Small Business: The National Veterans Business Development	 
Corporation's Progress in Providing Small Business Assistance to 
Veterans (30-APR-03, GAO-03-434).				 
                                                                 
The Veterans Entrepreneurship and Small Business Development Act 
of 1999 (Act) created the National Veterans Business Development 
Corporation (The Veterans Corporation) to address perceived gaps 
in providing small business and entrepreneurship assistance to	 
veterans. The Act requires GAO to review The Veterans		 
Corporation. GAO described The Veterans Corporation's (1) efforts
to provide small business assistance to veterans, including	 
service-disabled veterans; (2) use of and controls over federal  
funds in providing these services; and (3) efforts to become	 
financially self- sufficient.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-434 					        
    ACCNO:   A06760						        
  TITLE:     Small Business: The National Veterans Business	      
Development Corporation's Progress in Providing Small Business	 
Assistance to Veterans						 
     DATE:   04/30/2003 
  SUBJECT:   Financial management				 
	     Small business					 
	     Veterans employment programs			 
	     Education or training				 

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GAO-03-434

                                       A

Letter

April 30, 2003 Congressional Committees: A Congressional report released
in January 1999, identified gaps in the federal government*s delivery of
entrepreneurial services to veterans. 1 Recognizing the need to assist the
nation*s veterans who choose to start or

expand small businesses in their transition from military to civilian
life, Congress created the National Veterans Business Development
Corporation (The Veterans Corporation)* a chartered corporation* to
provide small business and entrepreneurship assistance. The Veterans
Entrepreneurship and Small Business Development Act of 1999 (Act), as
amended, created The Veterans Corporation and, among other things,
requires it to (1) improve access to technical assistance that promotes
entrepreneurship, and (2) use public and private resources to assist
veterans, including service- disabled veterans, with the formation and
expansion of small businesses. 2 To carry out these activities, the Act
authorized the appropriation of $12 million in federal funds to The
Veterans Corporation over a 4- year period. It also required that The
Veterans Corporation implement a plan to raise private funds and become a
selfsustaining corporation.

The Act also required GAO to evaluate the effectiveness of The Veterans
Corporation in providing services to veterans. Because The Veterans
Corporation*s programs are still in their early stages, we agreed with the
staffs of the House and Senate Committees on Small Business and Veterans*
Affairs to describe (1) The Veterans Corporation*s efforts in providing
small business assistance to veterans, including service- disabled
veterans; (2) the use of and controls over federal funds to provide these
services; and (3) the efforts of The Veterans Corporation to become
financially self- sufficient.

To complete our work, we obtained and analyzed program information and
corporate documents provided by The Veterans Corporation. To meet our
objective to describe The Veterans Corporation*s use of federal funds, we
interviewed officials at The Veterans Corporation. We also obtained and

1 Report of the Congressional Commission on Servicemembers and Veterans
Transition Assistance, (Arlington, Virginia: January 1999). 2 Public Law
106- 50, 113 Stat. 233 (1999) (found at 15 U. S. C. S:657c).

analyzed The Veterans Corporation*s fiscal years 2001 and 2002 financial
statements, obtained and reviewed minutes of board of directors meetings,
and interviewed The Veterans Corporation*s external auditors. We also
interviewed officials from the staff and board of The Veterans
Corporation, as well as officials from federal agencies, partnering
organizations, and

veteran service organizations. Please see appendix I for a more complete
description of our scope and methodology.

We conducted our review from June 2002 through April 2003 in accordance
with generally accepted government auditing standards. Written comments on
a draft of this report from The Veterans Corporation appear in appendix
VI. We also obtained technical comments from the Small Business
Administration (SBA) and the Department of Veterans* Affairs (VA) that
have been incorporated where appropriate.

Results in Brief The Veterans Corporation has made progress toward
providing entrepreneurial services to veterans, despite some initial
challenges. The

Veterans Corporation officials stated that they have been careful not to
duplicate existing services. The Veterans Corporation has launched efforts
to provide entrepreneurial education and training through classroom
instruction, seminars, and on- line educational resources. It has also
started to provide entrepreneurial services to veteran- owned small
businesses such as micro loans, business insurance, and on- line buying
and selling of veteran- owned products and services. Officials identified
some initial challenges that they faced, such as the difficulty in
obtaining information from government sources on transitioning military
personnel and veteran businesses, limited government participation in The
Veterans Corporation activities, and delays in management appointments.
Because The Veterans Corporation programs and processes are relatively
new, it is too early to determine their effectiveness. However, The
Veterans Corporation plans to assess program effectiveness periodically.
As required by the Act, The

Veterans Corporation has established a Professional Certification Advisory
Board (PCAB) to (1) assist in creating uniform guidelines for the
professional certification of transitioning members of the military and
(2) remove license and certification barriers. In fiscal years 2001 and
2002, Congress appropriated a total of $8 million

for The Veterans Corporation. These funds remain available to The Veterans
Corporation until expended. According to The Veterans Corporation's
audited financial statements for these 2 years, the Corporation spent
about $4.7 million of the $8 million primarily on start- up

costs, leaving an available balance of about $3.3 million as of September
30, 2002. Management has stated that its approach is to spend
conservatively on programs and operating expenses in the start- up period
so that unused federal appropriations can be used in future years. In
fiscal year 2001, The Veterans Corporation spent about $985,000 for
salaries, professional services, and other start- up costs, all funded by
its federal appropriations

and related interest earnings. In fiscal year 2002, The Veterans
Corporation used federal funds to pay for salaries, professional services,
start- up expenses, and program activities, including expenses related to
The Veterans Marketplace* an on- line service that allows veteran- owned
businesses to sell goods and services over the Internet. In fiscal year
2002, The Veterans Corporation began to realize other revenues, such as
pledges, contributed services and in- kind contributions from nonfederal
sources. As a result, federal appropriations accounted for about 57
percent of The Veterans Corporation*s total revenues for fiscal year 2002.
The Board of Directors is required to prescribe the manner in which the
obligations of The Veterans Corporation may be incurred and how its
expenses are

allowed and paid. In The Veterans Corporation's first fiscal year, 2001,
its external auditor identified some internal control issues, such as the
failure to reconcile bank accounts on a timely basis and segregate cash
duties, as well as the failure to maintain a filing system for accounting
records. According to the external auditor, The Veterans Corporation has
implemented corrective measures in fiscal year 2002 to address all but one
of the identified deficiencies. The Veterans Corporation has acknowledged
the remaining deficiency and plans to take corrective action in fiscal
year 2003.

The Veterans Corporation has developed a plan to achieve financial
selfsufficiency by September 30, 2004. The plan is based on four major
sources of revenue: (1) an on- line electronic marketplace for veteran-
owned business goods and services, (2) a credit card program targeted to
veteranowned

businesses, (3) an insurance service program designed to meet the needs of
veteran- owned small businesses, and (4) fund- raising. To calculate
revenue assumptions, The Veterans Corporation relied on input from their
partners on these efforts, which operate similar programs. It is too early
to determine whether The Veterans Corporation will achieve its goal of
becoming financially self- sufficient by September 30, 2004. At the time
of our review, three of the efforts were just beginning to produce
revenue.

Further, according to the plan, The Veterans Corporation is not expected
to achieve self- sufficiency until the fourth quarter of fiscal year 2004.
Additionally, The Veterans Corporation earned about $2.8 million in cash,
cash pledges, contributed services, and in- kind donations in fiscal year

2002, fulfilling the Act*s mandate that it raise an amount equal to one-
half of its $4 million fiscal year 2002 federal appropriation. The
Veterans Corporation intends to evaluate the plan on a quarterly basis to
assess whether its strategies are sufficient to meet targeted projections.
If these projections are not met, The Veterans Corporation officials
stated that they would then consider alternative revenue sources to allow
them to meet

their self- sufficiency goal. 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. The Veterans Corporation is required to,
among other things, (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 PCAB to create uniform guidelines and standards for the
professional certification of members of the armed services; and (5)
assume the duties, responsibilities, and authority of the Advisory
Committee on Veterans Business Affairs from the SBA by October 1, 2004. 3

To fund The Veterans Corporation, Congress authorized $12 million in
federal appropriations over 4 fiscal years*$ 4 million in the first year,
$4 million in the second year, 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 Veterans Corporation is a nonprofit
corporation chartered in the District of Columbia and has authority to,
among other things, manage the manner in which it conducts business, enter
into contracts, hire and dismiss officers and employees, and solicit,
disburse, and manage its funds and assets.

