Congress to Examine Fraud in VA's Vet-owned Small Business Goals

Lawmakers on Tuesday will hear allegations of manipulation and fraud by Veterans Affairs Department employees into the agency’s goals for serving veteran-owned and service disabled-owned small businesses.

Heading up the scheduled witnesses is Jan Frye, VA deputy assistant secretary for acquisition and logistics -- and a high-ranking whistleblower since last month, when a March 19 memo he sent to Secretary Bob McDonald claiming widespread mismanagement, fraud and waste came to light.

“VA small-business goal accomplishments have been and continue to be vastly overstated,” Frye told McDonald in the 35-page memo, a copy of which was acquired by Military.com. “We have announced each year since 2008 that we have exceeded our directed goals for [veteran-and disabled veteran-owned] small businesses.

“The stated percentages touted are absolutely false,” he said.

According to Frye, the numbers VA uses to compile the data for Congress comes from the Federal Procurement Data System, where all information on federal contracting is stored. But agency purchases millions of dollars in goods and services each year without contracts, often through agents using purchase cards – with no contract required. 

This data is not entered into the FPDS, so that what Congress sees is not an accurate of reflection of how and where VA buys, according to Frye.

“Sadly in my opinion, in addition to our illegal acts, we’ve duped the veteran-owned business community we are required by law to advocate for,” Frye told McDonald in the March 19 memo.

One area where Frye criticized his fellow VA officials was in allowing contracting officers to go outside federal contracting rules to buy prosthetics using a government purchase card. This allowed the purchases to buy hundreds of thousands of dollars in prosthetics without need of a contract.

Military.com first reported on this practice in April 2012, about five months before Frye told McDonald that he learned of it.

Military.com reported that the VA’s Office of the Inspector General found that contracting officers were not negotiating with vendors for prices or discounts, but largely leaving it up to a small army of purchasing agents -- untrained in contract law -- to procure prosthetics with little oversight.

According to the IG, VHA in 2011 spent about $54 million on prosthetic limbs. Weaknesses and lack of oversight resulted in the VA being overcharged by about $2 million a year, it said.

Military.com also reported at the time that VA buyers were purchasing prosthetics with government purchasing cards and keeping the price just below $25,000 in order to avoid rules requiring a formal solicitation – a contract.

This has since been borne out by Frye.

Frye’s allegations concerning the VA’s programs to benefit veteran-owned and service disabled-veteran owned small businesses are not the first time Congress has heard of problems with the programs.

But problems revealed by the IG in 2010 dealt with actual contracts.

The IG reported on 10 firms -- through fraud or abuse or both -- had netted some $100 million in sole-source or set-aside contracts for qualified veterans with a small business.

In one case, a contract for Hurricane Katrina trailer maintenance were awarded to a company whose owner was not a service-disabled veteran, though that was a requirement of the contract.

In other cases, small businesses owned by a disabled veteran were used as “pass-throughs” for large, corporations that would ultimately end up with the contract, according to the IG.

--Bryant Jordan can be reached at bryant.jordan@military.com.