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Self-sufficiency' which was released on September 29, 2004.

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Report to Congressional Requesters:

August 2004:

SMALL BUSINESS:

The National Veterans Business Development Corporation Faces Challenges 
in Planning for and Achieving Financial Self-sufficiency:

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-893]: 

GAO Highlights:

Highlights of GAO-04-893, a report to congressional requesters

Why GAO Did This Study:

The National Veterans Business Development Corporation (The Veterans 
Corporation) was created under Pub. L. No. 106-50 to provide veterans 
with small business and entrepreneurship assistance. The Act 
authorized, and Congress has appropriated to the corporation, $12 
million in funding over 4 years, ending September 30, 2004. The Act 
also required that The Veterans Corporation implement a plan to raise 
private funds and become a self-sustaining corporation. GAO evaluated 
the corporation’s: (1) efforts in providing small business assistance 
to veterans; (2) internal controls, including strategic planning; and 
(3) progress in becoming financially self-sufficient.

What GAO Found:

Since GAO’s April 2003 report (GAO-03-434), The Veterans Corporation 
has continued to expand programs and refocus services in its efforts 
to provide small business assistance to veterans while achieving 
financial self-sufficiency. The centerpiece of The Veterans 
Corporation’s efforts remains its Veterans Entrepreneurial Training 
program, which offers classroom instruction to veterans on how to 
successfully start and expand their own businesses. It also has 
expanded or added several services primarily in the areas of finance, 
accounting, and contracting. However, The Veterans Corporation reported 
that it continues to face ongoing challenges to fulfilling its 
mission. These problems stem from its responsibility for the 
Professional Certification Advisory Board, difficulties in identifying 
the veteran-owned business population, and conflicting views about its 
legal status as a private versus public entity.

Additionally, The Veterans Corporation lacked important internal or 
operational controls. Specifically, its strategic plan and annual 
report to Congress lacked measurable goals and outcome-oriented 
measures. Without outcome-oriented measures, such as the number of new 
veteran-owned businesses or the amount of revenue generated for 
veteran-owned businesses, it was difficult to determine what the 
impact of the programs on veterans has been. In the same vein, without 
meaningful performance measures, The Veterans Corporation has been 
unable to provide Congress with significant data on its progress or 
the outcomes of its efforts.

Finally, The Veterans Corporation faces a number of challenges in 
achieving self-sufficiency. Dramatically lower-than-expected revenues 
have resulted in the corporation revising its currently estimated date 
for achieving self-sufficiency from fiscal year 2004 to fiscal year 
2009. Its self-sufficiency strategy is heavily dependent on its 
ability to develop a database of veteran-owned businesses and 
successfully marketing its services to these businesses. However, the 
plan did not discuss how The Veterans Corporation will identify this 
population or contain meaningful information on key assumptions 
underlying revenue projections. As such, it would be difficult for 
Congress and other stakeholders to judge the feasibility or 
reasonability of the corporation’s estimates and projections.

What GAO Recommends:

To help improve its management and external oversight, GAO recommends 
that the Chairman of the Board of Directors for The Veterans 
Corporation and its staff: (1) develop measurable, outcome-oriented 
goals and objectives that take into account the increasing 
availability of outcome data over time and (2) include in its annual 
report to Congress information and data relating to its progress in 
achieving financial self-sufficiency and the key assumptions underlying 
its self-sufficiency revenue projections. GAO obtained comments on a 
draft of this report from the corporation, which did not object to the 
recommendations, but provided further explanation on some of the 
issues.

www.gao.gov/cgi-bin/getrpt?GAO-04-893.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact William B. Shear at (202)
512-8678 or shearw@gao.gov

[End of section]

Contents:

Letter:

Background:

Results in Brief:

Veterans Corporation Has Continued to Add, Refocus, and Expand Programs 
and Services to Fulfill Its Mission:

Financial Statement Audit Identified No Internal Control Weaknesses, 
but Veterans Corporation Lacked Some Operational Controls:

The Veterans Corporation Relied on Federal Funds to Pay for Salaries 
and Services and Establish and Operate Programs:

Challenges to Achieving Financial Self-sufficiency Included Lack of 
Comprehensive Self-sufficiency Plan:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendixes:

Appendix I: Scope and Methodology:

Appendix II: Programs and Initiatives The Veterans Corporation 
Undertook in Response to Statutory Requirements:

Appendix III: Veterans Corporation's Revenue and Expenses for Fiscal 
Years 2002 and 2003:

Appendix IV: Comments from The Veterans Corporation:

Appendix V: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Staff Acknowledgments:

Tables:

Table 1: The Veterans Corporation's Schedule of Expenses for Fiscal 
Years Ending September 30, 2002, and 2003:

Table 2: Veterans Corporation's Schedule of Appropriations for Fiscal 
Years Ending September 30, 2002, and 2003:

Table 3: Veteran Corporation's Schedule of Revenue for Fiscal Years 
Ending September 30, 2002, and 2003:

Table 4: Veterans Corporation's Schedule of Contributions Receivable As 
of September 30, 2003:

Table 5: Veteran Corporation's Federally Funded Expenses by Function 
for Fiscal Years Ending September 30, 2002, and 2003:

Figures:

Figure 1: Status of The Veterans Corporation's Key Initiatives, as of 
June 2004:

Figure 2: Differences between the Business Directory and Vendor 
Information Pages:

Figure 3: The Veterans Corporation's Federally Funded Expenses by 
Function for Fiscal Years Ending September 30, 2002, and 2003:

Figure 4: Sources of Income from Fund-raising and Other Activities for 
Fiscal Year Ending September 30, 2003:

Figure 5: Projected Self-sufficiency Revenue in Fiscal Year 2009:

Abbreviations: 

CBO: community-based organization:

CCR: Central Contractor Registration:

CEO: Chief Executive Officer:

CVE: Center for Veterans Enterprise:

DOD: Department of Defense:

DOJ: Department of Justice:

DOL: Department of Labor:

DOT: Department of Transportation:

OLC: Office of Legal Counsel:

OMB: Office of Management and Budget:

OPM: Office of Personnel Management:

OVBD: Office of Veterans Business Development:

PCAB: Professional Certification Advisory Board:

PRO-Net: Procurement Marketing and Access Network:

SBA: Small Business Administration:

SSA: Social Security Administration:

VA: Department of Veterans Affairs:

VET: Veterans Entrepreneurial Training:

Letter August 30, 2004:

Congressional Requesters:

Each year approximately 200,000 military service personnel transition 
to civilian life. Some of these veterans will choose to start or expand 
a small business. To help them, Congress enacted the Veterans 
Entrepreneurship and Small Business Development Act of 1999 (Act), 
which created the National Veterans Business Development Corporation 
(The Veterans Corporation)--a federally chartered corporation--to 
provide veterans with small business and entrepreneurship 
assistance.[Footnote 1] The Act, as amended, requires that The Veterans 
Corporation use public and private resources to assist veterans, 
including service-disabled veterans, with the formation and expansion 
of small businesses. It authorized $12 million in federal funds for 
fiscal years 2001-2004 and required that The Veterans Corporation 
implement a plan to raise private funds and become financially self-
sufficient.

Because The Veterans Corporation is in the last year of federal funding 
authorized by the Act, you asked us to provide an update to our April 
2003 report on The Veterans Corporation.[Footnote 2] After consultation 
with your staff of the House and Senate Committees on Small Business 
and Veterans' Affairs, we confirmed that this report would evaluate The 
Veterans Corporation's (1) efforts in providing small business 
assistance to veterans; (2) internal controls, including strategic 
planning; (3) use of federal funds; and (4) progress in becoming 
financially self-sufficient.[Footnote 3]

To address these objectives, we obtained and reviewed program 
information and corporate documents provided by The Veterans 
Corporation, including its income projections, expense data, and fiscal 
year 2003 audited financial statements. We also interviewed officials 
from the staff and board of The Veterans Corporation, as well as 
officials from federal agencies, partnering organizations, veteran 
service organizations, and The Veterans Corporation's external 
auditors. Please see appendix I for a more complete description of our 
scope and methodology.

We conducted our work in Washington, D.C; San Francisco, California; 
and Alexandria, Virginia; from December 2003 through July 2004 in 
accordance with generally accepted government auditing standards.

Background:

In the Veterans Entrepreneurship and Small Business Development Act of 
1999, as amended, Congress established various programmatic 
requirements for The Veterans Corporation to address perceived 
shortfalls in federally provided services for veterans. For example, 
The Veterans Corporation is to (1) expand the provision of and improve 
access to technical assistance regarding entrepreneurship; (2) assist 
veterans with the formation and expansion of small businesses by 
working with and organizing public and private resources; (3) establish 
and maintain a network of information and assistance centers for use by 
veterans; (4) establish a Professional Certification Advisory Board 
(PCAB) to create uniform guidelines and standards for the professional 
certification of members of the armed services;[Footnote 4] and (5) 
assume the duties, responsibilities, and authority of the Advisory 
Committee on Veterans Business Affairs, a body created by the Act, by 
October 1, 2004.[Footnote 5]

The Veterans Corporation is a nonprofit corporation chartered in the 
District of Columbia and according to its enabling legislation has 
authority to solicit, receive, and disburse funds from private, 
federal, state, and local organizations. To fund The Veterans 
Corporation, Congress authorized $12 million in federal appropriations 
over 4 fiscal years--$4 million in each of the first 2 years and $2 
million in each of the following 2 years--with the expectation that The 
Veterans Corporation would become financially self-sufficient. The 
Veterans Corporation received its first appropriation in March 2001.

The Act also contains a matching funds provision, applicable to fiscal 
years 2002 through 2004, that limits the availability of appropriated 
funds to amounts The Veterans Corporation certifies it will provide 
from sources other than the federal government.[Footnote 6] For fiscal 
year 2002, the amount of appropriated funds made available to The 
Veterans Corporation was limited to not more than twice the amount the 
corporation certified it would provide for that fiscal year from 
sources other than the federal government. In effect, The Veterans 
Corporation received $2 in federal appropriations for every $1 it 
raised from nonfederal sources. For the remaining 2 fiscal years, the 
matching requirement was on a dollar-for-dollar basis.

Results in Brief:

Since our last report, The Veterans Corporation has continued to add, 
refocus, and expand its programs and services to meet its mission of 
providing small business assistance to veterans while achieving self-
sufficiency. The centerpiece of The Veterans Corporation's efforts has 
remained its Veterans Entrepreneurial Training (VET) program, which 
offers classroom instruction to veterans on how to successfully start 
and grow their own businesses. Additionally, The Veterans Corporation 
generally offered services to veterans that complemented rather than 
duplicated federal programs at agencies such as the Department of 
Veterans Affairs (VA) and Small Business Administration (SBA). The 
Veterans Corporation's programs were either targeted specifically to 
veterans or not offered elsewhere. For example, although SBA provides 
loan guarantees for small business owners including veterans, veterans 
generally do not receive discounts from lenders when qualifying for 
financing. In contrast, The Veterans Corporation works with a private 
lender to provide veterans with a discount on the lender's normal loan 
rates and assists veterans with obtaining SBA loan guarantees. 
According to a Veterans Corporation official, collaboration with 
federal agencies that serve veterans has improved as evidenced by the 
mutually beneficial ventures it has undertaken with these agencies. 
However, we did identify one program offered by The Veterans 
Corporation--its Business Directory, an online database of veteran-
owned businesses--that appeared to be duplicative with the Vendor 
Information Pages run by VA's Center for Veterans Enterprise (CVE). The 
Veterans Corporation continues to face challenges discussed in our last 
report that have hindered its progress in fulfilling mandates such as 
making the PCAB operational, identifying the veteran-owned business 
population, and addressing concerns regarding its legal status as a 
private versus public entity.

The Veterans Corporation financial statement audit identified no 
material internal control weaknesses, but we found that the 
organization lacked some important operational controls. The Veterans 
Corporation's external auditor and GAO identified some financial 
reporting control issues. For example, the auditor found that The 
Veterans Corporation did not consistently enforce its expense 
reimbursement policy, and we identified duplicate payments to a vendor 
totaling approximately $12,000. According to officials at The Veterans 
Corporation, they have taken corrective actions to address the 
financial reporting control deficiencies identified by both the 
external auditor and GAO. However, The Veterans Corporation lacked some 
important operational controls for its planning and report processes. 
In particular, The Veterans Corporation's strategic plan and annual 
report, which are the principal documents the organization uses for 
both planning and reporting on its programs, lacked measurable and 
outcome-oriented performance measures. As a result, it was difficult to 
determine if goals and objectives were achieved. Also, without outcome-
oriented measures such as the amount of revenue generated for veteran-
owned businesses, it was difficult to determine what the impact of the 
programs on veterans has been. In the same vein, without meaningful 
performance measures, The Veterans Corporation has been unable to 
provide Congress, through its annual report, with significant data on 
its progress or the outcomes of its efforts.

