Part four of a five-part series. To see the complete series, along with video, interactive graphics and documents, click here.

Billions of federal dollars were flowing to small businesses owned by service-disabled veterans, and a pair of construction contractors in St. Louis wanted a piece of it.

But Michael Woodling and Joseph Madlinger were not disabled veterans, so they couldn't qualify for the bidding preferences being offered by the federal government under the Service-Disabled, Veteran-Owned Small Business program.

To get around the restriction, they hatched a "rent-a-vet" scheme, according to federal court records. They convinced an acquaintance, who was a disabled veteran, James Browdy, to put his name on new shell corporation, which would bid on the contracts. The work, and most of the profits, would be passed on to Woodling's firm, Gateway Contractors.

As an added lock on the lucrative construction contracts, Woodling and Madlinger bribed another acquaintance, Russell Todd, who at the time was director of projects for the Department of Veterans Affairs Medical Center in St. Louis.

The pair loaned Todd thousands of dollars, interest free, and bought him tickets to luxury seats at Cardinals baseball games. They also courted him with free lunches and frequent visits to a "gentleman's club" in nearby Sauget, Ill.

Todd ultimately steered more than $3.4 million in VA contracts to Browdy's business between 2007 and 2010, which were passed on to Gateway.

Todd, Woodling and Madlinger pleaded guilty to fraud and bribery-related charges last year. Browdy was not prosecuted.

The case illustrates many of the weaknesses in the SDVOSB program that have been identified in numerous investigations by the Government Accountability Office and the VA inspector general.

Veterans preference fraud potentially costs taxpayers billions of dollars every year, but federal prosecutions are rare. Investigations by the VA IG, which has been the most aggressive in policing the program, have led to 16 convictions in recent years.

Investigations by the IG at the Small Business Administration, which checks complaints for non-VA agencies, have resulted in 10 convictions since 2006.

All but one of the SBA cases are also on the VA IG list, meaning both agencies were involved in the investigation. It's not known how many cases, if any, have been brought by other agencies.

VA alone has more than 4,500 certified SDVOSBs in its database. There is no government-wide registry, but GAO estimates there could be more than 13,000 firms likely to bid on set-aside and sole-source contracts in the near future using the preference.

Most federal agencies do not even check the credentials of those seeking SDVOSB status. They operate on a "self-certification" system that relies on those applying for the preference to tell the truth about themselves and their businesses.

"Clearly in the absence of any verification, even of the fact that a person is truly a service-disabled veteran, you are just asking for it," said James O'Neill, assistant inspector general for investigations at VA. "If you don't have to prove it, you are going to have more of that kind of fraud."

VA is the only agency that verifies service disability and corporate control for those seeking SDVOSB status, a requirement of a law passed in 2010.

But the heightened standards only apply to VA. Other federal agencies remain vulnerable to fraud because they still rely on self-certification, according to GAO.

Common scams are "pass-through" and "rent-a-vet " schemes, according to a 2011 report from the VA- G.

Rules governing SDVOSBs require the disabled veteran own and control the company doing the work, and restrict how much of the job can be subcontracted.

In a pass-through scheme, a larger company like Gateway conspires with a separate SDVOSB that exists solely to qualify for the federal preference. The real beneficiary is the larger firm that does most of the work and keeps most of the profits.

A 2009 GAO report found one California SDVOSB was used to secure more than $5 million in pass-through contracts for a company headquartered in Europe with almost $12 billion in annual revenue.

Gateway is not the only company caught using a rent-a-vet. In 2007, Arthur Singleton, who owned a Georgia construction company, duped a Vietnam veteran who was bedridden because of surgeries related to his combat injuries into creating an SDVOSB solely for the purpose of securing federal contracts.

Singleton used the scheme to get about $2.8 million in work from four federal agencies, including VA. He pleaded guilty to federal charges and was sentenced to two years in prison in June.

Help from insiders also has been identified in several cases cited by federal investigators.

Patricia Gheen, a top business officer at the VA Health Administration Center in Denver, was forced to retire last year after the VA IG determined she steered $2.9 million in contracts to a SDVOSB that employed her former boss at the agency. No charges were filed.

Another VA IG report issued last year noted that three agency officials had been identified in separate investigations as having provided "improper sole-source contracting" to former VA employees who formed or worked for SDVOSBs.

In the past, federal investigators had to aggressively "market" fraud cases to Justice Department prosecutors, O'Neill said. The attitude was that as long as the work got done, there was no loss to the government, even though the company that profited from the contracts did not qualify as a SDVOSB.

