side note, Castillo has since been charged with the first-degree murder of his wife–the trial will be held in Spring 2016.)

Sadly, stories like this are not unique. In it’s 2012 report, titled Service-Disabled Veteran-Owned Small Business Program: Vulnerability to Fraud and Abuse Remains, the U.S. Government Accountability Office noted severe deficiencies in the verification of Service-Disabled Veteran-Owned Small Businesses (SDVOSB). The report highlights numerous instances in which companies have received millions of dollars from contracts set-aside for SDVOSBs, despite their failure to meet the criteria established for these contracting opportunities.

In 2013, GAO released another report, titled Veteran-Owned Small Businesses: Planning and Data System for VA’s Verification Program Need Improvement. Similar to its earlier report, GAO continued to identify “challenges in [the VA’s] efforts to establish a stable and efficient program to verify firms on a timely and consistent basis.”

In response to these findings, the VA recently proposed new verification guidelines for Veteran-Owned Small Businesses. The proposed guidelines “clarify the eligibility requirements for businesses to obtain ‘verified’ status, add and revise definitions, reorder requirements, redefine the definition of ‘control,’ and explain examination procedure and review processes.”

The proposal further explains that it “seeks to find an appropriate balance between preventing fraud in the Veterans First Contracting Program and providing a process that would make it easier for more VOSBs to become verified.”

Any attempt to combat the fraud and abuse that has tarnished this important program should be lauded; though it will be interesting to see how the comments received over the next two months impact the final rule.


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Jessica Tillipman is a Senior Editor of the FCPA Blog and Assistant Dean at The George Washington Univeristy Law School. You can follow her on Twitter at @jtillipman.

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