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Few in Congress seem to care about veterans preference fraud

Last of a five-part series. To see all the stories, video, interactive graphics and documents, click here.

Rep. Tammy Duckworth acknowledged a Virginia businessman probably did nothing illegal when he used a minor foot injury from 27 years before to qualify for a program to aid disabled military veterans with a preference in federal contracts.

But what he did was disgraceful, said the Illinois Democrat who in 2004 lost both legs in combat while serving as a helicopter pilot with the Army National Guard in Iraq.

"Shame on you," Duckworth said during a House Oversight and Government Reform committee hearing in June. "You may not have broken any laws. We're not sure yet. You certainly broke the trust of this great nation. You broke the trust of veterans."

Duckworth's wrath was aimed at on Braulio Castillo, whose twisted ankle at a military prep school in 1984 allowed him to qualify as the owner of a Service-Disabled, Veteran-Owned Small Business.

Castillo used that status to qualify for computer contracts with the IRS that could be worth more than $500 million. Unless someone can show Castillo had inside help, as has been alleged in committee reports, he meets the requirements of the law.

The military prep school he attended is affiliated with the U.S. Military Academy at West Point, N.Y. So Castillo's hurt foot qualifies as a military injury the same as Duckworth's combat wounds, even though he went on to play football at the University of San Diego and never served in the armed forces.

Castillo got a 30 percent disability rating from the Department of Veterans' Affairs. That's all he needs to qualify for the bidding preferences under the SDVOSB program.

Castillo gamed the system, Duckworth and other committee members alleged.

But the SDVOSB system is easily gamed, according to series of federal investigations. Those seeking SDVOSB status need only claim to be service-disabled veterans when they turn in their bids. The VA is the only agency that even checks.

Duckworth told the Washington Examiner she is exploring legislative fixes to ensure the benefits of the SDVOSB program go only to those who earned that privilege through genuine military service. She offered no specifics.

"It is disheartening to learn about fraud in any government program, especially those that have been established to support veterans," said Duckworth, who was an assistant VA secretary before being elected to Congress last year.

"When people exploit the system, they do a great disservice to our country. I am currently exploring some legislative fixes to strengthen this program and prevent fraud in the system, so that this program can do what it was intended to do - help our veterans."

The tough task for lawmakers is striking a balance that will prevent fraud but not harm legitimate service-disabled veterans with overly burdensome regulations. There have been incremental changes.

In 2010, VA was required to conduct more thorough verifications of those businesses that bid on its SDVOSB contracts. But those rules apply only to VA, not other federal agencies that award more than 70 percent of the money to firms claiming the service-disabled preference.

A bipartisan Senate bill introduced in 2011 would have required VA to verify the eligibility of all firms seeking SDVOSB status, and maintain a database that other agencies would use to check the qualifications of vendors for their set-aside contracts.

The bill unanimously passed the Senate, but died in the House.

Co-sponsors of that bill say they will continue to seek changes in the laws to ensure money in the SDVOSB program goes to the disabled veterans it is intended to help.

"With record deficits and debt, it is critical that ineligible firms are not fraudulently accessing taxpayer dollars," said Sen. Kay Hagan, D-N.C.

Sen. Mary Landrieu, D-La., also will continue pressing for reforms, said spokesman Robert Sawicki.

"During this Congress, she will continue to promote the important role that our veterans play in job creation and entrepreneurship and work to ensure those efforts are not harmed by fraud," Sawicki said of Landrieu, who chairs the Senate Committee on Small Business and Entrepreneurship.

So far no reform legislation has been introduced. Rep. Mike Coffman, R-Colo., introduced a bill last week that would make the Small Business Administration responsible for verifying eligibility for all businesses seeking SDVOSB status.

That is the opposite of recommendations from the Government Accountability Office, which found the "self certification" process currently used by SBA makes it vulnerable to fraud.

GAO recommends VA be in charge of verifying the eligibility of all firms doing business with the federal government under the heightened standards it uses.

Coffman said his bill is meant to make it simpler for legitimate SDVOSBs to qualify, not to address the vulnerability to fraud that has been identified in numerous GAO reports.

"This is just the first step and not the end-all," Coffman said. "This bill will help in the fraud and we will continue in future legislation looking at fraud."

Something needs to be done to level the playing field for legitimate disabled veterans, said Elton Roller, the owner of a Virginia construction company that is SDVOSB certified by VA.

Fraudulent companies looking for an edge in getting lucrative government contracts flooded the SDVOSB program after the economy collapsed in 2008, Roller said. It got worse when the $845 billion Obama economic stimulus program was passed in 2009, creating billions of dollars in federal contracts.

The more stringent verification requirements at VA have been effective in rooting out bogus companies, said Roller, a board member of the SDVOSB Council, a non-profit trade organization.

But outside of VA, there is nothing to keep unscrupulous companies from winning federal contracts that are supposed to go to disabled veterans, he said.

"I think to this day there are still not any penalties outside of VA for companies that are found to be fraudulent," Roller said.