3 The Advisory Committee on Veterans Business Affairs was created by the
same legislation that created The Veterans Corporation. 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 SBA, the Associate Administrator for Veterans
Business Development of the SBA, the Congress, the President, and other
policymakers. It consists of

15 members, who are veteran small business owners or representatives of
veteran*s organizations and appointed by the Administrator of the SBA to
serve 3- year terms.

The Act requires The Veterans Corporation to raise funds in order to match
its federal appropriations. For the first fiscal year (fiscal year 2001),
no matching requirement applied. For the second fiscal year (fiscal year
2002),

The Veterans Corporation was required to raise $1 for every $2 of federal
appropriations. For the remaining 2 fiscal years, The Veterans Corporation
is required to raise matching funds on a dollar- for- dollar basis.

A 12- member board of directors governs The Veterans Corporation. Nine
voting members are presidential appointees, with not more than five
members of the same political party. The three remaining members are
nonvoting, representing the Administrator of the SBA, the Secretary of
Defense, and the Secretary of Veterans Affairs. Voting members serve 6-
year terms; however, the terms of the initial appointees are staggered:
three for a term of 2 years and three for a term of 4 years. The
chairperson is one of the nine voting members and is elected by these
members for a 2- year term. The chairperson supervises and controls all
affairs of The Veterans

Corporation in accordance with policies and directives approved by the
board of directors. The board is organized into four committees: (1)
executive, (2) corporate governance, (3) audit, and (4) business
development. The corporate governance committee is responsible for, among
other things, overseeing the strategic and business plans. The

Veterans Corporation staff, of which there are 14, use these plans to help
define their overall strategy and assess how well they are achieving their
goals and objectives. Goals and objectives are then evaluated at the board
meetings. The board met for the first time in September 2000; the board
currently meets approximately on a quarterly basis.

The Veterans The Veterans Corporation has several initiatives under way to
provide

Corporation Initiates small business education, training, and
entrepreneurial services to

veterans. Officials additionally have identified some initial challenges
that Entrepreneurial

have slowed the progress of these efforts, including (1) the inability to
Services to Veterans

collect data on the veteran population, (2) limited government
participation in The Veterans Corporation activities, (3) delays in
appointing management, and (4) unclear corporate legal status of The
Veterans Corporation. The Veterans Corporation has broad performance
measures in place to monitor its programs at this early stage and are
planning to develop more refined measures to assess effectiveness as the
programs mature. The Veterans Corporation has established a PCAB* a

body mandated by Congress to assist service members transition from the
military to private- sector employment* but the issues surrounding
private-

sector recognition of military experience and training are large and
complex, according to some officials.

Educational and Training According to an official at The Veterans
Corporation, their corporate

Programs Under Way and strategy has been to organize, coordinate, enhance,
and expand existing The Veterans Corporation Is

business programs and services to military veterans interested in
Developing Entrepreneurial

entrepreneurship. Additionally, their strategy is to provide programs not
otherwise available to veteran- owned businesses. Officials at The
Veterans Services Corporation said that they have been careful not to
duplicate existing services but rather to leverage existing services
whenever possible. The Managing Director of Operations and Government
Relations at The Veterans Corporation stated that their approach is to
develop public and private resources that may include coordinating with
local business services where appropriate.

Education and Training In response to veteran needs for small business
education and training, The Veterans Corporation has offered classroom
instruction, seminars, and online educational resources. The Veterans
Corporation has hosted three initial Veterans Entrepreneurial Training
(VET) programs, which produced 64 graduates, for veterans interested in
starting a business or seeking to

improve their current business. The initial locations included Riverside,
California; Portland, Maine; and Arlington, Virginia. The VET program
incorporates classroom instruction, mentoring, networking, and technology
training. An official at The Veterans Corporation stated that program
participants pay $350 of the program*s $1,850 cost for 45 hours of
classroom instruction and, as an added benefit, receive a voucher valued
at

$675 to purchase a Gateway computer upon successfully completing the
program. The Veterans Corporation officials said that the program is a
partnership with the Ewing Marion Kauffman Foundation*s FastTrac Program,
a successful entrepreneurship- training program. Statistics from The
Veterans Corporation*s Web site makes reference to the Kauffman
Foundation*s overall success, which indicates that 60,000 people have
completed the FastTrac program since 1987. Additionally, of this number,
88 percent were still in business 2 years later, and 77 percent were still
in business and turning a profit 5 years later; overall, 64 percent have
seen their sales increase. An official at The Veterans Corporation said
that for fiscal year 2003, they are planning a total of 30 VET courses.
The official added that the program draws support from local Service Corps
of Retired Executives chapters and Small Business Development Centers,
whose members and staff serve as either mentors or classroom speakers.

The Veterans Corporation has also piloted two, 1- day Veterans Business
Success Seminars on the skills needed to start a business. The seminars
were held in Boise, Idaho, and Cleveland, Ohio, and included discussions
on business plans, marketing analysis, and financing. According to an
official at The Veterans Corporation, 30 veterans participated in the
first two seminars. The official explained that they are adopting a new
strategy to more consistently meet the mandate to establish and maintain a
network

of information and assistance centers for use by veterans and the public.
Under this strategy, The Veterans Corporation will utilize community-
based organizations to provide veterans support with a combination of
workshops, seminars and courses tailored to local needs. The official

added that The Veterans Corporation is in discussions with the SBA on
funding four test sites to be launched by May 2003. On- Line Educational
Resources In April 2002, The Veterans Corporation*s Web site became
operational; it contains information on training, capital, and other
business resources. A

board member of The Veterans Corporation told us that The Veterans
Corporation views this Web site as helping to fulfill the requirement
under the Act to establish and maintain a network of information and
assistance centers for use by veterans and the public. The board member
explained that building brick and mortar development centers would be
prohibitively expensive and that the board*s initial goal was to focus on
leveraging existing services rather than duplicating private- sector
services. For example, the Web site has links to other small business
resources, including Entreworld, an on- line small business resource
library. Entreworld, which is sponsored by the Ewing Marion Kauffman
Foundation, was one of the first Web sites assisting small businesses
since 1996, according to the Entreworld Web site. Additionally, The
Veterans Corporation*s Web site has links to other on- line resources for
veterans,

such as those of the Department of Defense (DOD), SBA, and Department of
Veterans Affairs (VA). Services to Entrepreneurs The Veterans Corporation
has launched or started to develop various

initiatives to provide entrepreneurial services, such as access to capital
through a micro loan program, business insurance, and on- line buying and
selling of veteran- owned goods and services. While these services are
intended to assist veterans with formulating or expanding businesses, some
of the services also provide revenue to The Veterans Corporation.

(We discuss The Veterans Corporation*s efforts to become self- sufficient
later in this report.)

 Micro loan program. To help veterans gain access to capital, The
Veterans Corporation established a regional micro loan program 4 for
start- up businesses. The Veterans Corporation is working with regional
banks to provide the loans. Participating banks in the micro loan program
may also use SBA loan guarantees to help veterans obtain access to
capital. An official told us that as of January 2003, the first early
stage loan of $25,000 was made to a start- up, veteran- owned business and
two other SBA lines of credit up to $150,000 were close to being
finalized. As of April 2003, The Veterans Corporation has an agreement
with Newtek Small Business Finance, Inc., to offer SBA loans and other
services. The Veterans Corporation will be able to provide nationwide
service in conjunction with its existing lenders.

 Veterans Marketplace. The Veterans Marketplace is an on- line purchase
program for products and services produced by veteran- owned small
businesses. The Veterans Corporation is partnering with eScout, a company
that operates a similar electronic procurement business. The Veterans
Marketplace targets procurements of $2,500 or less using an electronic
purchase card system. Although the system is operational,

The Veterans Corporation is in the process of building their customer
lists of government and private companies. As of January 2003, there were
16 veteran- owned business sellers and 150 veteran- owned business buyers
listed on The Veterans Marketplace. The Veterans Corporation plans to earn
income from this effort through a revenuesharing agreement with eScout
that is based on volume of transactions, new member agreements, on- line
purchases, and auction events hosted.