During fiscal year 2003, The Veterans Corporation used its federal 
funds primarily on salaries and professional services. More 
specifically, of the $3.3 million of federal appropriations used in 
fiscal year 2003, the organization spent $1.9 million (about 58 
percent) on salaries and professional services, which included payments 
for activities such as fund-raising, public relations, and legal 
services. Executive-level salaries were lower in fiscal year 2003 than 
in the prior year and were projected to decline further in fiscal year 
2004. In fiscal year 2003, The Veterans Corporation spent about 
$652,000 for professional services, of which about $208,000 went to a 
fund-raising consultant. The Veterans Corporation spent its remaining 
federal appropriations primarily on programs for veterans such as the 
VET and the Veterans Marketplace, an online service that allows 
veteran-owned businesses to sell goods and services over the Internet. 
Specifically, fiscal year 2003 expenses for the VET program totaled 
about $551,000. Although the fees that enrolled veterans paid for 
taking VET courses covered a portion of the program costs, The Veterans 
Corporation absorbed the bulk of the expenses including about $217,000 
related to vouchers for the purchase of a computer or other business 
tools provided to each veteran that completed a VET course. Finally, 
during fiscal year 2003, revenue from nonfederal sources declined and 
federal appropriations accounted for about 78 percent of The Veterans 
Corporation's total revenues in fiscal year 2003.

The Veterans Corporation continues to face significant challenges in 
its efforts to become financially self-sufficient--the point at which 
its program revenues exceed expenditures. Its self-sufficiency plan was 
based on three major sources of revenue: (1) the Veterans Marketplace, 
an online purchase program for goods and services offered by veteran-
owned businesses; (2) affinity programs including credit cards, loans, 
and insurance targeted to veteran-owned small businesses;[Footnote 7] 
and (3) other cash sources such as fund-raising. However, the 
organization's self-sufficiency plan was not comprehensive in that it 
did not contain meaningful information on key assumptions underlying 
the revenue projections from these sources. As a result of lower-than-
projected program revenues, The Veterans Corporation has revised its 
estimated date for achieving financial self-sufficiency from fiscal 
year 2004 to fiscal year 2009. The revised goal was based on receiving 
an additional $2 million in federal appropriations in fiscal year 2005 
to help maintain its current programs and activities. Moreover, The 
Veterans Corporation's strategy for achieving self-sufficiency is 
heavily dependent on its ability to develop a comprehensive database of 
veteran-owned businesses and market its services successfully to these 
businesses. However, the organization faces several challenges in 
developing such a database and successfully marketing its services. In 
our previous report, we noted that The Veterans Corporation had 
difficulty in identifying the veteran-owned business population through 
federal data sources. To address this challenge, The Veterans 
Corporation is working on a pilot effort with a direct marketing firm 
to identify veteran-owned businesses from private data sources. A 
Veterans Corporation official explained that the business model the 
organization adopted requires it to identify at least 250,000 veteran-
owned businesses to which it could direct marketing efforts in order to 
generate sufficient revenues (commissions) to support its self-
sufficiency plan. As of June 30, 2004, The Veterans Corporation had 
about 12,000 veteran-owned and potential veteran businesses in its 
database. The Veterans Corporation also has had difficulty in meeting 
its fund-raising goals, which may also affect its ability to finance 
its marketing efforts. The organization was able to meet the mandated 
dollar-for-dollar matching requirement in fiscal year 2003 by applying 
excess matching funds generated in the prior fiscal year to the $1 
million generated in fiscal year 2003. However, it is questionable 
whether it will be able to meet its fiscal year 2004 matching 
requirement based on the approximately $296,000 it has been able to 
generate as of June 30, 2004.

We make three recommendations in this report. Two recommendations are 
to improve strategic planning and reporting and provide a comprehensive 
self-sufficiency plan. These recommendations are intended to facilitate 
The Veterans Corporation's management of its program efforts and 
congressional oversight. We also recommend a reduction in certain 
program expenses.

We obtained written comments on a draft of this report from the 
President and Chief Executive Officer of The Veterans Corporation. 
These comments are discussed near the end of this report, and The 
Veterans Corporation's letter is reprinted in appendix IV. While The 
Veterans Corporation had no objections to our recommendations, it 
offered information that it believed would explain, clarify, or correct 
points made in the draft report related to strategic planning and 
financial self-sufficiency. With respect to strategic planning, The 
Veterans Corporation stated that (1) it has not been in business long 
enough to determine the benefits of its programs and (2) the strategic 
goals set by the board should not be outcome-specific, as the goals 
provided a general framework for the corporation. In response to the 
first point, although many of its programs are still getting under way, 
we believe it is useful to identify and articulate specific metrics as 
an operational control to evaluate the benefits The Veterans 
Corporation provides to veterans. Second, we believe that outcome-
oriented metrics are needed somewhere in the strategic plan, whether 
developed by the board or not. With respect to financial self-
sufficiency, The Veterans Corporation stated that its strategy was 
sound and that sound execution of its plan would result in achieving 
its self-sufficiency goal. Our analysis focused on the current state of 
federal funding and The Veterans Corporation's self-sufficiency 
projections, and we concluded that there is a reasonable amount of 
uncertainty regarding The Veterans Corporation's attainment of self-
sufficiency.

Veterans Corporation Has Continued to Add, Refocus, and Expand Programs 
and Services to Fulfill Its Mission:

The Veterans Corporation has continued to add, refocus, and expand its 
programs and services to veterans to better respond to its 
entrepreneurial assistance and training mandates under the Act. The VET 
program has remained, however, at the center of the organization's 
business assistance and training efforts. Additionally, The Veterans 
Corporation's services generally complemented federal programs in that 
they were either targeted specifically to veterans or not offered 
elsewhere. Although in one instance, the efforts of The Veterans 
Corporation and VA to create separate veterans business directories 
appeared to be largely duplicative. According to an official at The 
Veterans Corporation, collaboration with federal agencies has improved 
as evidenced by the mutually beneficial ventures it has undertaken with 
these agencies. However, The Veterans Corporation faces several 
challenges, described in our previous report, that still impede its 
progress in fulfilling other mandates under the Act. They include lack 
of staff and funding for the PCAB and the question of whether the PCAB 
mission can be accommodated within The Veterans Corporation, 
identification of veteran-owned businesses, and how to address its 
legal status concerns.

The Veterans Corporation Has Continued to Add, Refocus, and Expand 
Programs, but VET Program Has Remained the Focus of Its Services:

At the time of our last report, many of The Veterans Corporation 
entrepreneurial services, such as a microloan program, business 
insurance, and online buying and selling of veteran-owned goods and 
services, had started. Since then, The Veterans Corporation has 
expanded or added several services primarily in the areas of finance, 
accounting, and contracting-related opportunities:

* Veterans Marketplace. The Veterans Corporation has pilot efforts 
under way to allow veterans to sell goods and services online to a VA 
hospital and a school district. Also, since our last report, The 
Veterans Corporation has expanded this program to include a separate 
trading directory in which veteran-owned businesses can be listed as 
suppliers within a private business directory. The directory is managed 
by The Veterans Corporation's partnering organization, Perfect 
Commerce.

* Veterans Small Business Finance Program. The Veterans Corporation has 
partnered with Newtek Small Business Finance, Inc., a provider of loans 
and other financing options to small businesses throughout the United 
States.[Footnote 8] Newtek provides loans (ranging from $50,000 to $2 
million) at discounted rates from the lender's normal loan rates and 
assists in making SBA loan guarantees available to qualified veteran 
businesses nationwide.[Footnote 9] Loan applications are completed 
electronically through The Veterans Corporation's Web site. As of June 
30, 2004, The Veterans Corporation helped create 473 applications and 9 
SBA-approved loans.

* Accounting and Tax Services. The Veterans Corporation is partnering 
with Newtek Business Services, Inc., to offer services such as bill 
payment, periodic financial statements and reports, and tax filing and 
planning services for veteran-owned small businesses at a discount.

* Merchant Processing Services. In partnership with Newtek Merchant 
Solutions, The Veterans Corporation is offering credit card and debit 
card processing and check verification for veteran-owned small 
businesses.

* Veterans Corporation Business Directory. In May 2003, The Veterans 
Corporation created this directory with assistance from SBA to help 
veteran-owned businesses and businesses owned by Army Reserve and 
National Guard service members advertise their services. The directory 
contains information such as company profiles and is available on the 
Internet to anyone interested in working with veteran-owned businesses. 
The directory listed approximately 2,668 businesses as of June 30, 
2004.

* Veterans Pipeline. In partnership with ePipeline, this subscription 
service targets veteran small business owners interested in federal or 
state contracting opportunities.[Footnote 10] Veteran subscribers may 
access research on more than 7,000 contracting opportunities, including 
information on who received prior awards and subcontracts.

* Veterans Purchase Net. The Veterans Corporation put in place a bid-
and-response system for buyers and sellers of products or services in 
partnership with Diversity Vendors, Inc.[Footnote 11] The sellers 
receive nightly e-mails related to contracting opportunities; the 
sellers can then submit bids to compete for these contracts. This is a 
subscription service for veteran-owned small businesses.

While The Veterans Corporation has expanded and added programs, the VET 
program has continued to be the focal point of its efforts. As 
mentioned in our earlier report, the program is a partnership with the 
Ewing Marion Kauffman Foundation's FastTrac Program, a successful 
entrepreneurship-training program. The VET program incorporates 
classroom instruction, mentoring, networking, and technology training. 
Officials at The Veterans Corporation told us that the VET program was 
their most successful effort to date. Since our last report, The 
Veterans Corporation has expanded the number of class sites and 
locations for its three VET courses: (1) The New Venture, which focuses 
on starting a business; (2) The Planning Program, which focuses on 
expanding a business; and (3) Listening to Your Business, a seminar 
which focuses on assessing the health and market share of an existing 
business. In fiscal year 2003, The Veterans Corporation hosted 33 
courses in eight states; 506 veterans participated in the program. Of 
the 506 participants, 458 graduated in fiscal year 2003, which included 
77 veterans that graduated from VET courses held at local SBA-sponsored 
Small Business Development Centers. These centers provide one-stop 
management and technical assistance to individuals and small businesses 
at locations such as colleges and universities.

Additionally, some programs and services were still evolving to better 
address Veterans Corporation mandates. For example, the organization 
has refocused the Veterans Business Success Seminars, mentioned in our 
previous report, to use community-based organizations (CBO), to help 
veterans with training and services not currently available to veteran 
entrepreneurs. A Veterans Corporation official stated that this new 
strategy more consistently meets the mandate to establish and maintain 
a network of information and assistance centers that veterans and the 
public can use.

However, the refocused program, now called the National Veterans 
Community-Based Organization Initiative, was still in its early stages. 
An official at The Veterans Corporation stated that the purpose of the 
program is to direct veterans to existing local service providers that 
offer assistance to small businesses and identify and address gaps in 
service. For example, The Veterans Corporation initially funded two 
CBOs, the Veteran Advocacy Foundation in St. Louis, Missouri, and the 
American Veterans Coalition in San Francisco, California, to survey the 
extent of entrepreneurial services to veterans in their 
communities.[Footnote 12] After completing its survey, the St. Louis 
CBO also received additional funding to implement its plan to enhance 
entrepreneurial opportunities for veterans. A third CBO, Robert Morris 
University in Pittsburgh, Pennsylvania, was also funded to survey the 
availability of local business services to veterans in its community.

According to officials at The Veterans Corporation, they were also 
developing another program intended to address their mandate to 
organize public and private resources to assist veterans with the 
formation and expansion of small businesses. Officials first met to 
discuss the new program, the National Veterans Entrepreneurial 
Education Initiative, in April 2004. The intent of this effort is to 
leverage resources from the private and public sectors to coordinate 
and focus (at a national level) entrepreneurial education and 
educational assistance. The initial participants included, but were not 
limited to, VA, SBA, and Small Business Development Centers. The 
Veterans Corporation board chair explained that besides education, 
other elements of this initiative might include mentoring, counseling, 
and early-stage and advanced small business training. At the time of 
our review, The Veterans Corporation was developing a detailed concept 
paper on this initiative.

Figure 1 shows the status of key initiatives that The Veterans 
Corporation has undertaken. Additionally, appendix II lists activities 
that address statutory requirements under the Act (Pub. L. No. 106-50).

Figure 1: Status of The Veterans Corporation's Key Initiatives, as of 
June 2004:

[See PDF for image]

[End of figure]

Veterans Corporation Services Generally Complemented Federal Efforts:

The services offered by The Veterans Corporation generally complemented 
services offered by federal agencies, including VA and SBA. As noted in 
our previous report, Veterans Corporation officials said that they have 
been careful not to duplicate existing services. Most of The Veterans 
Corporation's programs were intended to fill gaps in federal services 
by offering services that were either targeted specifically to veterans 
or unavailable elsewhere. For example, the VET program provides small 
business training to veterans. Although such training is widely 
available in both the public and private sectors, The Veterans 
Corporation's program is unique because it limits enrollment to 
veterans and their spouses, subsidizes course fees for veterans, and 
tailors curricula to the needs and experiences of veterans. The 
Veterans Corporation's small business finance program is another 
program that complements existing federal programs and efforts. While 
SBA provides loan guarantees for many small business owners, including 
veterans, veterans generally receive no discounts from their lenders 
when qualifying for this financing. In contrast, The Veterans 
Corporation collaborates with a private lender to obtain reduced loan 
rates for veterans on SBA-guaranteed loans. We were unable to identify 
any other loan program specifically targeting veterans in this manner.

