The Department of Veterans Affairs has tried so hard to weed fraud from the ranks of disabled-veteran-owned businesses that many legitimate firms have been turned away in the past 10 years, leaving hundreds of federal contracts — and more than $150 million — to go to non-veteran companies, a News 21 analysis shows.

The contracts, with earning potential valued at more than $1 billion when issued, were reclassified for non-veteran companies.

Tom Leney, executive director of veterans and small-business programs at the VA, said that, while it does not happen often, he was not sure why the more than 700 contracts were reclassified and that the VA was working to help more veteran businesses qualify for contracts.

The Veterans Benefit Act of 2003 mandates that federal agencies set aside at least 3 percent of contracts for small businesses owned by service-disabled veterans. The VA sets aside the largest percentage, with nearly 20 percent of contract dollars last year. The contracts range from information technology to construction to janitorial work.

Veterans’ advocates, previously concerned about contract fraud, are now focused on the piles of paperwork facing legitimate ­veteran-owned businesses seeking VA contracts.

“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,” Scott Denniston, executive director of the National Veteran Small Business Coalition, said in congressional testimony last year. “We understand the need . . . to ensure only eligible veterans receive the benefits of the Veterans First contracting program, but we strongly disagree with VA’s punishing legitimate veteran small-business owners. It does not appear to us that VA had anyone involved in writing the rules who understands how small businesses operate in the digital age.”

Applicants must submit a battery of paperwork, including company organizational documents and the résumés of key personnel.

Robert Doyle, a sergeant first class in the Army while serving a tour in Iraq, returned in late 2007 with a Bronze Star and certification as a 100 percent service-disabled veteran. Doyle started a business doing welding and offering plow services in 2012 out of his Massachusetts home.

“The military teaches you to be an entrepreneur,” said Doyle, who served 14 years in the Army. “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 the money to get his business off the ground.

Doyle got the verification seven months after submitting an application. Despite being verified, Doyle said he can neither apply for nor receive set-aside contracts, because the unique identity code his company received was incorrect. The issue may force him to repeat the process.

VA verification to receive veteran business set-asides requires a veteran to work 40 hours a week at the business. That can be unrealistic for many starting out.

“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 who has written books on 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 my mind, this conundrum unnecessarily discourages some otherwise qualified veterans from entering the federal contracting arena.”

The VA must also search its databases to verify the veteran status of applicants as well as any service-connected disabilities.

The government methods have had some success in uncovering companies accused of posing as veteran-owned. In 2011, a Georgia man was indicted on fraud charges for presenting his business as a SDVOSB. Last year, an Illinois man was charged with defrauding the government. A few months ago, two Rochester, N.Y., brothers faced similar charges. And construction company owner David Gorski of Massachusetts raked in more than $159 million in VA contracts set aside for service-disabled veterans in a few years. Gorski was disqualified and indicted last year because he was not a service-disabled veteran. He wasn’t even a veteran.

Some fraudulent companies have still slipped by, however. In October 2011, the Government Accountability Office issued 13 recommendations for the VA to improve its fraud-prevention program. In March, William Shear, director of financial markets and community investment at the GAO, testified that the VA had not fully implemented seven of those recommendations.

“Without implementing these recommendations, VA’s program for awarding contracts to service-disabled and other veteran-owned small businesses remains vulnerable to the fraud and abuse that could result in contracts being awarded to ineligible firms,” he said.

Still, some verification efforts have kept out legitimate companies, experts say.

“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 are not fraudulent, Koprince said. 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 for verification was 37 days. The agency said it has approved more than 93 percent of applicants, up from 72 percent a month earlier.

A new program gives veterans a chance to fix small application errors before a determination is made, the VA’s Leney said.

The appeals process for applicants who are denied, however, was slower than in the previous year. The VA reported on its Web Site that it has taken an average of more than three months this year for denied firms to have their appeals fully processed.

About half the firms that go through the appeals process get approved, the agency reported. In many cases, the application was missing documents or had other errors, it said.

In February 2011, James McDonnell, a Navy veteran who lives in Northern Virginia, submitted forms seeking a disabled business classification. The VA took 15 months to verify him, in a process that included submitting nearly 300 documents, he said.

In a 2012 letter to the House Committee on Veterans’ Affairs, McDonnell called it “ironic” that while agencies such as the departments of Homeland Security, Defense, State and Education “are expanding their support of ­veteran-owned small businesses, the one agency that is funded specifically to assist veterans is making it difficult to run a business.”

But the VA notes that it has set up additional programs to assist veteran businesses. It allows some qualified businesses to participate in a mentor-protege program in which new businesses are paired with experienced contractors to help them learn the contracting world. Another program helps veterans launch a business, helping to pay for start-up elements, such as training in how to run a small business, as well as daily operating materials and license fees.

Those good efforts are not publicized enough, said Doyle, the veteran who started a welding and snowplow business last year. He found the program by searching the Internet.

“Out of the millions of veterans out there, nobody knows about this,” Doyle said. “When you apply for Vocational Rehabilitation and Employment services, they don’t talk about this in the initial briefing. If you don’t know about it, you’ll never hear about it.”

Doyle said his company received portions of the $97,000 in start-up help from the VA in July, almost a year after being approved. But, he said, for months the VA did not know which account to buy his supplies from.

“They don’t know who’s going to cut the check,” Doyle said a couple of months ago. “The VA has no idea how to access this money.”

He had received some of the supplies, he said, but did not know when or if the rest would arrive. It’s frustrating, Doyle said.

“I’ve been in the self-employment track for a year,” he said in June. “Every single night in Iraq, we wrote a check that was cashable to the enemy for our lives. So why can’t they just get me the check they’ve already promised me?”

— News21

News21 is 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. Rich was a News21 fellow this summer.