 Business Insurance Program. In December 2002, The Veterans Corporation
started offering insurance services through the Aon Financial Institution
Alliance to veteran- owned businesses. The services include health
insurance for employees, legal representation, and, for small businesses,
computer protection assistance against viruses and hackers. The Veterans
Corporation anticipates producing revenue from this effort by collecting
commissions from the Aon Financial Institution

Alliance. An official at The Veterans Corporation stated that as of April
2003, the first small group health insurance policy was sold as well as
over 100 quotes requested or applications completed.

4 The Veterans Corporation*s micro loan program is not affiliated with
SBA*s micro loan program.

 Veterans Corporation Platinum BusinessCard. The Veterans Corporation
began offering a veterans business credit card in January 2003. The card
includes features such as a business credit line and cash back on
purchases. According to an official at The Veterans Corporation, 165
credit cards have been approved and issued, as of April

2003.  Veterans Capital Fund. The Veterans Corporation is also seeking to

establish a venture capital fund to invest in both veteran- owned and
other businesses. The fund will be structured as a Small Business
Investment Company (SBIC), which is licensed by SBA and features
opportunities to leverage private equity investments for government
guarantees. Once operational, The Veterans Corporation will own 10 percent
of the limited partnership and 17.5 percent of the general partnership.
According to an official at Equisource, a management investment firm that
is acting as a placement agent for the Veterans Corporation, the fund will
seek to invest partly, but not only, in veteranowned businesses. The
official said that The Veterans Corporation would use profits realized
from the fund to provide for veteran programs and services.

Figure 1 shows The Veterans Corporation*s status of key initiatives.
Additionally, appendix II contains a chronology of The Veterans
Corporation*s key activities, and appendix III lists The Veterans
Corporation*s activities that address the statutory requirements of the
Act.

Figure 1: The Veterans Corporation: Description and Status of Key
Initiatives, as of March 2003 Initiative Description Status Micro Loan
Program Loan referral program

Operational in February 2002. with regional banks. Three participating
banks in eastern United States.

www. veteranscorp. org Web site of The Veterans Corporation. Launched in
April 2002 and operational.

Veterans Marketplace E- commerce platform that facilitates Launched in
June 2002.

purchases between veteran- owned and other businesses.

Veterans Entrepreneurial

A business training program Launched in October

Training Program consisting of 30- Thee 45 hours of 2002 with three pilot
locations.

interactive training.

Veterans Business

One- day seminars on what Two pilot seminars held

Success Seminars veterans need to know in October and November 2002.

before starting a business.

Insurance/ Benefits

Business insurance Launched in December 2002.

Program Veterans Veterans products at group rates. TM

Veterans Corporation

Credit card for business use. Launched in January 2003.

Platinum BusinessCard Cor Corporation Veterans Capital Fund Venture
capital fund for

In planning. Expected

S Success veteran- owned and other businesses; is iCi Contagious

to launch in 2003. proceeds fund veteran programs.

Source: GAO. Note: GAO analysis of The Veterans Corporation data.

Outreach to Service- Disabled Officials at The Veterans Corporation
describe their outreach as targeting

Veterans all veterans, including service- disabled veterans. Generally,
they do not

have separate efforts for the service- disabled population. The officials,
however, referenced efforts to make certain programs and services
available to the service- disabled population. For example, the VET
program reserves 10 spaces in each class for the service- disabled. In the
first three VET courses completed, 19 of 64 graduates, or 30 percent,
registered as service- disabled veterans. In another effort just recently
launched, servicedisabled veterans who purchase insurance products through
The Veterans Corporation will receive an additional discount. Officials
further said that in the future, they would like to offer distance
learning in their entrepreneurial training program to provide greater
access to the physically disabled veteran.

Initial Challenges Slow The Veterans Corporation officials said that
progress on programs has been

Progress of The Veterans hampered by their inability to collect
information from government

Corporation*s Programs and sources on military personnel transitioning to
civilian life and existing

Initiatives veteran- owned businesses. One of the officials explained that
the success

of programs such as The Veterans Marketplace and VET program is largely
dependent on their ability to identify and reach transitioning service
members and veteran- owned businesses. The Veterans Corporation officials
said that if they were not successful in obtaining this data, they would
have to rely on developing data from attendance lists from their training
and education programs and other available sources. Officials stressed
that this would slow the development of a client database.

Privacy Issues Prevent The Veterans Corporation has requested information
from DOD and VA, Government Agencies from

respectively, on (1) military service members nearing retirement or
Sharing Information on Veterans;

separation and (2) veteran- owned and service- disabled, veteran- owned
Publicly Available Data Are

businesses. Both DOD and VA officials said that privacy laws prohibit them
Limited

from providing personal information such as names and addresses of the
military and veteran population. A DOD official stated that their policy
prohibits them from releasing private information on enlisted military to
any public or private organization. The DOD official further cited a
November 9, 2001, memorandum for DOD Freedom of Information Act Offices
that supports the withholding of personally identifiable information for
security reasons in response to the events of September 11, 2001. VA*s
Office of the General Counsel (OGC) issued a legal opinion on December

12, 2002, which states that the Act does not direct the Secretary of VA to
construct a database for use by The Veterans Corporation. Furthermore,
VA*s OGC stated that there are no provisions within existing
confidentiality laws that would permit the sharing of information as
proposed. However, in response to our draft report, VA concluded that it
could disclose a list of

names and addresses of veterans and their small businesses to the public,
including The Veterans Corporation. Further, VA officials stated that
arrangements are under way to make this information available on their Web
site. However, it remains to be seen whether the information that will be
available on VA*s Web site will meet The Veterans Corporation*s needs.

The Veterans Corporation has obtained access to some government databases
as well as other publicly available information on veterans* for example,
SBA*s Procurement Marketing and Access Network (PRO- Net) database, which
contains information on veteran- owned business. The Veterans Corporation
has also gained access to DOD*s Central Contractor Registration (CCR)
database that contains information on prime and

subcontractors of the federal government. CCR contains over 200,000
business listings of which 30,000 were listed as veteran- owned. DOD has
required that The Veterans Corporation sign a standard nondisclosure
agreement. But, an official at The Veterans Corporation said that the
agreement contains language that they *shall not use such data for
commercial purposes;* the agreement is currently under legal review at The
Veterans Corporation. According to SBA officials, PRO- Net is currently
merging with CCR, and current registrants from both databases are being
asked to reregister into the combined database.

The Veterans Corporation has also utilized some publicly available
information on veterans, but the information is in aggregate form and does
not enable them to identify individuals seeking entrepreneurial
assistance. According to officials at The Veterans Corporation, they were
not aware of any public sources of data with names and addresses that
could be used to identify veterans who may be seeking entrepreneurial
assistance. For

instance, The Veterans Corporation officials said they used public data
from the VA Web site for information on where veterans live, by state and
county and for age and gender. This information was used to help

determine locations for VET classes and Veterans Business Success
Seminars. Additionally, The Veterans Corporation identified a private data
source that lists about 190,000 veteran- owned businesses. An official
said that the private data source does not collect E- mail addresses and
questioned whether the records have current mailing addresses. Officials
said that this effort has been put on hold because it was not viewed as
worth the $90,000 acquisition cost. Government Agencies Had

The Veterans Corporation is required to work with and organize public and
Limited Participation in The

private resources, including those of the federal government. An official
at Veterans Corporation Activities

The Veterans Corporation indicated that collaboration with other federal
agencies has been limited because of other priorities at these agencies
and because agencies are not required to carry out these multiagency
initiatives. As stated previously, due to privacy issues The Veterans
Corporation has had difficulty in obtaining data from DOD on military

personnel transitioning to civilian life and from VA on veteran- owned
businesses. The Veterans Corporation official suggested that a federal
directive, such as a presidential executive order or Office of Management
and Budget guidance, would help federal agencies understand The Veterans
Corporation*s mission and provide the agencies with instructions for
assisting in these efforts.

Government officials with whom we spoke provided some examples of early
collaboration with The Veterans Corporation. For instance, an SBA official
stated that they have been active participants at board meetings, helped
develop initiatives such as The Veterans Capital Fund (see fig. 1), and
provided technical assistance. According to the official, SBA envisions
that there will be additional, mutually beneficial relationships with
other programs. A VA official stated that collaboration between VA and The
Veterans Corporation has included establishing links on the respective Web
sites, and invitations to speak at VA conferences. A DOD official also
mentioned that the DOD Web site has a link to The Veterans Corporation*s
Veterans Entrepreneurial Training Program.