We also identified several instances of collaboration between The 
Veterans Corporation and federal agencies that serve veterans. 
Although, as indicated in our previous report, such collaboration was 
limited, an official at The Veterans Corporation explained that 
collaboration has improved since then to include mutually beneficial 
ventures with federal agencies that also provides veteran 
entrepreneurial services. For example, SBA's Office of Veterans 
Business Development (OVBD) provided The Veterans Corporation with 
support for the VET and CBO programs, including assistance with program 
design and a $45,000 grant to help initiate the VET program in three 
pilot locations. These activities support the missions of both The 
Veterans Corporation and OVBD to assist veterans. Furthermore, The 
Veterans Corporation entered into an agreement with SBA's OVBD and a 
Florida Small Business Development Center to provide resources in 
exchange for the opportunity to promote its services to veterans that 
complete the course. The Veterans Corporation was also collaborating 
with CVE to link their online veteran-owned business directories. Thus, 
veterans who register for one directory would access the registration 
page of the other directory by clicking a single button.

While the work of The Veterans Corporation generally has complemented 
the work of federal agencies, based on our analysis it appeared that 
there was substantial duplication between The Veterans Corporation's 
online Business Directory and CVE's online business directory, the 
Vendor Information Pages. The directories both (1) aid federal and 
private-sector purchasing agents by identifying the goods and services 
offered by veteran-owned and service-disabled veteran-owned 
businesses; (2) are of similar size, were developed from similar 
information sources, and employ similar methods to identify and 
register veteran-owned businesses on their sites; and (3) actively seek 
the agreement of purchasing agents or prime contractors to use the 
directory before using any other source of information about veteran-
owned businesses.

While officials from The Veterans Corporation and VA acknowledged that 
their directories were similar, they did not believe they were in 
competition. According to these officials, some differences exist 
between the two directories, including different registration 
requirements and different emphases on public versus private 
purchasing. Differences we identified are listed in figure 2.

Figure 2: Differences between the Business Directory and Vendor 
Information Pages:

[See PDF for image]

[End of figure]

Additionally, each agency had a different motivation for creating its 
directory. CVE built its database to fulfill a mandate to provide 
federal agencies with information about service-disabled veteran-owned 
small businesses.[Footnote 13] The Veterans Corporation's primary 
motive was to provide a service that would attract veteran 
entrepreneurs to whom The Veterans Corporation could later market its 
products and services. Neither agency believes that its databases could 
be merged because The Veterans Corporation markets its services to its 
database members, and CVE is prohibited from releasing information for 
this purpose. As mentioned previously, The Veterans Corporation and CVE 
have links on both their Web sites to encourage veterans to sign up for 
both databases.

Continuing Challenges Have Slowed Progress of The Veterans 
Corporation's Programs and Initiatives:

In our earlier report, we noted several challenges that hindered The 
Veterans Corporation from fulfilling its mandates under the Act. They 
included achieving the complex goals derived from the PCAB's mission, 
identifying the veteran-owned business population, and clarifying the 
unclear legal status of The Veterans Corporation. According to Veterans 
Corporation officials, the organization still faces these challenges.

PCAB Has Plans to Recommend That Another Federal Agency Assume Its 
Responsibilities:

In our earlier report, The Veterans Corporation officials expressed 
their opinion that the PCAB would be more appropriately led by another 
entity and that The Veterans Corporation had not been provided the 
funding or authority to achieve the PCAB mandates. During our review, 
The Veterans Corporation officials reiterated these same concerns. The 
PCAB chair pointed out that the mandate to address certification and 
licensing guidelines and barriers did not directly relate to The 
Veterans Corporation's core mission to assist veterans with 
entrepreneurship activities. The PCAB chair also questioned the board's 
ability to carry out mandated activities without a paid professional 
staff. PCAB members serve on a volunteer basis with no operating 
budget.

In response to these concerns, the PCAB drafted an issue paper that 
provides an overview and assessment of licensure and certification 
resources, organizations, and tools available to assist active-duty and 
transitioning military personnel seeking employment. Moreover, the 
paper provides recommendations to The Veterans Corporation's board of 
directors, requesting that Congress eliminate its requirement to create 
uniform guidelines and standards for the professional certification of 
armed services members and expand an existing Army certification and 
licensing effort to the entire Department of Defense (DOD). According 
to the PCAB chair, the PCAB mission would better fit with the missions 
of DOL or DOD because these two departments have been involved in 
licensing and certification issues. Moreover, the two departments 
signed a memorandum of understanding in July 2003 that included a 
provision to promote cooperative efforts relating to licensing and 
certification issues.

Lack of Comprehensive Information on Veteran-Owned Businesses Has Been 
a Major Obstacle:

We noted in our earlier report that The Veterans Corporation 
experienced difficulties in obtaining information from government 
sources on military personnel transitioning to civilian life and 
existing veteran-owned businesses because of privacy law restrictions. 
As a result, as of June 30, 2004, The Veterans Corporation identified 
approximately 12,000 veteran-owned and potential veteran businesses, 
primarily through its Web site or Business Directory registrations. 
According to Veterans Corporation officials, they would need to 
identify about 250,000-300,000 veteran business owners to effectively 
carry out its mission of providing services and achieving self-
sufficiency. One of the officials explained that the industry guidance 
related to its business model (marketing to an affinity group) 
suggested that at least 250,000 names would be needed to generate 
desired revenue from commissions based on sales volume. Specifically, 
based on this model, The Veterans Corporation could expect to generate 
between $10-$20 for each affinity member--money that would help it 
achieve its self-sufficiency goals. (We discuss efforts to achieve 
self-sufficiency in more detail later in this report.)

The officials with whom we spoke explained that they have not been able 
to mount a comprehensive, targeted effort to identify this population. 
Other efforts to identify veteran-owned businesses have all had limited 
success. According to these officials, they have tried to identify 
veterans through (1) advertising in journals aimed at veterans, (2) 
issuing press releases in newspapers, (3) making public service 
announcements on television and radio, (4) undertaking speaking 
engagements at trade associations, (5) participating at government-
sponsored small business fairs, and (6) communicating with veterans 
through The Veterans Corporation's Web site and its VET program. 
Additionally, The Veterans Corporation has acquired some information 
through two other databases, SBA's Procurement Marketing and Access 
Network (PRO-Net) and DOD's Central Contractor Registration (CCR) 
database.[Footnote 14] In June 2004, The Veterans Corporation began a 
marketing effort to identify the veteran-owned business population. It 
is using a direct marketing firm to reach this population through e-
mail, telemarketing, and direct mail. A Veterans Corporation official 
stated that its initial marketing effort indicated that direct mail was 
the most effective way of obtaining new members. The Veterans 
Corporation plans to meet with the direct marketing firm in September 
2004 to discuss additional work.

Legal Status of The Veterans Corporation Has Continued to Affect Its 
Operations:

During our work on our last report, officials at The Veterans 
Corporation indicated that questions about the legal status of The 
Veterans Corporation as either a public agency or private corporation 
had, at times, complicated organizational and program development 
efforts. An official at The Veterans Corporation expressed concerns 
that if The Veterans Corporation were a federal agency, its ability to 
raise private funds and become self-sustaining, as contemplated in the 
Act, would be compromised. On the other hand, according to The Veterans 
Corporation official, federal agencies such as DOD and DOL had not been 
willing to share nonpublic information and resources (that they could 
share with other federal agencies) because of concerns that The 
Veterans Corporation was a private entity. As we discussed in our last 
report, The Veterans Corporation received conflicting opinions from the 
Office of Personnel Management (OPM) and private law firms, with OPM 
concluding that the corporation is a government-controlled corporation 
subject to most provisions of Title 5 of the United States Code, and 
the law firms concluding that the corporation is not a government-
controlled corporation or executive agency for purposes of certain laws 
applicable to federal agencies, including provisions of Title 5 and the 
Federal Acquisition Regulations.[Footnote 15]

In March 2004, the Department of Justice's Office of Legal Counsel 
(OLC) issued a memorandum in response to an Office of Management and 
Budget (OMB) request to further clarify The Veterans Corporation's 
legal status. The OLC opinion concluded that The Veterans Corporation 
is a "government corporation" under 5 U.S.C. § 103 (2000) and an 
"agency" under 31 U.S.C. § 9102 (2000). According to officials of The 
Veterans Corporation, based on the OLC opinion, OMB has advised The 
Veterans Corporation that it must comply with laws, regulations, and 
guidance applicable to executive branch agencies. The Veterans 
Corporation officials observed that this would mean, among other 
things, compliance with OPM personnel reporting and other personnel-
related requirements, as well as budget and accounting requirements.

Financial Statement Audit Identified No Internal Control Weaknesses, 
but Veterans Corporation Lacked Some Operational Controls:

Although the external audit did not identify material weaknesses in The 
Veterans Corporation's internal controls, The Veterans Corporation 
lacked some key operational controls.[Footnote 16] Specifically, based 
on its fiscal year 2003 external audit, The Veterans Corporation did 
have internal control deficiencies over financial reporting; however, 
its external auditor determined that these were not material 
weaknesses. According to Veterans Corporation officials, the 
corporation implemented corrective actions for the issues the external 
auditor identified and also implemented controls to prevent duplicate 
payments identified by GAO. Additionally, The Veterans Corporation has 
implemented various controls over its obligation and expenditure 
payment processes, including limits on the ability of management 
officials to make check disbursements without board of director 
approval. However, The Veterans Corporation lacked some important 
operational controls for its planning and reporting processes. More 
specifically, although The Veterans Corporation adopted some strategic 
planning best practices, it did not use others. For instance, the 
strategic plan generally did not contain outcome-oriented or measurable 
goals and objectives, which prevented The Veterans Corporation from 
assessing the effectiveness of its program and services. Additionally, 
without meaningful performance measures, The Veterans Corporation has 
been unable to provide Congress, through its annual report, with an 
assessment of its progress or outcomes of its efforts.

Veterans Corporation Has Addressed Identified Financial Control 
Weaknesses:

According to its external auditor, The Veterans Corporation's had 
internal control issues that could have adversely affected its ability 
to administer a major federal program in accordance with applicable 
laws, regulations, contracts, and grants.[Footnote 17] Specifically, 
the external auditor found in its fiscal year 2003 audit that The 
Veterans Corporation did not consistently enforce its expense 
reimbursement policy. The external auditor classified the internal 
control matter as a reportable condition and did not identify any 
instances of material weaknesses.[Footnote 18] This reportable 
condition was detailed in a letter to management.[Footnote 19] 
According to Veterans Corporation officials, they have addressed the 
reported deficiencies.

In our review of The Veterans Corporation fiscal year 2003 
expenditures, we found that The Veterans Corporation made two duplicate 
payments--one payment in the amount of $3,142 and the other in the 
amount of $8,976 to the same vendor. The amounts were not material to 
the financial statements. According to The Veterans Corporation 
officials, The Veterans Corporation has taken steps to prevent future 
duplicate payments and pursued reimbursement from the vendor.

Board of Directors Revised Disbursement Authorities while Board Chair 
Took More Active Role in Veterans Corporation Operations:

According to The Veterans Corporation officials, in May 2003, the board 
of directors significantly restructured its operations, 
responsibilities, and procedures and those of its committees. The board 
has primary responsibility for the governance of The Veterans 
Corporation and exercises that governance, both directly and 
indirectly, through delegation of authority to the chief executive 
officer (CEO). To accomplish the restructuring, the board passed a 
series of resolutions, which transferred many of the previous 
authorities vested in the executive committee to the full 
board.[Footnote 20] Among other things, the board amended the CEO's 
expense authority based upon a recommendation from the executive 
committee. Specifically, it authorized the CEO to sign all contracts or 
expenditures that relate to strategies and business initiatives 
previously discussed with and approved by the board or executive 
committee up to and including $100,000. However, the board retained 
authority to approve new expenditures in excess of $25,000. As we 
previously reported, the board first established disbursement 
authorities for executive-level staff in March 2001, but from March 
2001 to April 2003, the executive committee was responsible for making 
time-sensitive decisions on behalf of the board between quarterly board 
meetings.[Footnote 21] Additionally, as stated in our previous report, 
the board resolved that checks written in amounts of $5,000 or less 
require one authorized signature; those in excess of $5,000 require two 
authorized signatures. Moreover, both the CEO and the senior vice 
president were authorized to sign checks.

Since the restructuring, the board chair has taken a more active role 
in the operations of The Veterans Corporation. While day-to-day 
management is the responsibility of the CEO and management, the board 
chair meets weekly with the CEO to discuss the corporation's 
activities. Additionally, the board reviews monthly activity reports 
and quarterly financial data such as income statements and balance 
sheets.

Strategic Plan Lacked Key Operational Controls--Measurable and Outcome-
Oriented Goals and Objectives:

We identified weaknesses in The Veterans Corporation's planning and 
reporting processes that primarily resulted from a lack of measurable, 
outcome-oriented performance measures. The Veterans Corporation relied 
on its strategic plan, an important operational control, for both 
planning and reporting on its programs. It prepared a 5-year strategic 
plan, which outlined the corporate mission, goals, and priorities; and 
an annual business plan, which contained more detailed objectives and 
action plans for each division within the organization. Additionally, 
as required by the Act, The Veterans Corporation submitted an annual 
report to Congress, which was based on its strategic plan. Staff 
members also prepared periodic reports for the board of directors and a 
public annual report.

We evaluated The Veterans Corporation's planning and reporting 
processes according to best practices identified by government and 
nonprofit strategic planning literature and experts, including the 
following:

* The mission statement should identify what makes the organization 
unique and define the outcomes of its activities.

* Goals should be aligned with the mission statement, as well as with 
strategies for achieving goals.