But in 2010 the law was changed to create a presumption that money paid under a SDVOSB contract to an unqualified firm represents a loss to the government.

Since then, it has been easier to convince federal prosecutors to pursue cases, said O'Neill, adding the VA IG currently has more than 100 open criminal investigations involving potential SDVOSB fraud.

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

Preventing fraud in the preference program aimed at helping small businesses owned by disabled veterans is finally a priority at the Department of Veterans Affairs.

It took several rewrites of the law and years of prodding by federal investigators. But VA is now verifying the qualifications of those claiming to be operators of Service-Disabled, Veteran-Owned Small Businesses.

Well, maybe VA is doing that.

Recent studies by the Government Accountability Office and the VA's inspector general question the agency's claims that it has rooted out hucksters who lie about their service records or control of businesses to win lucrative federal set-aside and sole-source contracts.

As recently as August 2012, GAO found VA's SDVOSB program "remains vulnerable to fraud and abuse" because agency officials could not give straight answers on how many firms had been verified under the rigorous standards passed by Congress in 2010.

Legitimately disabled veteran entrepreneurs are the real victims when fraud occurs, said Rep. Bill Johnson, R-Ohio, a retired Air Force officer who chaired a House Veterans Affairs subcommittee hearing on the issue last year.

They are the ones who miss out when unscrupulous competitors lie about their credentials to win the federal contracts, he said.

"To have someone intentionally misrepresent themselves as one of these great warriors and heroes in order to gain an advantage, that's about the tantamount of fraud that you can get," Johnson told the Washington Examiner.

VA awarded almost $3.4 billion last year to SDVOSBs under the law that requires agencies to ensure those firms get top priority when granting government contracts.

That is about 28 percent of all federal contracts given to businesses owned by individuals claiming to be veterans with service-connected disabilities, based on value.

But a 2011 investigation by the VA IG found three-quarters of the veteran-owned firms it reviewed did not qualify for the bidding preferences they received.

The IG estimated that unless VA did a more thorough job of screening applicants, it would award at least $500 million annually to ineligible companies.

Bidding preferences in place since 2003 allow federal agencies to reserve some contracts as "set-asides" for which only SDVOSBs can bid. Sole-source contracts are also permitted if only one SDVOSB can provide the product or service.

In 2006, a new law required VA to make SDVOSBs its top priority in awarding contracts. The 2006 law also required VA to at least check whether the listed owner of a firm seeking a preference was a service-disabled veteran. The new requirements applied only to VA.

But the 2006 verification procedures proved ineffective, little better than the "self-certification" that had been used previously by VA, and remains in place today at other federal agencies.

The law was changed again in 2010, requiring VA to do more thorough document checks of corporate and tax records, as well as to make site visits to ensure the disabled veterans listed as owners are actually who running day-to-day operations.

The new rules are effective if implemented correctly, according to both GAO and the VA IG. However, GAO reported last year that VA was slow to verify SDVOSB firms in its database under the enhanced procedures of the 2010 law.

GAO officials testified in August 2012 that of the 6,079 companies then listed in the VA database of SDVOSBs and veteran-owned businesses more than a third had only been checked under the loose standards of the 2006 law.

"The presence of firms that have only been subjected to the less-stringent process that VA previously used represents a continuing vulnerability," Richard Hillman of GAO told the House subcommittee chaired by Johnson.

Making matters worse, VA was unable to give a firm number of how many businesses had been checked under the newer standards. At one point, VA gave GAO seven different estimates of how many businesses had been re-verified under the 2010 rules, including two different figures in the same letter.

GAO concluded the shifting numbers indicated VA may not know how many firms had actually been verified.

VA officials told the Examiner in a written statement that all 5,918 veteran-owned and SDVOSBs now authorized to claim the bidding preference in agency contracts have been verified under the 2010 rules. Since late 2011, VA has overhauled its office that checks the qualifications of firms seeking SDVOSB status.

About 70 percent of the people working in the unit have backgrounds in auditing or as investigators in inspector general offices, according to VA. The unit also has six certified fraud examiners.

"VA acknowledges that there is no way to entirely eliminate fraud in any program, but believes that the steps taken have reduced VA's risk of awarding contracts to fraudulent companies," the VA statement said.

VA administrators declined to be interviewed for this series.