Delays in Management Officials at The Veterans Corporation said that
progress on their programs

Appointments Slowed The was initially hampered by delays in management
appointments for

Veterans Corporation*s Activity positions such as the Chief Executive
Officer (CEO) and board members. The officials explained that much time
was spent searching for a

permanent CEO. The CEO was appointed in October 2001. Until August 2001,
the staff at The Veterans Corporation were temporary employees, operating
as contractors. Subsequently, the entire management team was hired in
fiscal year 2002. Additionally, the Act called for the initial board
members to be appointed by the President of the United States no later
than 60 days after the legislation was enacted on August 17, 1999. The
initial presidential appointments, however, did not occur until a year
after

enactment. Eight of the nine voting members were appointed between August
and December 2000, while the ninth member was appointed in November 2001.
Although initial board members had diverse backgrounds such as banking,
engineering, and social services, Veterans Corporation and board officials
said they would like to have board members with specific qualifications
such as connections to corporations for fund- raising or political clout,
experience on other boards of successful businesses, or first- hand
entrepreneurial experience. Further, The Veterans Corporation staff
believes that once government funding ends, they may benefit from a board
whose voting members are not wholly presidentially appointed. They
explained that the discretion to recruit board members from the private
sector would allow The Veterans Corporation to augment the board*s
membership with the required business expertise necessary for The Veterans
Corporation*s long- term success. The Act does not include any specific
rules or guidance for how The Veterans Corporation is to make the
transition from a largely government- funded to a private, self-
sufficient corporation. As one step in this transition, The Veterans
Corporation has

proposed that the Act creating the corporation be revised to give The
Veterans Corporation input into the selection of the board after
government funding ends. Specifically, the proposal calls for a board
structure similar to that of Fannie Mae, a government- sponsored
enterprise that engages in secondary loan market activity, in which only
one- third of the directors are presidentially appointed.

Status of The Veterans Officials at The Veterans Corporation have
indicated that differences in

Corporation as a Public Agency interpretation regarding the legal status
of The Veterans Corporation as

or Private Corporation Is Open either a public agency or private
corporation have, at times, complicated to Interpretation

organizational and program development efforts. The Veterans Corporation
has obtained various legal opinions on its corporate legal status with
respect to personnel and procurement requirements with differing results.

They referenced an opinion from the Office of Personnel Management on
whether the provisions of Title 5 of the U. S. C. applied to The Veterans
Corporation. In a letter dated November 13, 2001, the Office of Personnel
Management concluded that The Veterans Corporation was a
governmentcontrolled corporation and is subject to most provisions of
Title 5, including provisions related to premium pay, awards, leave, and
health

benefits, among other things. In contrast, a law firm performing pro bono
legal assistance to The Veterans Corporation* Fried, Frank, Harris,
Shriver & Jacobson* issued a memorandum dated December 5, 2001, that
stated *considering all the relevant factors, we believe that a court
would find the NVBDC [Veterans Corporation] is not a Government-
controlled corporation under 5 U. S. C. S:103 to which the 5 U. S. C.
S:5373 pay cap applies.* In another instance, another law firm that also
represents The Veterans Corporation* Hale and Dorr LLP* issued a
memorandum dated April 2, 2002, that stated that The Veterans Corporation
*does not meet the definition of an executive agency [executive
department, military department, wholly- owned government corporation, or
independent establishments] triggering FAR [Federal Acquisition
Regulations] mandates

for procurement.* The Veterans Corporation

It is too early to determine the effectiveness of The Veterans Corporation
Plans to Put Evaluative

programs to the veteran population because the programs are relatively
Performance Measures in

new and, in some cases, just under way. Officials indicated that they have
Place

broad performance measures for programs such as participants* satisfaction
ratings of the VET program and quantitative measures, such as the number
of credit cards and insurance policies issued, and dollar

volume of transactions for the Veterans Marketplace, which are used to
determine whether they are meeting early program objectives. The

Veterans Corporation*s business plan has outlined some corporate
objectives for fiscal year 2003, including delivering VET programs to at
least 500 veterans and transitioning military personnel. Other objectives
identified in the business plan include constructing a database that
contains accurate information on at least 250,000 veteran business owners
and expanding the micro loan program nationwide.

According to The Veterans Corporation officials, corporate objectives will
be reviewed quarterly. As programs mature, The Veterans Corporation
intends to assess program effectiveness periodically. Officials indicated
that they do not yet have refined and tested measures to assess the extent
their programs impact Veterans who seek to develop or expand their own
businesses. The officials explained that at this early stage, there is a
lack of historical [baseline] information against which to measure
progress. Additionally, they plan to continue developing performance
measures that assess overall program effectiveness.

Professional Certification As mandated by the Act, The Veterans
Corporation formed a Professional

Advisory Board Established Certification Advisory Board (PCAB) to (1)
create uniform guidelines and

but Progress Is Limited standards for the professional certification of
military personnel

Because of Complex Issues transitioning to civilian occupations and (2)
remove potential licensure and

certification barriers. Officials from another certification group told us
that veterans traditionally have a hard time transitioning into private-
sector employment because prospective employers have difficulty
understanding military experience and training. Private sector employers
are increasingly

requiring proof or certification of certain skills. Licensing and
certification are the two primary types of credentialing for individuals
seeking civilian positions that are equivalent to enlisted military
occupations. Occupations within the military that require private- sector
certification or licensing include, among other things, 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.
PCAB officials agreed that the task at hand is quite large, involving
multiple government entities.

The PCAB held its first meeting in October 2001. Subsequent, initial
meetings were spent identifying the scope of issues and key players. The
PCAB meets quarterly and has 26 members that serve voluntarily. The

board established three committees, including the (1) Barriers

Identification Committee, which is tasked with reviewing studies and
research to identify barriers that affect transitioning military
personnel; (2) Information Clearinghouse Committee, which is responsible
for obtaining and disseminating certification, licensure, and small
business development information; and (3) Research and Legislative Action
Committee, which will analyze barriers and develop recommendations.
According to the

PCAB chairman, the committees are developing their goals and have not yet
produced deliverables. The chairman explained that the Research and
Legislation Action Committee would use information from the other two
committees to develop recommendations.

One PCAB member acknowledged that while progress has been slow, he was
uncertain whether the PCAB committees could work any faster. He stressed
that the task at hand is quite large and that the pace of work is
dependent on the collective efforts of 26 members who serve on a voluntary
basis. For instance, one of the PCAB*s committees established to identify
certification and licensing obstacles is looking at which of the 105
identified military occupations have barriers, and it is reviewing the
licensing procedures of 53 states and jurisdictions. Some PCAB members
also represent other certification groups, such as the

Council of Licensure, Enforcement, and Regulation and the Commission for
Certification in Geriatric Pharmacy. A few board members told us that
representation from other certification efforts helps to avoid duplication
and complements the efforts of other groups. For instance, one board
member who also oversees the Department of Labor*s *Use Your Military

Experience and Training* (UMET) Web site on certification and licensing
information stated that there is no overlap of effort. In fact, he said
that the PCAB is utilizing UMET as a resource to obtain information on
certification issues. Another board member, who also chairs VA*s
Professional Certification and Licensing Advisory Committee (PCLAC),
agreed that the groups did not duplicate each other*s efforts and
explained that VA offers financial assistance to service members to cover
the cost of certification, up to $2,000. PCLAC advises VA on the
certification requirements that entities must meet in order to qualify for
payment.

A Veterans Corporation board member with whom we spoke identified some
concerns about communication between the PCAB and The Veterans Corporation
board of directors. For instance, the official commented that there has
been limited interaction between the PCAB and The Veterans Corporation
board of directors. Others, including an official at The Veterans
Corporation and a veterans group with whom we spoke, question

whether The Veterans Corporation was the appropriate organization to carry
out the PCAB*s mission. They stated that the PCAB might distract The
Veterans Corporation*s management and board of directors from their
principal activities. An official at The Veterans Corporation explained
that producing uniform standards and guidelines for certification was a
large and complicated task and inconsistent with the overall goals of The
Veterans Corporation, which are to provide entrepreneurial services.