* Goals and objectives should be measurable and outcome-oriented, 
rather than process-oriented. Thus, rather than measuring the number of 
activities, they should measure the end results of activities on the 
target population.

* The plan should identify and discuss internal and external factors 
that could affect the performance of the organization.

* The plan should be developed in consultation with key stakeholders, 
including, in this case, Congress.

The Veterans Corporation has adopted several of these practices. For 
instance, its mission statement defined the outcomes of its activities-
-the formation and expansion of small business concerns by veterans, 
including service-disabled veterans. The strategic plan also had long-
term corporate goals that were aligned to the mission statement. 
According to The Veterans Corporation officials, these long-term 
corporate goals established broad board directives for its staff. 
Furthermore, the strategic plan also contained annual objectives that 
supported the corporate goals, and the business plan contained action 
plans to meet these annual objectives. For example, for fiscal year 
2004, The Veterans Corporation wanted to increase the number of VET 
graduates to 750 and have VET programs with certified facilitators and 
administrators in at least 15 states. The action plan indicated that 
staff would analyze historical results to date and project the numbers 
by fiscal year quarters and locations to achieve this objective. 
Moreover, The Veterans Corporation's business plan included an analysis 
of internal and external factors that might affect the performance of 
the corporation, and officials told us that they regularly consulted 
with veterans groups and other stakeholders.

However, many of the goals and objectives in The Veterans Corporation's 
strategic plan were not measurable. Thus, they generally did not define 
specific methods for measuring success over the short and long term. 
While a few of its annual objectives had some performance measures in 
place, such as the target number of participants in the VET program and 
fund-raising amounts, The Veterans Corporation had only two measurable 
long-term goals, including achieving financial self-sufficiency. The 
other goals and many of the objectives lacked performance measures to 
indicate the expected progress over the 5 years covered by the 
strategic plan. For example, one fiscal year 2004 objective was to 
conduct the affairs of The Veterans Corporation in an effective, 
efficient, and responsible manner. However, the objective did not 
define how effectiveness or efficiency would be measured. Without 
measurable goals and objectives, The Veterans Corporation will have 
difficulty ensuring and demonstrating the success of its programs.

Additionally, most of the goals and objectives in The Veterans 
Corporation's strategic planning documents were process-oriented, 
rather than outcome-oriented. Thus, they tended to focus on program 
outputs and activities, such as the number of veterans receiving 
training, rather than on their impact on veterans, such as the number 
of new businesses opened by program participants or the amount of 
revenue generated by veteran-owned businesses. For example, one goal 
was to develop and implement programs that provide veterans access to 
knowledge, tools, and resources necessary to succeed in their 
entrepreneurial efforts. However, there were no performance measures to 
gauge how well the programs are providing necessary tools and resources 
or whether those resources are helping veterans succeed in their 
businesses. Without outcome-oriented goals, The Veterans Corporation 
will have difficulty demonstrating that achieving all its goals and 
objectives would lead to the fulfillment of its mission to assist 
veteran entrepreneurs.

We also reviewed examples of measurable, outcome-oriented performance 
measures from federal agencies such as the Department of Transportation 
(DOT) and the Social Security Administration (SSA). For instance, one 
of DOT's goals was to reduce highway fatalities to not more than 1.0 
per 100 million vehicle-miles traveled by 2008. Similarly, by 2008 SSA 
intends to increase the number of disability beneficiaries who achieve 
employment by 50 percent from 2001 levels. Both of these goals focused 
on the outcomes on citizens rather than the activities of their 
programs and provide a measurable point of success.

The chair of The Veterans Corporation's board of directors acknowledged 
that The Veterans Corporation would need to do more work to develop 
outcome-oriented performance measures. Other officials from The 
Veterans Corporation noted that many of their programs were too new for 
outcomes on veteran entrepreneurs to be apparent. However, the 
strategic plan, which spans fiscal years 2004 to 2008, also has not 
defined which outcomes will be measured when data become available. At 
the time of our review, The Veterans Corporation was beginning to 
collect outcome data for the first three groups of participants in the 
VET program, including surveys of former participants to determine if 
they began a new business or expanded their existing business after 
taking the training. These data should prove helpful in determining the 
outcomes of this program, but the strategic plan contained no 
performance measures against which to measure these statistics. 
Officials from The Veterans Corporation told us that they were 
monitoring the performance of the affinity programs by counting the 
number of veterans who signed up for services. They said that service 
usage was an indication that the services were of value to veterans.

Annual Report to Congress Also Lacked Outcome-Oriented Information:

The Veterans Corporation's fiscal year 2003 annual report to Congress 
consisted of descriptions of programs, along with some data on the 
growth of programs. It lacked any estimate of the benefits these 
programs provided to veteran entrepreneurs. Thus, it was output-, 
rather than outcome-oriented. Also, in reviewing The Veterans 
Corporation's annual report to Congress for fiscal year 2003, we found 
that The Veterans Corporation had not incorporated its plans for, and 
progress toward, self-sufficiency in this report. (We discuss the self-
sufficiency plan in greater detail later in this report.) According to 
the Government Performance and Results Act, an annual report to 
Congress should include:

* a clear demonstration of how the corporate goals are aligned to the 
mission of the organization,

* the year's performance targets,

* whether the targets were met, and:

* explanations and plans for corrective action when targets were not 
met.[Footnote 22]

Additionally, management provided monthly activity reports to the board 
of directors to help them fulfill their responsibilities for oversight, 
guidance, and direction. According to the board chair, the board also 
used the information contained in the activity reports to inform 
congressional committees of corporate activities. The chairman added 
that the activity report format evolved over the last year to also 
include a snapshot of the cumulative results of several efforts. For 
example, the July 2004 monthly activity report indicated that since its 
inception the Veterans Small Business Finance program created 473 
applications and had 9 loans approved.

The Veterans Corporation Relied on Federal Funds to Pay for Salaries 
and Services and Establish and Operate Programs:

Federal appropriations have been The Veterans Corporation's primary 
source of funding. The Veterans Corporation used approximately $3.3 
million in federal appropriations in fiscal year 2003 to cover 
expenditures related to paying for salaries and professional services 
and establishing and operating programs. More specifically, payments 
for salaries and professional services accounted for 58 percent of its 
expenditures in that year and program-related activities accounted for 
the rest. Additionally, as revenue levels from other sources declined, 
The Veterans Corporation used proportionately more federal money for 
fiscal year 2003 expenditures. Appendix III provides more detail on The 
Veterans Corporation's revenue and expenses for fiscal years 2002 and 
2003.

Most of The Veterans Corporation Expenditures Related to Salaries and 
Professional Services:

During fiscal year 2003, The Veterans Corporation's primary source of 
funding was from federal appropriations. As of September 30, 2002, The 
Veterans Corporation had about $3.3 million of unexpended 
appropriations available for future spending. Because The Veterans 
Corporation federal appropriations are provided on a "no year" basis, 
this amount was carried forward to apply to expenses in future fiscal 
years. In addition, during fiscal year 2003, The Veterans Corporation 
received $2 million in appropriations. Of the nearly $5.3 million 
available, it used approximately $3.3 million of its federal funds.

It used approximately $1.9 million (58 percent) of the $3.3 million to 
pay for salaries and professional services to establish and run 
programs.[Footnote 23] Executive salaries at The Veterans Corporation 
in fiscal year 2003 appeared consistent with the information sources it 
consulted regarding salaries at other organizations, although these 
sources did not provide information on comparable organizations. For 
example, the Veterans Corporation used federal pay schedules and Web 
sites such as Salary.com, which rarely distinguished between nonprofit 
and for-profit positions. Additionally, the Internal Revenue Service 
applies three conditions when evaluating whether nonprofit salaries are 
reasonable: (1) approval by a board of directors that does not have a 
conflict of interest with respect to the compensation arrangement, (2) 
reliance on comparable data such as salary surveys, and (3) adequate 
documentation of the basis for the determination. Although The Veterans 
Corporation fulfilled these requirements to some extent, it relied on 
data that were not entirely comparable and also did not fully document 
the basis for its decisions. The salary that The Veterans Corporation 
paid in fiscal year 2003 to the previous CEO was somewhat higher than 
the range of salaries suggested by its information sources. The 
salaries of other positions we evaluated, including Director of 
Information Systems and Program Director, were within the ranges 
suggested by these sources.

Caution is advisable when evaluating appropriateness of salaries paid 
by The Veterans Corporation due to the variable nature of nonprofits 
and a lack of data on relevant variables. In conducting this work, we 
spoke with representatives of the Center on Nonprofits and Philanthropy 
of the Urban Institute who referred us to a November 2001 study on 
executive compensation in the nonprofit sector.[Footnote 24] The study 
concluded that salary determinations are defined largely by the 
characteristics and circumstances of individual nonprofits. The study 
also stated that the variability in nonprofit wages and benefits 
suggests that generalizations concerning compensation patterns are 
difficult. To accurately assess the reasonableness of The Veterans 
Corporation's executive compensation, it would be necessary to obtain 
information from organizations of the same type (for example, religion-
based versus nonreligion-based), size, activities, and sources of 
revenue (for example, fees versus donations). As noted previously, the 
data sources used by The Veterans Corporation were limited in terms of 
information on comparable organizations. We were also unable to locate 
reliable sources of data that provided information on the compensation 
paid by similar organizations that included the duties of the position.

The Veterans Corporation has made several recent changes in staffing 
that should reduce its expenses for executive compensation. In our 
previous report, we stated that the total compensation, including 
salary and bonus, paid to The Veterans Corporation's executive 
management in fiscal year 2002 was $694,500. In fiscal year 2003, this 
amount was reduced to $446,488. In fiscal year 2004, The Veterans 
Corporation eliminated one executive position by consolidating the CEO 
and chief financial officer positions.[Footnote 25] As a result, The 
Veterans Corporation projects that executive compensation will total 
$310,153 for fiscal year 2004, a reduction of $136,335 from the 
previous year's expenditures.

In fiscal year 2003, The Veterans Corporation spent about $652,000 for 
professional services, of which $270,000 went to fund-raising 
consultants. The primary fund-raising organization for The Veterans 
Corporation, Changing Our World, received about $208,000. In fiscal 
year 2003, Changing Our World, along with other fund-raising 
consultants, raised approximately $258,000 in contributed cash and 
pledges, which fell significantly short of the $1.3 million goal for 
fund-raising. At the time of our review, The Veterans Corporation had 
not renewed its agreement with Changing Our World for fiscal year 2004. 
The Veterans Corporation officials told us they decided to change their 
fund-raising strategy from focusing on corporations and foundations to 
wealthy individuals, ideally veterans themselves. In May 2004, The 
Veterans Corporation also hired a new staff member to conduct fund-
raising.

Expenses for program activities related primarily to the VET and 
Veterans Marketplace programs. Of the $1.4 million spent on program-
related activities, approximately $551,000 represented costs for the 
506 participants in the VET program. Of the 506 participants, 300 
graduated from the program during fiscal year 2003 at a cost of about 
$1,382 per graduate.[Footnote 26] Nonrecurring start-up expenses such 
as consulting, advertising, and staff training accounted for about 
$114,000 of VET program costs. The Veterans Corporation also provided 
each VET program graduate with a voucher, good for the purchase of a 
computer or business tools, which accounted for approximately $217,000 
of the program costs. The officials stated that The Veterans 
Corporation offered the vouchers to veterans in order to be competitive 
in the market. They added that its per-participant cost was lower than 
that of other small business courses being offered, yet none of its 
competitors offered vouchers as a benefit. One official further stated 
that because participant costs were low, The Veterans Corporation could 
probably compete without offering the computer vouchers. At the time of 
our review, The Veterans Corporation was performing a market analysis 
to determine whether or not to raise the participant's share of the 
cost. According to one official, The Veterans Corporation contacted two 
of its VET program facilitators to discuss increasing the participants' 
share of the cost or reducing the amount of the vouchers. As a result 
of this analysis, management has proposed reducing the amount of the 
voucher in its fiscal year 2005 budget. A corporation official stated 
that the board is not expected to vote on the proposed fiscal year 2005 
budget until November 2004.

The $250,000 expense charged to the Veterans Marketplace program 
represented a negotiated annual licensing fee paid to Perfect Commerce, 
its partner organization. A Veterans Corporation official pointed out 
that this fee would be reduced to $100,000 in fiscal year 2004 and 
$50,000 in fiscal year 2005, at which time The Veterans Corporation 
could renew its contract with Perfect Commerce. While the Veterans 
Marketplace was established as a way of generating revenue, the revenue 
it generated in fiscal year 2003 was negligible. Veterans Corporation 
officials stated that they were still in the process of building a 
directory of veteran-owned businesses that could provide goods and 
services through this effort. (Later in this report, we discuss the 
Veterans Marketplace as a component of the self-sufficiency plan). As 
shown in table 1, The Veterans Corporation's expenses decreased in 
fiscal year 2003, primarily due to a reduction in the Veterans 
Marketplace fee.

Table 1: The Veterans Corporation's Schedule of Expenses for Fiscal 
Years Ending September 30, 2002, and 2003:

Dollars in thousands.

Expenses: Salaries and benefits; 
2002: $1,275; 
2003: $1,289.

Expenses: Professional services[A]; 
2002: $596; 
2003: $652.

Expenses: Travel and recruitment; 
2002: $94; 
2003: $96.

Expenses: Marketplace fee and e-commerce; 
2002: $1,187; 
2003: $358.

Expenses: Rent; 
2002: $136; 
2003: $151.

