I agree, it's tricky. One of the main problems is the very limited list of companies in the defence industry.
Of course many VSOs will take jobs in the industry. They enjoy it, they're good at it and it's where their expertise lies.
If the Government, on behalf of the people, think there is too much risk of corruption, then the Government should be expected to pay extra to exclude these people from their chosen profession. Anything else is 'guilty until proven innocent'.
Personally, I think the solution is to trust them (after all, we trusted them with the defence of the nation), but have mandatory long prison terms if found guilty of fraud. I'd like to do the same with politicians. No one wants to spend their retirement being Bubba's New Best Friend in a prison shower.