The Veterans In its first 2 years of operations, The Veterans Corporation
received $8 Corporation*s Use of

million in federal appropriations and spent about $4.7 million of the
federal funds primarily on start- up costs. In fiscal year 2001, The
Veterans and Controls over

Corporation spent about $985,000 for salaries, professional services, and
Federal Funds other start- up costs. 5 In fiscal year 2002, The Veterans
Corporation spent

Received approximately $3.7 million in appropriations for that year on
expenditures

related to establishing its programs, as well as salaries, professional
services, and other start- up costs. 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. According to The
Veterans Corporation*s external auditor, The Veterans Corporation had
internal control issues in fiscal year 2001. However, the external auditor
determined that these deficiencies did not constitute material weaknesses
and that all but one of the deficiencies had been corrected in fiscal year
2002.

Most of The Veterans The Veteran Corporation*s management officials stated
that their approach Corporation*s Expenditures

was to spend conservatively on program and operating expenses in the to
Date Have Been Start- up

start- up period so that unused federal appropriations could be spent in
Costs future periods. During fiscal year 2001, The Veterans Corporation*s
sole sources of funding were from federal appropriations and related
interest earnings. Of the $4 million in appropriations received during
fiscal year 2001, it spent less than $1 million on start- up costs such as
salaries, professional services, and other administrative costs. In fiscal
year 2002, The Veterans Corporation spent approximately $3.7 million of
its federal

funds to establish its Veterans Marketplace* an on- line service for
selling goods and services of veteran- owned businesses* as well as for
other

5 Professional services include accounting, auditing, legal, consultants,
and writers.

program activities, salaries, professional services, and other start- up
costs. Beginning in fiscal year 2002, The Veterans Corporation also began
to receive other revenue, such as cash pledges, contributed services and
inkind

contributions from nonfederal sources. As of September 30, 2002, The
Veterans Corporation had approximately $3.3 million in unexpended federal
appropriations* approximately 40 percent of its $8 million in total
appropriations. The Veterans Corporation*s federal appropriations are
provided on a *no year* basis; therefore, unused appropriations can be
carried forward and applied to expenses in future fiscal years.

Federal appropriations have been a major source of revenue to The Veterans
Corporation since its inception. In fiscal year 2001, The Veterans
Corporation*s sole sources of funding were from federal appropriations and

related interest earnings. Beginning in fiscal year 2002, The Veterans
Corporation recognized cash contributions and pledges of approximately
$1.3 million and contributed services and in- kind contributions of
approximately $1.5 million as revenue from other sources. Contributed

services included legal services, Web site design, and use of a
proprietary Web site. As a result, the federal appropriations used in
fiscal year 2002 made up approximately 57 percent of The Veterans
Corporation*s total revenues. Appendix IV provides more detail on The
Veterans Corporation*s revenue and expenses for fiscal years 2001 and
2002.

As shown in table 1, the Corporation incurred various start- up costs for
its programs in 2001 and 2002. The Veterans Corporation*s expenses
increased significantly in 2002 primarily due to it hiring permanent
employees and the fees related to establishing The Veterans Marketplace.
Since its inception, The Veterans Corporation has spent about $4.7 million
of the $8 million total received to date in federal appropriations. In
fiscal year 2001, The Veterans Corporation spent approximately $985,000
for salaries, professional services, and other start- up costs. In fiscal
year 2002, The Veterans Corporation used federal funds to pay for expenses
related to an on- line service for selling goods and services of veteran-
owned businesses,

as well as its other program activities, salaries, professional services,
and other start- up costs. For further analysis of salaries, bonus, and
payments to staff for fiscal years 2001 and 2002, see appendix V.

Table 1: The Veterans Corporation*s Schedule of Expenses for Fiscal Years
Ending September 30, 2001, and 2002

Dollars in thousands

Expenses 2001 2002 Combined total

Salaries and benefits $101 $1,275 $1, 376 Professional services 500 596 1,
096 Travel and recruitment 122 94 216 Marketplace fees and E- commerce N/
A 1, 187 1,187

Rent 77 136 213 Other 185 467 652

Total expenses using federal appropriations $985 $3,754 $4, 740

Nonfederal expenses: Donated Services a N/ A 1, 417 1,417 Other N/ A 44 44

Total expenses $985 $5,216 $6, 201

Source: The Veterans Corporation. Notes: Numbers may not sum to total
because of rounding. Information derived from audited financial
statements. N/ A means not applicable. a Under the American Institute of
Certified Public Accountants* Audit and Accounting Guide, Not- forProfit

Organizations, donated services are a form of in- kind contribution and
are recognized as revenues and expenses.

Figure 2 shows The Veterans Corporation*s expenses for both fiscal years
2001 and 2002 by function (program, administrative, and fund- raising).
Financial reporting under U. S. generally accepted accounting principles
requires expenses by type and function.

Figure 2: The Veteran Corporation*s Federally Funded Expenses by Function
for Fiscal Years Ending September 30, 2001, and 2002 (dollars in
thousands)

3%

$26 $480

13% 39%

$379

23%

$864

59% 64%

$580 $2,410

FY 01 FY 02

Program activities Administrative Fund- raising Source: GAO.

Notes: Analysis of The Veterans Corporation*s audited financial
statements. Percentages may not total to 100 because of rounding.

The majority of The Veterans Corporation*s federally funded functional
expenses pertain to program activities* 59 percent for fiscal year 2001
and 64 percent for fiscal year 2002. Fund- raising costs were less than 20
percent for both fiscal years: 3 percent for fiscal year 2001 and 13
percent for fiscal year 2002. Administrative costs were 39 percent for
fiscal year 2001, which

primarily represented legal fees and recruitment costs, and were 23
percent for fiscal year 2002, which primarily represented salaries and
board expenses. As The Veterans Corporation*s operations expand, we expect

that the amount of program activities relative to total expenses will grow
and the ratio of administrative and fund- raising to total expenditures
will decrease.

Board of Directors Vests The board of directors is required to prescribe
the manner in which the

Expense Approval Authority obligations of The Veterans Corporation may be
incurred and how its

in Executive Staff expenses are allowed and paid. To fulfill this
responsibility, the board

approved a financial policy in December 2000, before it received its first
appropriations; officials of The Veterans Corporation were unable to
locate the text of the policy. However, minutes from the March 2001 board
meeting show that the board established initial disbursement authority for
executive- level staff in March 2001, the same month in which they were
hired. The board authorized the acting CEO and the acting associate
director to sign checks, drafts, or orders (1) in amounts no greater than
$50,000 without further action of the board; (2) in amounts greater than
$50,000 but less than $100, 000 with the additional signature of one
member of the executive committee; and (3) in amounts greater than $100,
000 with the additional signature of one member of the executive committee
and to notify all board members in writing of the disbursement, at least 7
days prior to issuance for checks, drafts, or orders. 6

Minutes of an executive committee meeting in May 2001 show that the
executive committee reduced the limit on expense authority from $50,000 to
$10, 000. All amounts in excess of $10,000 would require the signature of
one executive committee member and also require notification to the chair
of the executive committee. In January 2002, the board again amended the
expense authority based upon a proposal of the Chief Financial Officer

(CFO). Since January 2002, the board has retained authority to approve
expenditures in excess of $25,000 and has delegated disbursement authority
to executive- level staff. For example, the board authorizes the CEO to
disburse up to $25,000 per transaction; single transactions in excess of
$25, 000 and contracts with a total value greater than $25, 000 require
the approval of either the executive committee or the full board of
directors. In addition, 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. Both the CEO and the Managing
Director of Operations are authorized to sign checks.

6 The executive committee consists of four board members who generally may
make decisions on behalf of the full board.

Early Financial According to The Veterans Corporation*s external auditor,
The Veterans

Management Practices Corporation had internal control issues that could
have adversely affected Showed Weaknesses, but

its ability to administer a major federal program in accordance with
applicable laws, regulations, contracts, and grants. 7 However, the
external Were Addressed by New auditor determined that these conditions
did not cause The Veterans Leadership

Corporation to misrepresent its financial condition or operating results
for fiscal year 2001. Specifically, the external auditor found in its
fiscal year 2001 audit that The Veterans Corporation did not

 reconcile bank accounts on a timely basis and segregate cash duties; 
maintain adequate internal controls surrounding payroll processing; 
provide supporting documentation marked with an indication of review,
approval, and payment for all cash disbursements; 8 and

 maintain a filing system for accounting records. 7 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 to plan the audit to determine the nature, timing, and extent
of its auditing procedures 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.

8 The external auditor found that The Veterans Corporation initially
lacked documentation to support $212,800 in payments to consultants, but
support was later located for $115,000 of this amount. The auditor
subsequently satisfied themselves as to the reasonableness of the
remaining $97,800 by conducting alternative procedures to justify the
reported payments.