Expenses: Veterans Entrepreneurial Training; 
2002: N/A; 
2003: $551.

Expenses: Other; 
2002: $467; 
2003: $215.

Total expenses using federal appropriations; 
2002: $3,754; 
2003: $3,312.

Nonfederal expenses: Donated services[B]; 
2002: $1,417; 
2003: $440.

Nonfederal expenses: Other; 
2002: $44; 
2003: $300.

Total expenses; 
2002: $5,216; 
2003: $4,052. 

Source: GAO analysis of The Veterans Corporation's audited financial 
data.

Notes: Numbers may not add up to total because of rounding. N/A means 
not applicable.

[A] Amounts for professional services were understated and salaries 
were overstated by $46,002 in The Veterans Corporation's fiscal year 
ending September 30, 2003, financial statements due to a 
misclassification in the schedule of functional expenses. The Veterans 
Corporation has agreed to correct the misclassification in the fiscal 
year ending September 30, 2004, statements, which will include, for 
comparative purposes, the financial statements for fiscal year 2003.

[B] Under the American Institute of Certified Public Accountants' Audit 
and Accounting Guide for Not-for-Profit Organizations, donated services 
are a form of in-kind contribution and are recognized as revenues and 
expenses.

[End of table]

Figure 3 shows The Veterans Corporation's expenses for both fiscal 
years 2002 and 2003 by function (program, fund-raising, and 
administrative). Financial reporting under U.S. generally accepted 
accounting principles requires reporting expenses by type and function. 
Most of The Veterans Corporation's federally funded functional expenses 
pertained to program activities--64 and 72 percent for fiscal years 
2002 and 2003, respectively. Fund-raising costs represented 13 percent 
of total expenses in both fiscal years. Administrative costs were 23 
percent of the total for fiscal year 2002, primarily for salaries and 
board expense, and 15 percent of total expenses for fiscal year 2003, 
primarily for salaries and rent expenses. As mentioned in our earlier 
report, the amount of program activity expenses relative to total 
expenses increased, and the ratio of administrative expenses to total 
expenses decreased.

Figure 3: The Veterans Corporation's Federally Funded Expenses by 
Function for Fiscal Years Ending September 30, 2002, and 2003:

[See PDF for image]

Note: Numbers may not add up to total because of rounding.

[End of figure]

Use of Federal Appropriations Increased As Other Sources of Income 
Declined:

Beginning in fiscal year 2002, The Veterans Corporation recognized 
revenue (income) from sources other than federal appropriations and 
interest income; however, such revenues declined significantly in 
fiscal year 2003. While contract and other revenue increased, total 
revenue declined due to a reduction in revenue from donated pledges and 
contributed services. Specifically, The Veterans Corporation generated 
approximately $45,000 from SBA, $184,000 from the VET program, and 
$4,000 in other funds. However, while cash contributions were higher in 
fiscal year 2003 than in fiscal year 2002, pledges and contributed 
services were significantly lower than in fiscal year 2002. The 
Veterans Corporation recognized approximately $258,000 in cash 
contributions and pledges and approximately $440,000 in contributed 
services and in-kind contributions as revenue.[Footnote 27] Of the 
$258,000, $157,000 was cash, and $101,000 was pledges for future 
payments of cash. As a result of the decline in revenue from other 
sources, the $3.3 million of federal appropriations used in fiscal year 
2003 made up approximately 78 percent of The Veterans Corporation's 
$4.3 million in total revenues. Figure 4 shows The Veterans 
Corporation's revenue for fiscal year 2003, exclusive of federally 
appropriated funds and interest earned on those funds.

Figure 4: Sources of Income from Fund-raising and Other Activities for 
Fiscal Year Ending September 30, 2003:

[See PDF for image]

[End of figure]

Challenges to Achieving Financial Self-sufficiency Included Lack of 
Comprehensive Self-sufficiency Plan:

The Veterans Corporation continues to face several challenges in 
achieving financial self-sufficiency. To address some of these 
difficulties, The Veterans Corporation has revised its plan to become 
financially self-sufficient. In its current plan, The Veterans 
Corporation has pushed back its estimated date for becoming self-
sufficient from fiscal year 2004 to 2009 and based its revenue 
assumptions on three major sources--an electronic marketplace for 
veteran-owned goods and services; affinity programs including a credit 
card, loans, and insurance offered to veteran-owned businesses; and 
fund-raising. However, the self-sufficiency plan was not comprehensive 
in that it did not contain meaningful information on the key 
assumptions (such as the basis for each revenue component) underlying 
its revenue projections. Moreover, The Veterans Corporation faces a 
number of obstacles in meeting this goal including (1) identifying a 
sufficient number of veteran-owned businesses, (2) successfully 
marketing its services to this group, and (3) meeting overall fund-
raising goals. For example, although The Veterans Corporation raised 
about $1 million to meet its mandated matching requirement in fiscal 
year 2003, it did so by combining the $1 million with excess matching 
funds generated in the prior fiscal year. Additionally, The Veterans 
Corporation officials indicated that the recent Department of Justice 
opinion on the organization's legal status would likely affect its 
self-sufficiency goals.

The Veterans Corporation Has Revised Its Self-sufficiency Plan:

The Act requires that The Veterans Corporation implement a plan to 
generate private funds and become a self-sustaining corporation. Since 
our last report, The Veterans Corporation has revised its self-
sufficiency plan. First, The Veterans Corporation pushed back the 
estimated date for achieving financial self-sufficiency from fiscal 
year 2004 to fiscal year 2009, based on lower-than-anticipated program 
revenues. Second, the revised plan also assumed an additional $2 
million in federal appropriations in fiscal year 2005. Veterans 
Corporation officials explained that legislation, which seeks to 
provide these additional funds, was under congressional review. 
According to the plan, this additional revenue would allow The Veterans 
Corporation to build a database of veteran-owned businesses to which to 
market its services, the database being one of the key revenue 
generators presented in the plan. Third, to help assure future 
sustainability, The Veterans Corporation officials stated that they 
also were planning to substantially reduce overall expenses by about 
$500,000 beginning in fiscal year 2005. The officials added that the 
reduction would be accomplished through eliminating or scaling back 
certain positions and reducing travel-related expenses.

Finally, The Veterans Corporation has changed the self-sufficiency plan 
to focus on three major sources of revenue, from which it expected to 
generate about $2.3 million in fiscal year 2009. Figure 5 shows The 
Veterans Corporation's projected revenue by sources for fiscal year 
2009. The self-sufficiency plan indicated that The Veterans Corporation 
is expected to have a positive cash flow of about $81,000 in fiscal 
year 2009.

Figure 5: Projected Self-sufficiency Revenue in Fiscal Year 2009:

[See PDF for image]

[End of figure]

Veterans Marketplace. In fiscal year 2009, The Veterans Corporation 
expects that approximately 14 percent of its total revenue will come 
from The Veterans Marketplace, or approximately $319,000. As described 
earlier in this report, the Marketplace has expanded into two 
components in which veteran-owned businesses would supply goods and 
services through an electronic format to government entities and 
private businesses. The Veterans Corporation plans to earn income from 
this effort through a revenue-sharing agreement with Perfect Commerce 
that is partly based on volume of transactions and online purchases.

Affinity programs. These are programs that provide business services to 
veteran-owned businesses and from which The Veterans Corporation 
receives a commission based on sales volume. The affinity programs 
include:

* The Veterans Corporation Platinum BusinessCard. About 9 percent of 
fiscal year 2009 revenue or about $200,000, would come from the credit 
card program. More specifically, the revenue would be generated from 
each newly activated account, as well as a share (0.2 percent) of 
eligible purchases made with the card.

* The Veterans Small Business Finance program. The single largest 
source of revenue--approximately 33 percent--which would total about 
$750,000 for fiscal year 2009 is expected to come from loans made to 
small businesses through a partner organization, Newtek Small Business 
Finance, Inc. These SBA-guaranteed loans range from $50,000 to $2 
million and are made to qualified businesses nationwide. The Veterans 
Corporation receives 37 ˝ basis points on all disbursed loans.

* The Veterans Insurance program. Approximately 7 percent of revenue, 
or $150,000 for fiscal year 2009, would come from sales of business 
insurance and other products to veteran-owned businesses. The Veterans 
Corporation would receive commissions or fees, which are structured 
differently for each insurance product, as outlined in its agreement 
with Aon Financial Institution Alliance.

* Other efforts. Other services are expected to account for an 
additional 15 percent of total revenues, approximately $350,000, in 
fiscal year 2009. These services include tax, accounting, and merchant 
services for small businesses and subscription sales for a bid-and-
response system for veteran-owned business contracts.

* Fund-raising. In fiscal year 2009, fund-raising is expected to 
account for 23 percent of revenue, which totals about $532,000 and 
includes interest income. However, the self-sufficiency plan did not 
incorporate all of the funds The Veterans Corporation will raise. The 
self-sufficiency plan included only the portion retained for overhead 
costs, 15 percent of funds raised.

Revenue-Generating Assumptions Rest on Creating a Comprehensive 
Database of Veteran-Owned Businesses:

The Veterans Corporation's revenue-generating strategy relies to a 
great extent on first identifying the veteran-owned business population 
and then successfully marketing its services to this population. The 
Veterans Corporation officials explained that its self-sufficiency 
strategy is modeled on AARP, an organization that markets goods and 
services to a specific population (affinity group) and receives 
commissions based on sales volume.[Footnote 28] The Veterans 
Corporation's goal to achieve financial self-sufficiency in fiscal 
year 2009 is based on identifying about 250,000-300,000 veteran-owned 
businesses. An official at The Veterans Corporation told us that this 
number was based on industry guidance for an e-commerce business and 
represents the minimum number needed to successfully market its 
products. As of June 2004, The Veterans Corporation had identified 
approximately 12,000 veteran-owned and potential veteran businesses, 
which represented about 5 percent of its goal. As previously reported, 
The Veterans Corporation has been unsuccessful in obtaining names of 
veteran-owned businesses through government sources. Earlier in this 
report, we discussed The Veterans Corporation's difficulty in 
identifying its affinity group, the population of veteran-owned 
businesses--an ongoing problem because of privacy concerns among 
federal agencies. According to a Veterans Corporation official, the 
success of its marketing programs (and thus the key to its financial 
self-sufficiency) was dependent on its ability to identify and reach 
transitioning service members and veteran-owned businesses to market 
their products. As a result, The Veterans Corporation has developed 
another strategy in an effort to identify this population.

Veterans Corporation Tests New Strategy to Identify Veteran Businesses:

To assist in identifying veteran business owners, in June 2004 The 
Veterans Corporation began testing a new marketing strategy with the 
help of Mal Dunn Associates, a direct marketing firm. Using Mal Dunn 
Associates' database, The Veterans Corporation is soliciting about 
15,000 veterans through e-mail, telemarketing, and direct mail. 
According to an official at The Veterans Corporation, the testing of 
the marketing strategy indicated that the direct mail approach was the 
most effective way of gaining new members and they plan to meet with 
Mal Dunn Associates in September 2004 to discuss the possibility of 
performing some additional market analysis. An official at The Veterans 
Corporation further explained that the goal of at least 250,000 names 
was based on developing an affinity relationship through The Veterans 
Corporation's Web site membership. This would require identifying a 
larger population since not all veteran-owned businesses identified 
would choose to sign up for membership through the Web site. The 
Veterans Corporation's self-sufficiency plan estimated that developing 
the veteran-owned business database would take a minimum of 24 months; 
however, the plan did not show the relationships between the growth of 
its membership and its revenue projections for any given year. Further, 
because this marketing effort was still in its testing stages, it would 
be difficult to predict the rate at which The Veterans Corporation 
could increase membership or overall success of the effort. Veterans 
Corporation officials explained that the development speed also 
depended on the level of financial commitment made to the marketing 
efforts that would identify this population.

Revenue-Generating Programs Have Not Been Widely Marketed:

The Veterans Corporation recognized that in addition to building a 
database of veteran-owned businesses, the organization must also 
successfully market its services to this group. An official at The 
Veterans Corporation told us that before developing services, they 
would first consult with both public and private veteran service 
organizations to identify needs. However, the extent to which veteran-
owned businesses would utilize The Veterans Corporation's products and 
services is not fully known because of its limited marketing efforts to 
this population to date. As mentioned previously, The Veterans 
Corporation has identified and marketed its products to about 12,000 
veteran-owned and potential veteran businesses, which represents about 
5 percent of its targeted goal. For instance, the Veterans Marketplace, 
an electronic exchange of veteran-owned goods and services, has yet to 
produce any meaningful revenue. Although two pilots are currently under 
way, The Veterans Corporation officials explained that they were 
reluctant to aggressively market this effort until they had a 
sufficient variety of veteran-owned suppliers to meet the production 
needs of potential buyers. The officials also pointed out that the 
Veterans Insurance program had not realized much revenue to date and 
attributed this to an inability to offer a wider range of products such 
as a pool for businesses to self insure their worker's compensation or 
health insurance plans.

Fund-raising Has Not Met Expectations:

The Veterans Corporation's enabling legislation requires it to match on 
a dollar-for-dollar basis the $2 million it received in federal 
appropriations for fiscal years 2003 and 2004. In fiscal year 2003, The 
Veterans Corporation generated about $1 million in matching funds, of 
which about $698,000 was in the form of cash contributions and in-kind 
contributions. The Act however, does not specify how or when the funds 
are to be generated. Thus, to meet the matching requirement for 2003, 
The Veterans Corporation applied funds generated in the prior fiscal 
year, about $1 million, which represented the excess of its fiscal year 
2002 match.

