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VA's fraud crackdown becomes burden for legit veteran-owned businesses

More than $1 billion in government contracts meant for small businesses owned by disabled veterans have been reclassified over the last decade by the Department of Veterans Affairs so that the work -- and almost $150 million to date -- could be given to non-veteran companies, a News21 analysis shows. 

The reallocation is the consequence of increased enforcement and more stringent qualifications imposed by the VA after it discovered that it had awarded millions of dollars in contracts to companies that fraudulently claimed to be owned by veterans. Veterans are now required to submit a battery of paperwork in which the smallest flaw could result in disqualification. 

The VA has said that the work was reclassified because there were not enough vet-owned companies qualified for the contracts. 

The Veterans Benefit Act of 2003 mandated that each government agency set aside at least 3 percent of contracts for small businesses owned by service-disabled veterans. Since then, the VA has reserved the largest percentage of contracts of any government agency – ranging from information technology to construction to janitorial work.

Advocates for veteran-owned businesses, who had previously been primarily concerned about contract fraud, are now focused on the paperwork obstacles facing legitimate businesses applying for VA contracts. 

About this project.

'Back Home: The Challenges Facing Post-9/11 Veterans Returning from the Wars in Iraq and Afghanistan,' was produced by News21, a national investigative reporting project involving top college journalism students across the country and headquartered at the Walter Cronkite School of Journalism and Mass Communication at Arizona State University.

News21 is funded by the John S. and James L. Knight Foundation and the Carnegie Corporation. The Ethics and Excellence in Journalism Foundation, the Hearst Foundations, the Donald W. Reynolds Foundation, Women & Philanthropy at ASU and the Peter Kiewit Foundation funded the work of individual fellows.

“Unfortunately, the complaints from the veteran community have now shifted from contract awards going to misrepresented firms to the onerous and unpredictable verification process itself,” said Scott Denniston, executive director of the National Veterans Small Business Coalition. 

In order to qualify for contracts set aside by the VA for service-disabled veterans, a business owner must submit piles of paperwork, ranging from company organizational documents to the resumes of all the key personnel. 

Robert Doyle, a sergeant first class in the Army who served in Iraq, returned in late 2007 as a 100 percent service-disabled veteran. For his actions, he received a Bronze Star for “heroic or meritorious achievement or service.” 

Hannah Winston / News21

Robert Doyle, who received a Bronze Star for his service in Iraq, has been trying to get his federal contracting business off the ground for more than a year but still has no contracts.

Doyle started a welding and plowing business in 2012 out of his home in Massachusetts. 

“The military teaches you to be an entrepreneur,” said Doyle, who served for 14 years. “They teach you how to make important decisions. They teach you to be self-sufficient. I’m just embracing what I’ve been taught.” 

To start contracting, Doyle needed two things: to be verified as a veteran-owned business by the VA and money to get his business off the ground. 

Doyle got the verification, seven months after submitting an application. But that was not the end of the process. Doyle said that he can neither apply for nor receive set-aside contracts because the VA gave his company an incorrect identification code. As a result, he’s going through the process again. 

The Center for Veteran Enterprise, the VA office in charge of helping disabled veterans land those contracts, would not comment for this story. 

In order to get verified to receive VA set-asides, a veteran must work 40 hours a week at a business -- unrealistic for many, considering the business won’t have any federal contracts before it is verified. 

“On the one hand, many veterans cannot afford to quit their day jobs, and give up their paychecks, until their SDVOSB (Service Disabled Veteran-Owned Small Business) firms win their first contracts,” said Steven Koprince, a Kansas lawyer specializing in small-business contracts. “On the other hand, these veterans cannot, in many cases, qualify for SDVOSB verification unless they leave their day jobs because of the full-time requirement.” 

In addition, the VA is required to verify the veteran status of applicants, as well as any service-connected disabilities, by querying its own databases. 

In recent years, the VA has implemented some new strategies for verification of veteran-owned small businesses, and has had some success uncovering companies posing as veteran-owned. 

But experts say they have created barriers for legitimate companies. 

“The documents that need to be submitted are a minefield,” Koprince said. “If a lawyer isn’t fully versed in the process, it’s easy for them to trip up.” 

Most of the companies that get denied aren’t fraudulent, said Koprince. They just filled out the paperwork wrong or forgot to submit certain documents. 

The VA reported in July that the average wait time in 2013 to be verified as a veteran-owned business was 37 days. The agency claimed to have approved more than 93 percent of those applying, up from 72 percent one month earlier. 

But the appeals process for applicants who were denied took an average of more than three months. 

About half of the firms that go through the appeals process get approved. That usually means the initial application was missing some information or the application was mishandled. 

In February 2011, James McDonnell, a Navy veteran who lives in Virginia, submitted forms seeking classification as a Service Disabled Veteran Owned Small Business. After 15 months in which he submitted upward of 300 documents, he was verified by the VA.  This allowed him to see what he called the “broken process” of veteran business verification. 

 “The VA should be assisting veterans and their companies with becoming registered in this program instead of focusing on punishing small business by using the weight of their bureaucracy as a hammer,” he wrote in a 2012 letter to the House Committee on Veterans’ Affairs. 

The VA allows some qualified businesses to participate in a mentor-protege program where new businesses are paired with experienced contractors in an effort to help establish the new business. Another program helps veterans who want to start businesses get the money to get off the ground if they have a feasible plan. 

But Doyle, the veteran who started a welding and snowplow business, said he found this program only by searching the Internet. 

“When you apply for Vocational Rehabilitation and Employment services, they don’t talk about this in the initial briefing,” he said. “If you don’t know about it you’ll never hear about it.” 

Doyle said his company received $97,000 in start-up help from the VA in July, more than a year after being approved. But he said that for months the VA didn’t know which account to pay him from. 

The experience left Doyle frustrated. 

“I’ve been in the self-employment track for a year,” Doyle said in June. “… So why can’t they just get me the check they’ve already promised me?”

This story was edited for length; read the full piece at 'Back Home': The enduring battles facing post-9/11 veterans. 

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