The external auditor classified these internal control matters as
reportable conditions, and did not identify any instances of material
weaknesses, which would indicate a potentially greater detrimental effect
on an entity*s internal controls. 9 These reportable conditions were
detailed in a letter to management. 10 The partner of The Veterans
Corporation*s external auditor, who oversaw the audit, stated that such
accounting deficiencies are not unusual for start- up small businesses.
According to The Veterans Corporation*s external auditor, the reported
deficiencies have been addressed in fiscal year 2002, with one exception*
reconciliation of bank

accounts on a timely basis. Financial SelfSufficiency To address the
requirement to become a self- sustaining entity, The Veterans

Plan in Corporation has developed a plan to become self- sufficient based
on four

major sources of revenue* an electronic marketplace, a credit card Place
but Too Early to

program, an insurance program, and fund- raising. According to an official
Determine the at The Veterans Corporation, the revenue assumptions were
developed

Likelihood of Success based on discussions and input from their partners
such as eScout,

Advanta, and Aon Financial Institution Alliance. Revenue assumptions
contained in the self- sufficiency plan cover fiscal years 2003 and 2004.
At the time of our review, three of the four efforts* the electronic

marketplace, credit card and insurance services* were just starting to
produce revenue. According to the CFO, fund- raising goals are targeted
toward supporting education and training efforts. In fiscal year 2002, The
Veterans Corporation earned approximately $2.8 million to satisfy federal
matching requirements. Additionally, the plan calls for quarterly reviews
to assess targeted projections. Officials said that if projections are not
met,

unsuccessful programs may be discontinued and alternative revenue sources
will be developed.

9 Reportable conditions are matters coming to the auditor*s attention
that, in his/ her judgment, should be communicated to the board of
directors because they represent significant deficiencies in the design or
operation of internal controls, which 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.

10 The external auditor identified other internal control matters in the
letter to management, such as the lack of a written procurement policy,
but did not classify them as reportable conditions.

The Veterans Corporation The Act requires that The Veterans Corporation
raise private funds and

Implements Self- Sufficiency become a self- sustaining corporation. The
Veterans Corporation has

Plan implemented a plan to achieve financial self- sufficiency by
September 30, 2004, that is based on four major sources of revenue:

 Veterans Marketplace. According to the plan, The Veterans Marketplace is
expected to generate the greatest share of revenue* approximately 43
percent* to The Veterans Corporation in fiscal year 2004, the final fiscal

year of federal funding. The revenue sharing agreement between The
Veterans Corporation and eScout, which operates the on- line marketplace,
allows for The Veterans Corporation to collect 49 percent of revenues
received from on- line purchases and other transactional services
purchased by members of The Veterans Marketplace, as well as 20 percent of
the fees paid by members who access products.

 Veterans Platinum BusinessCard. About 19 percent of fiscal year 2004
revenue will come from the credit card program for each new activated
account as well as a share (0.2 percent) of eligible purchases made with
the card.

 Veterans Affinity Insurance Program. Approximately 19 percent of revenue
will come from sales of business insurance and other products to veteran-
owned businesses. According to its agreement with Aon Financial
Institution Alliance, The Veterans Corporation receives commissions or
fees, which are structured differently for each insurance product.

 Fund- raising. The Veterans Corporation has implemented a multiyear,
multimillion- dollar, fund- raising campaign primarily to support The
Veterans Entrepreneurial Training program. The self- sufficiency plan
includes only a part of their fund- raising goals (15 percent of funds
raised that are retained for overhead costs) plus any interest income. In
fiscal year 2004, this is expected to account for 19 percent of revenue.

Although The Veterans Corporation has other initiatives under way that are
expected to generate revenue, such as The Veterans Capital Fund or micro
loan program, they were not considered to be primary revenue sources for
meeting self- sufficiency.

The CFO at The Veterans Corporation said that the revenue assumptions were
based on input from partners that operate similar programs. For instance,
revenue assumptions for The Veterans Marketplace were based on a
discussion with eScout personnel on (1) building similar private exchanges
and (2) customer and revenue projections. The process was similar for the
credit card and insurance programs, and included discussions with Advanta
and Aon Financial Institution Alliance, respectively. The official
indicated that both Advanta and Aon were reluctant to offer revenue
projections, but they provided enough information to enable The Veterans
Corporation to project revenue. The self- sufficiency plan is based on
revenue assumptions over fiscal years 2003 and 2004.

It is too early to determine if The Veterans Corporation will become
financially self- sufficient by September 30, 2004. At the time of our
review, three of its efforts were just beginning to produce revenue. For
instance, The Veterans Marketplace, while operational since June 2002, was
in the

process of building a customer list. The other two efforts, the credit
card and insurance services, were just launched in January 2003 and
December 2002, respectively. Further, according to the plan, total revenue
from these activities is not expected to exceed expenses until the fourth
quarter of fiscal year 2004. Because The Veterans Corporation*s federal
appropriations are provided on a *no year* basis, unused appropriations
can be carried over into future

fiscal years and, thus, are available to cover future years* expenses. An
official at The Veterans Corporation stated that they expect to have a
surplus of funds at the end of the fourth year of government support
which, if necessary, would cover their operating costs in the following
year.

Funds Raised Will Be Used The Veterans Corporation has a fund- raising
goal of $2.5 million in fiscal

to Support the VET Program year 2003 and $3 million in fiscal year 2004 to
support education and

training efforts, primarily the VET program. In fiscal year 2002, The
Veterans Corporation earned about $2.8 million, exceeding its goal of $2
million. To help raise funds, they contracted with Changing Our World, a
fund- raising organization, and are establishing a fund- raising advisory
board of approximately 12 to 15 individuals. A Veterans Corporation
official explained that it initially planned to rely on fund- raising to
support operations until other revenue sources were in place, but the
corporation refocused in light of current economic conditions and limited
success in raising funds for operations. The corporation*s revised fund-
raising strategy

focuses on financing VET program costs. The official further explained
that money raised would be used for direct program expenses and not for
The Veterans Corporation administrative expenses. VET course
administration and materials cost The Veterans Corporation about $1,850
per student, of which enrollees pay $350. As identified in its business
plan, the VET corporate objective for fiscal year 2003 is to deliver the
program to 500 participants.

The Veterans Corporation Is While The Veterans Corporation only had two
sources of income for fiscal

Developing Other Sources year 2001, which were federally appropriated
funds and the interest earned of Income

on them, sources of income for fiscal year 2002 included federal
appropriations and interest income plus cash donations, pledges for future
cash donations, contributed services, in- kind donations, contract revenue
from the federal government, and other sources. It is important to note
however, that approximately $1.2 million of The Veterans Corporation*s
fiscal year 2002 revenues were pledges for future payments to The Veterans
Corporation. 11 Figure 3 shows The Veterans Corporation*s income for
fiscal year 2002, exclusive of federally appropriated funds and interest
earned on those funds. 11 The Veterans Corporation recorded the pledges it
expects 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.

Figure 3: Sources of Other Income from Fund- raising and Activities for
Fiscal Year Ending September 30, 2002 (dollars in thousands)

Less than 1% Other ($ 11)

2% Cash contributions ($ 66)

43%

Cash pledges ($ 1,197)

54%

Contributed services and in- kind contributions ($ 1,517)

Source: GAO. Notes: Analysis of The Veterans Corporation*s audited
financial statements. Percentages may not total to 100 because of
rounding.

Most of the other funds raised in fiscal year 2002 were in the form of
contributed services, such as legal services and ability to provide the
EntreWorld on- line library through The Veterans Corporation*s Web site at
no cost to The Veterans Corporation, as well as pledges for future
payments of cash. Ten pledges were made, two of which are collectible over
a period of 10 years. The Veterans Corporation raised approximately

$66,000 in cash, $5, 100 in contract revenue from the federal government,
and $5,900 in other funds in fiscal year 2002.

