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Pentagon mishandled $876.8 million intended for disabled veteran-owned small business

The Pentagon in Arlington county, Va. McClatchy reported in December that the Pentagon knew from the beginning that K2 was contaminated. (Dreamstime/TNS)
February 25, 2020

The Pentagon has mishandled $876.8 million meant for disabled veteran small business owners by awarding hundreds of millions to ineligible recipients, according to a Pentagon Inspector General audit released Feb. 20.

The Pentagon’s Inspector General released the findings, which shows that at least 16 of the 29 businesses reviewed in the audit did not meet the disabled veteran requirements.

The audit revealed that one beneficiary, referred to as “Contractor B,” received almost one-fourth of the $876.8 million through three contracts worth $209.6 million, although it did not release the names of any companies it audited. Another example found that “Contractor A” also received almost $5 million in contracts.

President George Bush signed an executive order in 2004 requiring that at least 3 percent of the Defense Department’s contracts go to disabled veteran small business owners, Military.com reported. The executive order requires the business to be at least 51 percent-owned by one or more service-disabled veterans with at least one service-disabled veteran in control of the management and daily business operations.

According to the audit of one of the contractors, Contractor A’s “self-representation” as a disabled veteran-owned business awarded the business the $5 million.

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“[We] were unable to confirm through [the Department of Veterans Affairs] VA data that the individual identified as the president in [System for Award Management] SAM was a service-disabled veteran. Specifically, the VA data confirmed the individual was a veteran but not a service-disabled veteran, and the VA Office of Inspector General was unable to validate whether the individual was a service-disabled veteran,” the report states.

Only one member of Contractor B’s businesses was a service-disabled veteran who lived “over 2,000 miles away from the contractor’s location.”

“However, we determined that evidence did not exist to support that a service-disabled veteran was the majority owner and highest-ranking officer or in control of the company,” the report said.

Only one member of Contractor B’s business was a service-disabled veteran, and that person

The Department of Defense “did not perform the oversight necessary to verify compliance with the [Service-Disabled Veteran-Owned Small Business] SDVOSB subcontracting requirements,” the report added.

The report states that if the Department of Defense doesn’t conduct better oversight, “service-disabled veterans may be in jeopardy of not receiving contract awards intended for them, and the DoD will be at risk of misreporting the amounts for SDVOSB participation.”

This latest audit follows the Government Accountability Office’s November report that found a number of cases of fraud in Defense Department contracts, including “price inflation through multiple companies owned by the same entity to falsely create the appearance of competition” and “contractors receiving contracts they were not eligible to receive.”

The report showed several different forms of fraud, from non-financial cases to even foreign companies posing as U.S.-based companies who shared sensitive military data.

One case specifically, according to the report, “involved an ineligible foreign manufacturer that illegally exported sensitive military data and provided defective and nonconforming parts that led to the grounding of at least 47 fighter aircraft.”