Additionally, The Veterans Corporation officials told us that they have 
had difficulty in meeting their overall fund-raising goals, which 
amounts are intended to cover the expenses of the VET program, CBO 
activities, and overhead costs identified in the self-sufficiency plan. 
Initially, Veterans Corporation officials attributed this difficulty to 
economic downturns during the first years of the organization's 
existence, which resulted in an overall reduction in financial 
donations to charitable organizations. The officials also cited 
difficulties convincing private corporations to donate to veteran 
causes because of a widely held belief that the federal government was 
taking care of veterans financially.

However, since our last report, The Veterans Corporation has formed a 
fund-raising advisory board of 23 individuals. The Veterans 
Corporation's current strategy is to focus more on wealthy veteran 
entrepreneurs who can identify with other veterans, and less on 
corporations and foundations. In May 2004, The Veterans Corporation 
refocused its fund-raising effort, releasing its outside consultant and 
hiring an in-house fund-raising staff.

Veterans Corporation officials acknowledged that the recent change to 
an in-house fund-raiser has had an impact on its overall fund-raising 
goals for fiscal year 2004. The Veterans Corporation has a fund-raising 
goal of $2.5 million in cash and pledges, with at least $1.4 million in 
cash for fiscal year 2004. As of June 30, 2004, it did not appear that 
The Veterans Corporation was going to be able to raise funds sufficient 
to match the $2 million made available under the matching fund 
certification provision. As of that date, The Veterans Corporation had 
generated nearly $296,000 in nonfederal dollars, which included 
$172,000 in cash and in-kind donations. The corporation's inability to 
raise the certification amount is something that Congress could take 
into consideration in any future appropriation.

Veterans Corporation Officials Asserted That the Corporation's Legal 
Status Likely Would Affect Self-sufficiency Goals:

The Veterans Corporation's corporate management indicated that they did 
not know the full impact of the Department of Justice's recent legal 
opinion (that is, that The Corporation is a "government corporation" 
and an "agency")--specifically the cost and burden of complying with 
federal administrative laws applicable to the corporation because of 
its status as an agency. However, the officials believed that the 
corporation's self-sufficiency efforts likely would be significantly 
slowed or even stopped if the corporation were subject to such 
requirements. As mentioned previously, OMB has notified The Veterans 
Corporation that it was required to comply with laws, regulations, and 
guidance applicable to all executive branch agencies (unless 
specifically exempt), including OPM requirements on reporting 
government employees, laws pertaining to federal employees and budget 
and accounting requirements. This, according to The Veterans 
Corporation, likely would result in a significant increase in workload 
and expenses. Further, the officials stated that the corporation's 
status as an agency could raise uncertainties about its ability to 
raise private funds as a source of revenues because of restrictions on 
federal agency collection and use of nonappropriated funds.[Footnote 
29] At the time of our review, The Veterans Corporation was seeking 
legislative relief to address this issue.[Footnote 30]

Nonprofit Experts Also Acknowledged The Veterans Corporation's 
Difficulties in Achieving Self-sufficiency:

We spoke to representatives of the Urban Institute's Center on 
Nonprofits and Philanthropy to gain insight on how The Veterans 
Corporation compares with similar nonprofits. Based on information we 
provided on The Veterans Corporation's mission, business model, and 
self-sufficiency projections, the representatives provided some of 
their perspectives. First, they pointed out that a private business 
model such as that of The Veterans Corporation is riskier than 
organizational models based on receiving a government subsidy. Second, 
in terms of The Veterans Corporation's self-sufficiency projections, 
including revisions, they questioned its ability to generate $2 million 
annually without federal appropriations and stated that it was a 
daunting, if not unlikely task, given its mission to create and 
implement a new business model. However, they suggested that programs 
that provide veteran entrepreneurial services could be considered a 
public good and that, even if they did not become self-supporting, 
their purpose and public benefits might justify both public and private 
financial contributions. We believe these observations are pertinent 
and important considerations that might provide Congress with some 
additional insight as The Veterans Corporation strives to serve veteran 
entrepreneurs and achieve financial self-sufficiency.

Limitations in the Annual Report to Congress May Hinder Congressional 
Oversight:

While we discussed The Veterans Corporation's strategic planning and 
reporting efforts earlier in this report, self-sufficiency was also one 
of the corporate goals identified in its strategic plan. However, in 
reviewing The Veterans Corporation's annual report to Congress for 
fiscal year 2003, we found that The Veterans Corporation did not 
incorporate its plans for and progress toward self-sufficiency in this 
report. According to The Veterans Corporation's board, the March 2004 
revision of the self-sufficiency plan was the first version that 
contained written information about programs and other activities and 
plans for generating revenue to achieve self-sufficiency. Prior to 
this, the plan only provided revenue projections.

The Veterans Corporation's current self-sufficiency plan has been 
revised but did not contain meaningful information on key assumptions 
addressing program outcomes, participation, and revenues. For example, 
the current self-sufficiency plan did not provide information on the 
basis for expected revenue growth for its affinity programs--credit 
cards, loans, insurance, and other efforts involving private-sector 
partners--which is expected to go from $33,000 in fiscal year 2004 to 
$1,450,000 in fiscal year 2009. The current self-sufficiency plan also 
did not discuss how The Veterans Corporation would build a database of 
sufficient size to market its services. As we previously discussed, The 
Veterans Corporation has faced continued challenges in building its 
database and is testing an approach that may or may not be successful. 
However, the self-sufficiency plan did not contain alternative 
scenarios that would allow a more comprehensive understanding of the 
reasonableness of its projections. As one result, an annual report to 
Congress derived from the current plan would still lack information 
that could assist Congress in its oversight of The Veterans Corporation 
and help it to obtain a clearer picture of the organization's progress 
toward achieving its self-sufficiency mandate.

Conclusions:

In creating The Veterans Corporation, Congress created broad mandates 
for the organization to address. The Veterans Corporation is working to 
fulfill its business training and assistance mandates by starting new 
programs and expanding and refocusing others to serve veteran 
entrepreneurs. However, The Veterans Corporation continues to face 
challenges--such as making the PCAB operational, identifying the 
veteran population through government sources, and addressing concerns 
related to its legal status--that have hindered its initial progress in 
marketing services to veteran businesses and working with public and 
private entities.

Moreover, the Veterans Corporation was not effectively utilizing 
operational controls--that is, those policies and procedures that would 
allow it to obtain the reliable and timely information necessary to 
achieve intended results and goals. For instance, measurable, outcome-
oriented goals and objectives in the strategic plan and annual report 
could help staff to track the performance of their programs, make 
improvements from year to year, and ensure that their programs succeed 
and remain aligned with their corporate mission. Furthermore, outcome-
oriented goals would improve The Veterans Corporation's reports to 
Congress and the public by providing clear evidence that the mission of 
the organization was being accomplished.

As a nonprofit organization with limited sources of income, finding 
opportunities to reduce expenses also would benefit The Veterans 
Corporation as a whole. We recognize that The Veterans Corporation has 
not yet realized significant revenue from its programs; however, we 
note that it could reduce expenses in some programs. A key program, the 
VET program, is an expense-related activity rather than a revenue-
generating activity. In fiscal year 2003, The Veterans Corporation 
spent approximately $1,382 for each veteran who graduated from the 
program; more than half of this amount went for vouchers, provided to 
each course graduate, to purchase a computer or business tools. 
Providing each course graduate with such a voucher increases the cost 
to the organization of operating the program and could deny The 
Veterans Corporation added funds to enhance course offerings or 
marketing.

While The Veterans Corporation's revised financial self-sufficiency 
plan indicated it should reach its goal of self-sufficiency by fiscal 
year 2009, it is only a predictor of what could occur based on several 
key assumptions. Those assumptions were difficult to assess because the 
plan was not comprehensive in that it did not contain meaningful 
information on the key assumptions underlying revenue projections. 
Moreover, the plan is fundamentally dependent on the ability to build a 
database of veteran-owned businesses and then successfully market The 
Veterans Corporation's products and services to that population--goals 
that will not be easy to achieve, given the challenges we have 
described in this and our previous report. Finally, including 
information about self-sufficiency in its annual reports to Congress 
would help Congress better assess the progress of the organization and 
make informed decisions about the future of The Veterans Corporation.

Recommendations for Executive Action:

We recommend that the Chairman of the Board of Directors for The 
Veterans Corporation and its staff take the following three actions:

* To help guide programs and measure their effectiveness, develop 
measurable, outcome-oriented goals and objectives that take into 
account the increasing availability of outcome data over time.

* To potentially reduce overall expenses and aid in efforts to achieve 
self-sufficiency, analyze the extent to which The Veterans Corporation 
could reduce or eliminate the amount of the voucher given to graduates 
of its VET program without undermining demand for the program.

* To improve congressional oversight, include in its annual report to 
Congress comprehensive information and data relating to progress in 
achieving financial self-sufficiency, and key assumptions underlying 
self-sufficiency revenue projections.

Agency Comments and Our Evaluation:

We requested and obtained comments on a draft of this report from the 
President and Chief Executive Officer of The Veterans Corporation that 
are reprinted in appendix IV. We also provided a draft of this report 
to DOD, SBA, and VA. We received technical comments from The Veterans 
Corporation and SBA that we incorporated where appropriate. While The 
Veterans Corporation had no objections to our recommendations, it 
offered information that it believed would explain, clarify, or correct 
points made in the draft report.

First, on the extent of duplication between The Veterans Corporation's 
Business Directory and VA's VetBiz Vendor Information Pages, The 
Veterans Corporation stated that, although we accurately portrayed many 
of the differences between the two sources, we understated the 
importance of its directory to its operations and self-sufficiency 
efforts. The Veterans Corporation also stated that it believed that, as 
the two databases grew, they would continue to differ in their 
composition, customers, and beneficiaries. In our report, we 
acknowledged that both The Veterans Corporation and VA had different 
motivations for creating their directories. We also stated that the 
directories were of similar size, were developed from similar 
information sources, and employed similar methods to identify and 
register veteran-owned businesses on their sites.

The second and third points were directed toward strategic planning. In 
the second point on developing outcome-oriented metrics that could be 
used in reporting to Congress, The Veterans Corporation indicated that 
it had not been in existence long enough to determine whether its 
programs and services were helping businesses owned by veterans and 
service-disabled veterans. It also indicated it had begun the process 
of developing metrics in some areas that, over time, would help it 
build outcome-oriented performance measures into its reporting. 
Although many of its programs are still getting under way, we believe 
it is useful to identify and articulate specific metrics as an 
operational control and as a means to evaluate the benefits being 
provided by The Veterans Corporation to veterans. This information 
would also help The Veterans Corporation ensure that the correct data 
will be collected in the future. In the third point, The Veterans 
Corporation indicated that it believes that the strategic goals set by 
the board should not be outcome-specific, as they were meant to provide 
a general framework for the corporation. The staff, however, are 
required to develop specific objectives, initiatives, and performance 
metrics in support of the strategic goals. We do not intend to imply 
that these goals are necessarily the responsibility of the board, but 
we do believe they need to exist somewhere in the strategic plan and 
that they should form the basis for the annual report, both to provide 
Congress with better accountability and The Veterans Corporation with a 
better mechanism for demonstrating organizational effectiveness and 
outcomes for veterans.

Finally, in its fourth point, The Veterans Corporation indicated that, 
although its long-term survival was not guaranteed, it believed that 
its strategy was sound and that sound execution of its plan would 
result in achieving its self-sufficiency goal. We focused our analysis 
on the current state of federal funding, The Veterans Corporation's 
self-sufficiency projections, and the likelihood that the funding would 
no longer remain needed based on our belief that Congress would want to 
consider different perspectives on The Veterans Corporation's ability 
to become self-sufficient, particularly in the event that The Veterans 
Corporation's self-sufficiency projections were revised again. With 
this focus, we have concluded that there is a reasonable amount of 
uncertainty regarding The Veterans Corporation's attainment of self-
sufficiency. The uncertainty about self-sufficiency is reflected in The 
Veterans Corporation's revision in its target date for achieving 
financial self-sufficiency from fiscal year 2004, as we reported in 
April 2003, to fiscal year 2009--with the addition of $2 million of 
federal appropriations in fiscal year 2005. As noted in this report, 
The Veterans Corporation faces several challenges in its efforts to 
becoming a self-sustaining organization. Notably, its self-sufficiency 
plan, which did not contain meaningful information on the key 
assumptions underlying revenue projections, is dependent on building an 
extensive database of veteran-owned businesses and marketing its 
services effectively to this population. Based on our analysis of these 
challenges, it is not certain whether The Veterans Corporation's 
current estimate for achieving self-sufficiency will be met as planned.

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to the Ranking Minority Members of the Senate Committee on Small 
Business and Entrepreneurship, the House Committee on Small Business, 
the Senate and House Committees on Veterans' Affairs, and other 
appropriate congressional committees. We also will send copies to the 
President and CEO of The Veterans Corporation; the Administrator of 
SBA; and the Secretaries of the Departments of Veterans Affairs, 
Defense, and Labor. We also will make copies available to others upon 
request. In addition, the report will be available at no charge on the 
GAO Web site at [Hyperlink, http://www.gao.gov].