The Veterans Corporation The Veterans Corporation intends to evaluate the
self- sufficiency plan on a

Will Measure Progress quarterly basis to assess whether its strategies are
sufficient to meet

Toward Self- Sufficiency in targeted projections. The CFO of The Veterans
Corporation said that

Fiscal Year 2003 management would review the progress of the plan,
including decisions to

discontinue unsuccessful programs. In the event that projections are not

met for 2003, a Veterans Corporation official stated that they would then
consider alternative revenue sources to allow them to meet their
selfsufficiency goal. In addition, officials at The Veterans Corporation
told us that they continuously look for potential business opportunities
to complement their efforts and have had some early discussions on other

possible ventures. Agency Comments and

We received written comments on a draft of this report from The Veterans
Our Evaluation

Corporation. We also obtained technical comments from SBA and VA that have
been incorporated into this report where appropriate.  The Veterans
Corporation commented that their programs have broad

measures, quantitative and/ or qualitative, that are used to assess early
program objectives. In addition, corporation representatives pointed out
that they have not yet refined and tested measures to assess whether their
programs ultimately have a positive effect on veterans who own or want to
start their own businesses. We discussed this issue with The

Veterans Corporation and obtained additional documentation supporting
these broad measures and noted this in the report.

 Representatives of The Veterans Corporation expressed their concern with
the inability to obtain information about transitioning service members
and Veterans from federal agencies. In response to our draft report, VA
concluded that they could disclose a list of names and addresses of
veterans and their small businesses to the public, including The Veterans
Corporation. Further, VA officials stated that arrangements are under way
to make this information available on their Web site. However, it remains
to be seen whether the information that will be available on VA*s Web site
will meet The Veterans Corporation*s needs.

 The Veterans Corporation reiterated that the Professional Certification
Advisory Board would be more appropriately led by an entity other than The
Veterans Corporation and that it has not been provided adequate funding or
appropriate authority to achieve the goal of creating uniform standards
for professional certification. However, The Veterans Corporation stated
their commitment to carrying out the Professional Certification Advisory
Board*s mission as mandated in the Act.

 In reference to The Veterans Corporation*s reported accounting
deficiency for fiscal year 2002, it submitted a copy of management*s

response, which outlines the steps that it plans to take in response to
this issue. We will send copies of this report to interested congressional
committees and the President and CEO of The Veterans Corporation. We will
make copies available to others on request. In addition, this report will
also be available at no charge on our homepage at http:// www. gao. gov

If you or your staff have any questions on this report, please contact me
at (202) 512- 8678, jenkinswo@ gao. gov or Harry Medina at (415) 904-
2000, medinah@ gao. gov. Key contributors are listed in appendix VII.

William O. Jenkins, Jr. Director, Financial Markets

and Community Investment

List of Committees

The Honorable Olympia Snowe Chairwoman The Honorable John Kerry Ranking
Minority Member Committee on Small Business and Entrepreneurship United
States Senate

The Honorable Donald Manzullo Chairman The Honorable Nydia Velazquez
Ranking Minority Member Committee on Small Business House of
Representatives

The Honorable Arlen Specter Chairman The Honorable Bob Graham Ranking
Minority Member Committee on Veterans* Affairs United States Senate

The Honorable Christopher Smith Chairman The Honorable Lane Evans Ranking
Minority Member Committee on Veterans* Affairs House of Representatives

Appendi Appendi xes x I

Scope and Methodology To describe 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,
and program literature. Additionally, we interviewed staff and board
officials from The Veterans Corporation, as well as partnering
organizations including officials from eScout, Changing Our World,
Equisource, and Southern Financial Bank. 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 a veteran service organization, the Vietnam
Veterans of America, as well as a consultant* Halsey, Rains, and
Associates.

To meet our objective to describe The Veterans Corporation*s use of and
controls over federal funds, we

 Obtained and analyzed The Veterans Corporation*s fiscal year 2001 and
2002 financial statements and audit reports, and management letter for
2001. We did not evaluate the quality of the other auditor*s work on the
financial statement or conduct our own tests of the financial statement
balances;

 Reviewed The Veterans Corporation*s contract with the external auditor
for the 2002 financial statement audit to understand the nature of the
audit services to be provided and the extent of the auditor*s proposed
work on internal control;

 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;

 Communicated with The Veterans Corporation*s external auditor to, among
other things, determine the extent of financial management deficiencies in
The Veterans Corporation; and

 Interviewed the Chief Financial Officer (CFO) of The Veterans
Corporation.

To determine what efforts The Veterans Corporation made to become
financially self- sufficient, we reviewed their self- sufficiency plan and
discussed it with The Veterans Corporation*s CFO. We did not independently
assess the financial assumptions presented in the plan.

Timeline of The Veterans Corporation*s Key

Appendi x II

Efforts and Activities Effective date Efforts and activities

October 1998 Report of the Small Business Administration Veterans Affairs
Task Force for Entrepreneurship, *Leading the Way: What Veterans Need From
the SBA,* presented to Congress

August 1999 Veterans Entrepreneurship and Small Business Development Act
(Public Law 106- 50) enacted October 1999 National Veterans Business
Development Corporation is incorporated in the District of

Columbia August - December 2000 President appoints eight board members

First Board of Directors meeting in September 2000 March 2001 The Veterans
Corporation receives initial federal funding ($ 4 million) October 2001
The Veterans Corporation receives second installment of federal funding ($
4 million)

Charles R. Henry hired as CEO and president First meeting of the
Professional Certification Advisory Board (PCAB) November 2001 The
President appoints ninth and final board member December 2001 Kauffman
Foundation grants The Veterans Corporation permission to use EntreWorld
January 2002 Agreement reached with eScout to develop the Veterans
Marketplace

Agreement reached with Equisource to create the Veterans Capital Fund
February 2002 Micro loan program initiated with Southern Financial Bank,
Virginia April 2002 www. veteranscorp. org Web site operational

Brigadier General Robert Cocroft (United States Army Retired) appointed
chairman of the PCAB May 2002 Agreement signed with eScout to license the
Veterans Marketplace

Legacy Bank, Pennsylvania, enters micro loan program July 2002 Changing
Our World engaged to lead fund- raising effort

First Tennessee Bank, Tennessee, enters micro loan program August 2002
Public service announcements launched with Time- Warner Cable Television
September 2002 PCAB committees formed

Memorandum of Understanding signed with National Defense Industrial
Association (NDIA) to conduct joint meetings nationwide to emphasize
business opportunities for veterans and NDIA

Agreement reached with Advanta Bank to develop The Veterans Corporation
Platinum BusinessCard

Agreement reached with First American Engineering to sponsor Veteran
Business Success Seminars

Agreement reached with Defense Logistics Agency to enhance business
assistance to veterans and service- disabled veterans

October 2002 Contract signed with Gateway Computer for computers and
computer training for Veteran Entrepreneurial Training (VET) graduates

Agreement reached with Aon Financial Institution for insurance/ benefits
program Agreement reached with Lee Wayne Inc., to promote independent
business opportunities for veterans

(Continued From Previous Page)

Effective date Efforts and activities

First Veteran Business Success Seminar, Idaho 15 Facilitators trained to
teach VET program Site agreement reached with George Mason University,
Virginia, and Riverside Community District College, California for VET
Program

First 3 VET programs launched in Maine, California, and Virginia Source:
GAO.

Note: Analysis of The Veterans Corporation data.

The Veterans Corporation*s Initiatives in

Appendi x III

Response to Statutory Requirements Statutory requirement Initiative
PROGRAMMATIC

Expand provision of and improve access to technical assistance  www.
veteranscorp. org

regarding entrepreneurship for veterans.  EntreWorld on- line small
business resource library  Veterans Entrepreneurial Training program 
Veterans Business Success seminars

Assist veterans, including service- disabled veterans, with the  Micro
loan program formation and expansion of small businesses.  Veterans
Entrepreneurial Training program

 Veterans Marketplace  Veterans Capital Fund  Veterans Corporation
Platinum BusinessCard  Insurance/ benefits program  America*s Business
Network  Develop business opportunities for veterans through alliances:

Lee Wayne, Inc., Defense Logistics Agency, National Defense Industrial
Association, First American Engineering Organize public and private
resources, including those of federal

 Meetings with federal agencies: DOL, DOD, SBA, VA agencies.  Veterans
Capital Fund

 Micro loan program Establish and maintain a network of information and
assistance  www. veteranscorp. org centers for use by veterans and the
public. Establish Professional Certification Advisory Board.  26- member
board

 Three committees Assume duties, responsibility, and authority of the
Advisory  Business plan Committee on Veterans Affairs on October 1, 2004.
ORGANIZATION DEVELOPMENT

Institute and implement a fund- raising and self- sufficiency plan. 
Business plan  Self- sufficiency plan  Revenue- producing ventures:
Veterans Marketplace, Veterans Corporation Platinum BusinessCard,
Insurance/ benefits, Veterans Capital Fund, Micro loan program

Raise matching funds to fulfill conditions for receipt of federal funds. 
Changing Our World  Fund- raising advisory board

Transmit an annual report to the President and to Congress.  Annual
reports Board of Directors oversight of Corporation*s obligations and

 Audit committee expenses. Source: The Veterans Corporation.