GAO and VA IG officials say they have not checked VA's verification procedures recently to determine whether all of the SDVOSBs doing business with the agency have been reviewed under the 2010 rules.

An IG spokeswoman said VA has yet to fully implement one of the two major recommendations from its 2011 audit of the SDVOSB program, which called for enhanced training of contracting officers.

Part two of a five-part series. To see the complete series, including videos, documents and interactive graphics, click here.

Lying won't get you banned from a federal program that gives preferential treatment in government contracting to companies owned by veterans with service-connected disabilities.

If one agency catches you misrepresenting your qualifications, you can simply move on to the next one, which is unlikely to check your history.

Chances are you will continue to qualify for lucrative contracts with little or no competition as the owner of a Service-Disabled, Veteran-Owned Small Business.

The agency that caught you cheating in the first place will probably let you finish the contracts you already have. It may even give you new ones if you make minor changes to your company's paperwork.

Being banned from the program is rare. Being prosecuted is even rarer. Of the thousands of small businesses that get preferred bidding status as an SDVOSB, only 15 have been barred from receiving federal contracts since 2008.

The Government Accountability Office, the investigative arm of Congress, and multiple agency inspectors general have warned at least a dozen times since 2009 that the lack of enforcement and consequences in SDVOSB contracting results in massive fraud.

That is potentially costing taxpayers billions of dollars in improper payments annually, while depriving legitimate veteran-owned businesses the program is intended to help.

"There are at times no consequences for firms that fraudulently misrepresent their status as SDVOSBs or otherwise abuse the current system," the GAO said in a series of reports, the most recent of which was issued in January 2013.

"Not only are firms not prosecuted, suspended, or debarred, but in many cases, because there is no requirement for agencies to terminate contracts awarded to ineligible firms, the firms are allowed to continue performing contracts, even when contract termination costs would be minimal. In addition, ineligible firms in some instances continue bidding on SDVOSB contracts without consequences," the GAO report said.

Little has changed since that first warning was issued four years ago, said Stephen Lord, director of audits and investigative services for GAO. Federal investigators continue to find companies that misrepresent their qualifications yet continue getting new set-aside and sole-source contracts from the federal government.

Part of the problem is agencies awarding the contracts do not take responsibility for preventing fraud throughout the SDVOSB program. The Department of Veterans Affairs is the only exception.

VA is required by law to verify the eligibility of firms seeking contract set-asides, and maintain a list of qualified firms. But VA only checks those companies seeking VA contracts.

Businesses can avoid the heightened scrutiny by claiming SDVOSB status and getting contracts from other federal agencies.

For instance, a 2012 Department of Defense IG investigation found six companies that received $11.5 million in SDVOSB contracts from the military after being denied certification by VA.

A 2009 GAO study identified 10 firms that improperly received about $100 million in federal contracts from various agencies by misrepresenting their qualifications as SDVOSBs.

Even after the GAO report was published, those businesses secured $100 million in new federal contracts, including $16 million they won using the SDVOSB preference.

Outside of VA, federal agencies allow businesses seeking contracts under the program to "self-certify." That means all an unscrupulous business owner has to do to qualify for the contract is claim in the paperwork to be a service-disabled veteran who owns and controls the company seeking the work.

The information is rarely checked unless a protest is filed with the Small Business Administration, the agency that is most responsible for running the program government-wide.

Unless there is a protest, neither the SBA, nor the agency issuing the contract will investigate the credentials of a firm claiming SDVOSB status. Agencies do not even check the names of business owners with VA to determine if they are disabled veterans.

There is no government-wide list of qualified SDVOSB vendors. Companies can bid on individual contracts, so there is no fixed number of SDVOSBs at any given time.

SBA makes no apologies for its failure to police the SDVOSB program. The law does not require the agency to do it, and Congress has not provided funding or people to do the work, said Kenneth Dodds, director of government contracting for SBA.

"A certification program takes a lot of resources, money, people," Dodds said. "We just haven't been given direct statutory direction to start a program to certify all firms before they participate."

GAO does not buy the argument, noting in its reports that SBA is authorized to develop anti-fraud controls and conduct its own reviews to ensure the integrity of the program.

"Anytime there are sums of money involved, you want to ensure they are spent as intended," Lord, of GAO, said. "So it's difficult to argue you should be absolved of all responsibility if you are the one responsible for managing the program."

It cost VA about $12 million to run its SDVOSB certification program in 2012, a year in which it issued $3.4 billion in contracts to eligible firms.