Signed by: 

William B. Shear: 
Director, Financial Markets and Community Investment:

List of Congressional Requesters:

The Honorable Olympia Snowe, Chair:
Committee on Small Business and Entrepreneurship: 
United States Senate:

The Honorable Donald Manzullo, Chairman: 
Committee on Small Business: 
House of Representatives:

The Honorable Arlen Specter, Chairman:
Committee on Veterans' Affairs: 
United States Senate:

The Honorable Christopher Smith, Chairman: 
Committee on Veterans' Affairs:
House of Representatives:

[End of section]

Appendixes:

Appendix I: Scope and Methodology:

To evaluate The Veterans Corporation's efforts in providing small 
business assistance to veterans, we collected and analyzed program 
information such as planning documents, contracts, legal opinions, 
program literature, and activity reports. Additionally, we interviewed 
staff and board officials from The Veterans Corporation, as well as 
partnering organizations including officials from Perfect Commerce and 
Aon Financial Institution Alliance. We also interviewed officials from 
federal agencies including the Small Business Administration, 
Department of Defense, Department of Veterans Affairs, and Department 
of Labor, and officials from two veteran service organizations--the 
Vietnam Veterans of America and the American Legion. We also reviewed 
program information and Web sites of these organizations.

To evaluate The Veterans Corporation's internal controls including 
strategic planning and its use of federal funds, we:

* obtained and analyzed The Veterans Corporation's fiscal year 2003 
financial statements, audit reports, and management letter for 2003; we 
did not evaluate the quality of the external auditor's work on the 
financial statement or conduct our own tests of the financial statement 
balances;

* analyzed 10 functional expenses to determine the nature of the 
expense and a description of how the expense benefited The Veterans 
Corporation;

* obtained and reviewed The Veterans Corporation's check registers for 
duplicate payments;

* reviewed The Veterans Corporation's contract with the external 
auditor responsible for the 2003 financial statement audit to 
understand the nature of the audit services to be provided and what 
work the auditor proposed to assess internal controls;

* communicated with The Veterans Corporation's external auditor to 
determine the audit procedures performed to assess internal controls 
during its audit of The Veterans Corporation;

* obtained and reviewed minutes of meetings of the board of directors 
and the board's executive committee to determine the board's policies 
as they related to the disbursement and use of federal funds;

* interviewed The Veterans Corporation's Chief Executive Officer/Chief 
Financial Officer, Senior Vice President, and staff to obtain an 
understanding of internal controls related to cash disbursements;

* tested relevant internal controls over cash disbursements to 
determine if the controls were operating effectively;

* interviewed members of the board of directors to determine the 
board's oversight roles and responsibilities;

* reviewed The Veterans Corporation's planning and reporting documents;

* consulted with government and nonprofit strategic planning experts;

* reviewed strategic planning literature;

* gathered and analyzed salary surveys and literature about nonprofit 
compensation; and:

* interviewed representatives from the Urban Institute's Center on 
Nonprofits and Philanthropy to discuss executive compensation in the 
nonprofit sector.

To evaluate The Veterans Corporation efforts to become financially 
self-sufficient, we reviewed its self-sufficiency plan and discussed it 
with the Veterans Corporation's Chief Executive Officer/Chief Financial 
Officer, Senior Vice President and members of its board of directors. 
We also spoke to representatives of the Urban Institute's Center on 
Nonprofits and Philanthropy to gain insight on how The Veterans 
Corporation compares with similar nonprofits. We did not independently 
assess the financial assumptions presented in the self-sufficiency 
plan.

We conducted our work between December 2003 and July 2004 in accordance 
with generally accepted government auditing standards in Washington, 
D.C; San Francisco, California; and Alexandria, Virginia.

[End of section]

Appendix II: Programs and Initiatives The Veterans Corporation 
Undertook in Response to Statutory Requirements:

Statutory requirement: Programmatic: Expand provision of and improve 
access to technical assistance regarding entrepreneurship for veterans; 
Program or initiative: 
* www.veteranscorp.org; 
* EntreWorld, an online small business resource library; 
* Veterans Entrepreneurial Training[SM] program; 
* National Veterans Community-Based Organization Initiative.

Statutory requirement: Programmatic: Assist veterans, including 
service-disabled veterans, with the formation and expansion of small 
businesses; 
Program or initiative: 
* Veterans Small Business Finance program; 
* Veterans Entrepreneurial Training[SM] program; 
* Veterans Marketplace; 
* Veterans Capital Fund; 
* Veterans Corporation Platinum BusinessCard; 
* Veterans Insurance program; 
* Veterans Corporation Business Directory; 
* Veterans Purchase Net; 
* Veterans Pipeline; 
* Accounting and Tax Services; 
* Merchant Processing Services; 
* Develop business opportunities for veterans through alliances: Lee 
Wayne, Inc., Defense Logistics Agency, National Defense Industrial 
Association.

Statutory requirement: Programmatic: Organize public and private 
resources, including those of federal agencies; 
Program or initiative: 
* Meetings and collaboration with federal agencies: Department of 
Labor, Department of Defense, Small Business Administration, 
Department of Veterans Affairs, Service Corps of Retired Executives 
Association; 
* Meetings and collaboration with private-sector organizations: 
American Legion, Veterans of Foreign Wars, Disabled American Veterans, 
Paralyzed Veterans of America, American Veterans, Vietnam Veterans of 
America, Association of The United States Army, Military Officers 
Association of America, Employer Support of the Guard and Reserve, 
Reserve Officers Association, National Military Family Association, 
National Guard Association of the United States; 
* Veterans Capital Fund; 
* Veterans Small Business Finance program; 
* National Veterans Entrepreneurial Education Initiative.

Statutory requirement: Programmatic: Establish and maintain a network 
of information and assistance centers for use by veterans and the 
public; 
Program or initiative: 
* www.veteranscorp.org; 
* National Veterans Community-Based Organization Initiative.

Statutory requirement: Programmatic: Establish Professional 
Certification Advisory Board; 
Program or initiative: 
* 21-member board; 
* Three committees.

Statutory requirement: Programmatic: Assume duties, responsibility, 
and authority of the Advisory Committee on Veterans Affairs on October 
1, 2004; 
Program or initiative: 
* Business plan; 
* Ongoing liaison with advisory committee.

Statutory requirement: Organizational development: Institute and 
implement a fund-raising and self- sufficiency plan; 
Program or initiative: 
* Business plan; 
* Self-sufficiency plan; 
* Revenue- producing ventures: Veterans Marketplace, Veterans 
Corporation Platinum BusinessCard, Veterans Insurance program, 
Veterans Capital Fund, Veterans Small Business Finance program.

Statutory requirement: Organizational development: Raise matching 
funds to fulfill conditions for receipt of federal funds; 
Program or initiative: 
* Fund-raising advisory board .

Statutory requirement: Organizational development: Transmit an annual
report to the President and to Congress; 
Program or initiative: 
* Annual reports.

Statutory requirement: Organizational development: Have board of 
directors conduct oversight of corporation's obligations and expenses; 
Program or initiative: 
* Audit committee.

Sources: GAO analysis of 15 U.S.C. Sec. 657c and The Veterans
Corporation data.

[End of table]

[End of section]

Appendix III: Veterans Corporation's Revenue and Expenses for Fiscal 
Years 2002 and 2003:

As noted in table 2, the Veterans Corporation received federal 
appropriations of $4 million in fiscal year 2002 and $2 million in 
fiscal year 2003; it also had unexpended appropriations available. The 
Veterans Corporation used approximately $3.7 million and $3.3 million 
in fiscal years 2002 and 2003, respectively, thus leaving it with a 
balance of approximately $3.3 million and $1.9 million in unexpended 
appropriations at the end of fiscal years 2002 and 2003, respectively.

Table 2: Veterans Corporation's Schedule of Appropriations for Fiscal 
Years Ending September 30, 2002, and 2003:

Dollars in thousands.

Unexpended appropriations, beginning balance; 
2002: $3,015; 
2003: $3,261.

Federal appropriations received; 
2002: $4,000; 
2003: $2,000.

Subtotal: unexpended appropriations available; 
2002: $7,015; 
2003: $5,261.

Less: federal appropriations used; 
2002: $3,754; 
2003: $3,312.

Less: miscellaneous reconciling items; 
2002: N/A; 
2003: $5.

Total: unexpended appropriations, ending balance; 
2002: $3,261; 
2003: $1,944.

Source: The Veterans Corporation.

Notes: Data from audited financial statements. N/A means not 
applicable.

[End of table]

As shown in table 3, federal appropriations were the major source of 
revenue for The Veterans Corporation in fiscal years 2002 and 2003. In 
fiscal year 2003, The Veterans Corporation did not realize much 
revenue from cash contributions and pledges and contributed services 
and in- kind contributions.

Table 3: Veteran Corporation's Schedule of Revenue for Fiscal Years 
Ending September 30, 2002, and 2003:

Dollars in thousands.

Federal appropriations used; 
2002: Dollars: $3,754; 
2002: Percentage: 57%; 
2003: Dollars: $3,312; 
2003: Percentage: 78%; 
Combined total: Dollars: $7,066; 
Combined total: Percentage: 65%.

Cash contributions and pledges; 
2002: Dollars: $1,263; 
2002: Percentage: 19%; 
2003: Dollars: $258; 
2003: Percentage: 6%; 
Combined total: Dollars: $1,521; 
Combined total: Percentage: 14%.

Donated services; 
2002: Dollars: $1,517; 
2002: Percentage: 23%; 
2003: Dollars: $440; 
2003: Percentage: 10%; 
Combined total: Dollars: $1,957; 
Combined total: Percentage: 18%.

Interest income; 
2002: Dollars: $63; 
2002: Percentage: 1%; 
2003: Dollars: $29; 
2003: Percentage: 1%; 
Combined total: Dollars: $92; 
Combined total: Percentage: 1%.

Fast Trac Revenue[A]; 
2002: Dollars: $5; 
2002: Percentage: N/A; 
2003: Dollars: $184; 
2003: Percentage: 4%; 
Combined total: Dollars: $189; 
Combined total: Percentage: 2%.

Other; 
2002: Dollars: $6; 
2002: Percentage: N/A; 
2003: Dollars: $49; 
2003: Percentage: 1%; 
Combined total: Dollars: $55; 
Combined total: Percentage: N/A.

Total revenue; 
2002: Dollars: $6,609; 
2002: Percentage: 100%; 
2003: Dollars: $4,273; 
2003: Percentage: 100%; 
Combined total: Dollars: $10,882; 
Combined total: Percentage: 100%.

Source: The Veterans Corporation.

Notes: Data from audited financial statements. Numbers may not add up 
to total because of rounding.

N/A means not applicable.

[A] Fast Trac revenue is revenue associated with the VET program.

[End of table]

The Veterans Corporation reported approximately $258,000 in cash 
contributions and pledges in 2003 as revenue. More than half of the 
revenue, $157,000 was cash contributions. The remaining $101,000 was 
recorded as pledges that The Veterans Corporation expected to receive 
in future years as contributions receivable at their present value in 
accordance with U.S. generally accepted accounting principles for not-
for-profit organizations. See table 4 for a schedule of The Veterans 
Corporation's contributions receivable as of September 30, 2003.

Table 4: Veterans Corporation's Schedule of Contributions Receivable As of September 30, 2003:

Dollars in thousands.

Contributions receivable to be received in: Less than 1 year; 
Dollars: $394.

Contributions receivable to be received in: 1 to 5 years; 
Dollars: $728.

Contributions receivable to be received in: Greater than 5 years; 
Dollars: $201.

Subtotal; 
Dollars: $1,323.

Less: present value discount; 
Dollars: $123.

Contributions receivable; 
Dollars: $1,200.

Source: The Veterans Corporation.

Note: Data from audited financial statements.

[End of table]

Table 5 presents The Veterans Corporation's federally funded expenses 
by functional area for fiscal years 2002 and 2003. Expenses related to 
program activities represent the majority of The Veterans Corporation's 
expenses. The percentage of total expenses accounted for by program 
activities increased, fund-raising expenses remained the same, and 
administrative expenses decreased.

Table 5: Veteran Corporation's Federally Funded Expenses by Function 
for Fiscal Years Ending September 30, 2002, and 2003:

Dollars in thousands.

Program activities; 
2002: Dollars: $2,410; 
2002: Percentage: 64%; 
2003: Dollars: $2,403; 
2003: Percentage: 72%.

Fund-raising; 
2002: Dollars: $480; 
2002: Percentage: 13%; 
2003: Dollars: $419; 
2003: Percentage: 13%.

Administrative; 
2002: Dollars: $864; 
2002: Percentage: 23%; 
2003: Dollars: $491; 
2003: Percentage: 15%.

Total expenses; 
2002: Dollars: $3,754; 
2002: Percentage: 100%; 
2003: Dollars: $3,312; 
2003: Percentage: 100%.

Source: The Veterans Corporation.

Notes: Data from audited financial statements. Numbers may not add up 
to total because of rounding.

[End of table]

[End of section] 

Appendix IV: Comments from The Veterans Corporation:

The Veterans Corporation:

Capital: 
Training: 
eCommerce: 
Services:

Martin A. Berkowitz: 
President and Chief Executive Officer:

August 3, 2004:

Mr. William B. Shear:
Director, Financial Markets and Community Investment: 
United States General Accounting Office:
441 G Street, NW, Room 2440B: 
Washington, DC 20548:

Re: GAO-04-893 The National Veterans Business Development Corporation 
Faces Challenges in Planning for and Achieving Financial Self-
Sufficiency:

Dear Mr. Shear:

There are several key points in the above GAO Report that we believe 
require explanation, clarification and/or correction. We appreciate the 
opportunity to be able to do so, while the report is in draft form.

First, we want to acknowledge the professionalism of your team and the 
manner in which they conducted their review. They were both courteous 
and mindful of the time required to respond to their questions. They 
were always reasonable in their approach to the review, given the tasks 
and timeline that was set for them. It should be noted, however; that 
the review, just nine short months after the last GAO review, again 
necessitated a significant expenditure of time and effort by the team 
and our small staff, adversely impacting our ability to serve Veterans.

The key points we wish to make are:

1. Of great concern to us is the discussion of duplication of services 
(pages 12 through 15 of the draft report). The report discusses the 
extent of duplication between the VetBiz Vendor Information Pages and 
The Veterans Corporation's Veteran Business Directory. It also 
accurately portrays many of the differences between the two. We do not 
believe, however; that it sufficiently emphasizes the importance of the 
Veteran Business Directory to our operations.

In June 2003 we responded to a 16 May 2003 notice in the Federal 
Register announcing VA's intent to create a Veteran Business Database. 
On 16 June 2003, our President & CEO wrote to Secretary Principi 
offering to give our Directory to VA and thereby save VA funds. VA 
replied that they would use our Directory "as one of the many sources 
that [their] personnel will use to identify veterans in business". They 
continued with the development of their own tool, which they 
subsequently launched on 17 September 2003.

The Veterans Corporation has a congressional mandate to provide Veteran 
and Service Disabled Veteran Businesses with business opportunities. 
The directory is central to this purpose and our long-range plans of 
becoming self-sufficient. We additionally recognized the need to 
include Guard and Reservists in our database. This decision now appears 
prescient as more than 70% of these service members have since been 
deployed to combat zones. We are attempting to grow a large database of 
Veterans and Service Disabled Veterans, not just involved in doing 
business in the public sector, as VA is doing, but the even larger 
marketplace of veterans in the private commercial sector. Conversely, 
VA's congressional mandate is to solely provide federal agencies with 
information about service-disabled, veteran-owned small businesses.

We believe that we have not duplicated VA's database but that VA has 
replicated our database after being offered an opportunity to share our 
database. Regardless, we believe as the two databases grow they will 
continue to differ in their composition, customers and beneficiaries.

2. The report takes us to task for not having developed outcome-
oriented metrics that can be used in our reporting to Congress (pages 
24, 25, of the draft report). We believe that the report should also 
stress that in servicing small businesses, and particularly in the area 
of start-ups, outcomes do not occur overnight. The data on small 
businesses shows that 80% or more of start-ups fail in their first five 
years of operation. We have not been in existence long enough to be 
able to determine whether our programs and services are improving the 
odds for Veteran and Service Disabled Veteran businesses. We have begun 
the process of developing metrics that will allow us to make these 
determinations when we have more time and experience under our belt. 
The report acknowledges that we have developed outcome-oriented metrics 
in some areas. For example, we are now surveying the 150 graduates of 
our VET program that graduated in the 2D quarter of 2003, to see if 
their businesses performed better after the Veterans/owners completed 
our training courses. We will continue to monitor their success in 
business, over time, and this will help us build an outcome-oriented, 
performance measured report card to provide to Congress in our Annual 
Reports.

We have also developed a cost/benefit approach to analyzing our 
affinity programs. This not only looks at the revenues TVC earns; but 
also looks at how much we are able to save the Veteran business owner 
on the products and services for which we have been able to negotiate 
discounts, on their behalf.

3. Both the staff and Board of Directors of TVC do not believe that 
strategic goals set by our Board of Directors should be specific in 
outcomes (pages 21 - 24, of the draft report). The strategic goals 
support TUC's strategic vision and mission, and thus help provide an 
overall framework for the Corporation. TUC's Strategic Planning also 
requires that the corporate staff develop specific objectives and 
initiatives, as well as performance metrics in support of these 
strategic goals. As such, the corporate staff then translates this 
strategic goal framework into specific operation objectives and 
initiatives that are measurable and are supported by specific metrics. 
The Board of Directors reviews these objectives and metrics quarterly 
and annually, and can and does ask for modifications, as they deem 
necessary. The staff then executes against these objectives. This is, 
to our experience, a standard and accepted practice of business 
planning, and one that we believe works well in our environment.

4. Not withstanding the skepticism expressed by representatives of the 
Urban Institute's Center on Nonprofits and Philanthropy (page 40 of the 
draft) we are committed to obtaining self-sufficiency. We do not know 
what information these representatives were given about The Veterans 
Corporation, but second-guessing in this area is a lot easier than 
executing. Please remember that we are a start-up business, 
particularly as it relates to the self-sufficiency requirement. We are 
an unusual start-up in that our angel venture capital came from the 
United States Congress; and we are grateful for their support, which 
has enabled us to advance the cause of Veteran entrepreneurship.

We also recognize that along with that capital came requirements and 
restrictions that most start-ups do not have to deal with. As we said 
earlier, 80% or more of all start-ups fail within the first five years 
of operation. Our near term survival is assured because of the 
government support. While our long-term survival is not guaranteed, we 
believe that our strategy is sound and that sound execution of our 
plans will result in our achieving this goal.

It is important to point out that P.L. 106-50 did not require that we 
be self-sufficient by a particular date. It did require that we produce 
a plan for self-sufficiency. The exact verbiage of the law is:

"(3.) Privatization:

The Corporation shall institute and implement a plan to raise private 
funds and become a self-sustaining corporation." [Title 15, Chapter 
14A, sec.657c., K (3)]"

We believe the drafters of the legislation understood the difficulties 
faced by all new businesses, and so they wisely did not foreclose the 
possibility of additional federal support beyond year four. We do not 
believe that self-sufficiency and additional federal funding are 
mutually exclusive.

Again, we thank your team for their fine efforts in presenting our 
progress to date and I hope the discussion above helps clarify our 
position with respect to their observations.

Respectfully,

Signed by: 

Martin A. Berkowitz:
Chief Executive Officer: 

[End of section]

Appendix V: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

William B. Shear, (202) 512-8678 
Harry Medina, (415) 904-2000:

Staff Acknowledgments:

In addition to the persons named above, Elizabeth H. Curda, Janet Fong, 
Yola Lewis, Brittni Milam, Marc W. Molino, Julie T. Phillips, Barbara 
M. Roesmann, and Paul G. Thompson made key contributions to this 
report.

(250176):

FOOTNOTES

[1] Pub. L. No. 106-50, 1999, as amended, 15 U.S.C. § 657c (2000 & 
Supp. 2004).

[2] GAO, Small Business: The National Veterans Business Development 
Corporation's Progress in Providing Small Business Assistance to 
Veterans, GAO-03-434 (Washington, D.C.: Apr. 30, 2003).

[3] Internal controls comprise the plans, methods, and procedures used 
to meet missions, goals, and objectives. Internal controls also serve 
as the first line of defense in safeguarding assets and preventing and 
detecting errors and minimizing the risk of fraud. In short, internal 
controls, which are synonymous with management controls, help program 
managers achieve desired results and thus support performance-based 
management. There are three categories of internal controls: financial 
reporting controls relate to an entity's ability to prepare financial 
statements and other reports for internal and external use; operational 
controls address the entity's basic business objectives, including 
performance goals and safeguarding of resources; and compliance 
controls deal with the entity complying with laws and regulations to 
which the entity is subject.

[4] Licensing and certification are the two primary types of 
credentialing for individuals seeking civilian positions that are 
equivalent to enlisted or officer military occupations. For example, 
occupations within the military that require private-sector 
certification or licensing include automotive mechanic, dental 
assistant, electrician, flight engineer, medical laboratory 
technician, plumber, police officer, and truck driver. Licenses are 
granted by federal, state, and local government agencies while 
certification is the process by which a nongovernmental agency, 
association, or private-sector company recognizes certain 
qualifications. 

[5] The purpose of the Advisory Committee on Veterans Business Affairs 
is to serve as an independent source of advice and policy 
recommendations to the Administrator of the Small Business 
Administration (SBA), the Associate Administrator for Veterans Business 
Development of the SBA, Congress, the President, and other 
policymakers. It has 15 members, who are veteran small business owners 
or representatives of veterans' organizations and appointed by the 
Administrator of the SBA to serve initial appointments of 3, 4, or 5 
years.

[6] 15 U.S.C. §657c(k) (2).

[7] These are programs that provide business services to veteran-owned 
businesses and from which The Veterans Corporation receives a 
commission based on sales volume.

[8] According to its Web site, Newtek Business Services, Inc., and its 
subsidiaries are providers of financial products and business services 
to small and medium-sized businesses. See http://
www.newtekbusinessservices.com.

[9] According to The Veterans Corporation, the lender determines the 
loan rate for which the veteran business would normally qualify and 
then reduces that rate by 1/8 of a percentage point under this program.

[10] According to its Web site, ePipeline is an online source for 
research and business intelligence on federal contracting 
opportunities. It uses proprietary short and long-lead contracting 
research for business development professionals. See http://
www.epipeline.com.

[11] According to its Web site, Diversity Vendors is a veteran-owned 
corporation that seeks to level the procurement playing field for 
minorities, women, veterans, disabled veterans, and disadvantaged 
communities. Diversity Vendors accomplishes this by enabling them to 
access opportunities through the Internet. See http://
www.diversityvendors.com.

[12] Under this program, CBOs are expected to raise matching funds from 
local sources.

[13] In addition to The Veterans Corporation, Pub. L. No. 106-50 also 
established certain requirements for other entities.

[14] On January 1, 2004, DOD's CCR database assumed all of SBA's PRO-
Net's search capabilities and functions in an effort to simplify the 
contracting process for small businesses.

[15] GAO-03-434, p. 14.

[16] The American Institute of Certified Public Accountants standards 
define a material weakness as a reportable condition in which the 
design or operation of one or more of the internal control components 
does not reduce to a relatively low level the risk that misstatements 
caused by error or fraud in amounts that would be material in relation 
to the financial statements being audited may occur and not be detected 
within a timely period by employees in the normal course of performing 
their assigned functions.

[17] The financial audit of The Veterans Corporation was not designed 
to provide assurance on internal controls. However, in planning and 
performing the audit, the auditors considered The Veterans 
Corporation's internal controls sufficient for planning the nature, 
timing, and extent of the auditing procedures they would perform for 
the purpose of expressing an opinion on the corporation's financial 
statements. The auditors also evaluated the effectiveness of controls 
relevant to preventing or detecting material noncompliance with 
requirements applicable to the corporation resulting from its receipt 
of federal appropriations.

[18] Reportable conditions are matters coming to the auditor's 
attention that, in the auditor's judgment, should be communicated to 
management because they represent significant deficiencies in the 
design or operation of internal controls that could adversely affect 
the organization's ability to record, process, summarize, and report 
financial data consistent with the assertions of management in the 
financial statements.

[19] The external auditor identified other internal control matters in 
the letter to management--lack of adherence to the requirement for two 
signatures on certain checks and lack of updates on personnel files to 
reflect changes in employee status or salary--but did not classify them 
as reportable conditions.

[20] The executive committee consists of four board members who 
generally make decisions on behalf of the full board.

[21] GAO-03-434. 

[22] Pub. L. No. 103-62 sec 4(b).

[23] Salaries, including benefits and payroll taxes, represented 
compensation for all staff. Professional services included accounting, 
auditing, legal, fund-raising, and public relations.

[24] Eric C. Twombly and Marie G. Ganz, Executive Compensation in the 
Nonprofit Sector: New Findings and Policy Implications, The Urban 
Institute, November 2001. 

[25] We did not evaluate the impact of The Veterans Corporation's 
consolidation of these executive positions on its progress toward 
achieving financial self-sufficiency. 

[26] Each participant contributes $250 to $350 depending on the course 
taken. Although participants cover a portion of the costs, the program 
is primarily an expense to The Veterans Corporation rather than a 
revenue-generating activity. Also, while The Veterans Corporation 
indicated that 300 veterans (the basis for our calculation on cost-per-
graduate) received vouchers in fiscal year 2003, 458 veterans 
"completed" courses in that fiscal year. The Veterans Corporation 
classifies all those participants who started courses in fiscal year 
2003, even if they completed them in fiscal year 2004, as having 
graduated in fiscal year 2003. 

[27] Contributed services included legal services and preparation of a 
plan to identify veteran entrepreneurs nationwide.

[28] AARP was formerly known as the "American Association of Retired 
Persons." In November 1998, the board of directors changed the name to 
"AARP."

[29] See, e.g., Miscellaneous Receipts Act, 31 U.S.C. § 3302(b). Under 
the Miscellaneous Receipts Act, "an official or agent of the Government 
receiving money for the Government from any source" is required to 
"deposit the money as soon as practicable without deduction for any 
charge," except as provided by another law.

[30] On July 22, 2004, the Senate considered and passed S. 2724 which 
amends Section 33 (a) of the Small Business Act (15 U.S.C. 657c(a)) by 
adding "Notwithstanding any other provision of law, the corporation is 
a private entity and is not an agency, instrumentality, authority, 
entity, or establishment of the United States Government." The bill was 
then referred to the House Committee on Small Business.

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