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

The Veterans Corporation*s Revenue and

Appendi x IV

Expenses for Fiscal Years 2001 and 2002 As noted in table 2, The Veterans
Corporation received federal appropriations of $4 million in each of
fiscal years 2001 and 2002 and used approximately $1 million and $3.7
million in fiscal years 2001 and 2002, respectively. At the end of fiscal
years 2001 and 2002, The Veterans Corporation had approximately $3 million
and $3.3 million, respectively, in unexpended appropriations.

Table 2: The Veterans Corporation*s Schedule of Appropriations for Fiscal
Years Ending September 30, 2001, and 2002

Dollars in thousands

2001 2002

Federal appropriations received $4, 000 $4, 000 Federal appropriations
used 985 3, 754

Subtotal: current year*s unused appropriations 3, 015 246

Unexpended appropriations, beginning balance N/ A 3, 015

Unexpended appropriations, ending balance $3, 015 $3, 261

Source: The Veterans Corporation. Notes: Data from audited financial
statements.

N/ A means not applicable.

As shown in table 3, federal appropriations were the major source of
revenue to The Veterans Corporation in fiscal years 2001 and 2002.
Beginning in fiscal year 2002, The Veterans Corporation began to realize
revenue from cash contributions and pledges, as well as contributed
services and in- kind contributions.

Table 3: The Veterans Corporation*s Schedule of Revenue for Fiscal Years
Ending September 30, 2001, and 2002

Dollars in thousands

2001 2002 Combined total Revenue Dollars Percent Dollars Percent Dollars
Percent

Federal appropriations used $985 93 $3,754 57 $4,739 62 Cash contributions
and pledges N/ A N/ A 1,263 19 1,263 16

Contributed services and in- kind contributions N/ A N/ A 1,517 23 1,517
20

Interest income 71 7 63 1 134 2 Other N/ A N/ A 11 N/ A 11 N/ A

Total revenue $1,055 100 $6, 609 100 $7,664 100

Source: The Veterans Corporation. Notes: Data from audited financial
statements. Numbers may not sum to total because of rounding.

N/ A means not applicable.

The Veterans Corporation reported approximately $1.3 million in cash
contributions and pledges in 2002 as revenue. The majority of the revenue,
$1.2 million, pertained to unconditional pledges that The Veterans
Corporation recognized as temporarily restricted revenue when the
corporation was notified of the pledges. The Veterans Corporation recorded
the pledges it expects 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, 2002.

Table 4: The Veterans Corporation*s Schedule of Contributions Receivable
as of September 30, 2002 Dollars in thousands

Contributions receivable to be received in Dollars Percent

Less than 1 year $262 22 One to 5 years 784 66 Greater than 5 years 303 25

Subtotal $1, 349 113

Less: present value discount 152 13

Contributions receivable $1, 197 100

Source: The Veterans Corporation. Note: Data from audited financial
statements.

Table 5 presents The Veterans Corporation*s federally funded expenses by
functional area for fiscal years 2001 and 2002. Expenses related to
program activities represent the majority of the Corporation*s expenses
and we expect them to grow, as the percentage of fund- raising and
administrative expenses would decrease over time relative to total
expenditures.

Table 5: The Veterans Corporation*s Federally Funded Expenses by Function
for Fiscal Years Ending September 30, 2001, and 2002.

Dollars in thousands

2001 2002 Functional areas Dollars Percent Dollars Percent

Program activities $580 59 $2, 410 64 Fund- raising 25 3 480 13
Administrative 379 39 864 23

Total expenses $985 100 $3, 754 100

Source: The Veterans Corporation. Notes: Data from audited financial
statements. Numbers may not sum to total because of rounding.

The Veterans Corporation*s Salary, Bonus, and Payments to Staff for Fiscal
Years 2001 and

Appendi x V

2002 Table 6 shows The Veterans Corporation*s aggregate compensation
amounts for executive management and all other staff for fiscal years 2001
and 2002. 1 Six employees comprised executive management and all other
staff consisted of 13 employees, however not all staff were employed
concurrently. For fiscal year 2001, the data are disaggregated by salary
and payments to contract workers for the provision of services. Prior to
August 2001, the board of The Veterans Corporation did not hire permanent
employees. Instead, they executed contracts with individuals to provide
services. These payments are represented as payments to contract workers,
as shown in table 6 below. For fiscal year 2002, the salary data is
disaggregated by wage and bonus payments.

Table 6: The Veterans Corporation*s Aggregate Compensation for Executive
Management and All Other Staff for Fiscal Years Ending September 30, 2001,
and 2002

Dollars in thousand

FY 2001 FY 2002 Payments to

contract Salary a

workers (August *

Employee classification

(March * July) September) Total Wage Bonus Total salary a

Executive management $131,000 $55,793 $186,793 $557,000 $137,500 $694, 500
All other staff 97,800 37, 845 135,645 430,290 12,500 442, 790

Total $228,800 $93,638 $322,438 $987,290 $150,000 $1,137, 290

Source: GAO analysis of The Veterans Corporation data. a Salary does not
include benefits.

1 The Veterans Corporation*s payments to consultants were $403,291 in
fiscal year 2001 and $845, 530 in fiscal year 2002.

Appendi x VI Comments from The Veterans Corporation

Appendi x VII

GAO Contacts and Staff Acknowledgments GAO Contacts William O. Jenkins,
Jr. (202) 512- 8678 Harry Medina (415) 904- 2000 Acknowledgments In
addition to the persons named above, Janet Fong, Jeanette M. Franzel,

Marc W. Molino, Charles E. Norfleet, Julie T. Phillips, Barbara M.
Roesmann, Kathryn M. Supinski, and Paul G. Thompson made key contributions
to this report.

(250090)

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Report to Congressional Committees

April 2003 SMALL BUSINESS The National Veterans Business Development
Corporation*s Progress in Providing Small Business Assistance to Veterans

GAO- 03- 434

Letter 1 Results in Brief 2 Background 4 The Veterans Corporation
Initiates Entrepreneurial Services to

Veterans 5 The Veterans Corporation*s Use of and Controls over Federal
Funds

Received 17 Financial Self- Sufficiency Plan in Place but Too Early to
Determine

the Likelihood of Success 23 Agency Comments and Our Evaluation 28

Appendixes

Appendix I: Scope and Methodology 31

Appendix II: Timeline of The Veterans Corporation*s Key Efforts and
Activities 32

Appendix III: The Veterans Corporation*s Initiatives in Response to
Statutory Requirements 34

Appendix IV: The Veterans Corporation*s Revenue and Expenses for Fiscal
Years 2001 and 2002 35

Appendix V: The Veterans Corporation*s Salary, Bonus, and Payments to
Staff for Fiscal Years 2001 and 2002 38

Appendix VI: Comments from The Veterans Corporation 39

Appendix VII: GAO Contacts and Staff Acknowledgments 42 GAO Contacts 42
Acknowledgments 42

Tables Table 1: The Veterans Corporation*s Schedule of Expenses for Fiscal
Years Ending September 30, 2001, and 2002 19

Table 2: The Veterans Corporation*s Schedule of Appropriations for Fiscal
Years Ending September 30, 2001, and 2002 35 Table 3: The Veterans
Corporation*s Schedule of Revenue for Fiscal

Years Ending September 30, 2001, and 2002 36 Table 4: The Veterans
Corporation*s Schedule of Contributions Receivable as of September 30,
2002 37

Table 5: The Veterans Corporation*s Federally Funded Expenses by Function
for Fiscal Years Ending September 30, 2001, and 2002. 37

Table 6: The Veterans Corporation*s Aggregate Compensation for Executive
Management and All Other Staff for Fiscal Years Ending September 30, 2001,
and 2002 38

Figures Figure 1: The Veterans Corporation: Description and Status of Key
Initiatives, as of March 2003 10

Figure 2: The Veteran Corporation*s Federally Funded Expenses by Function
for Fiscal Years Ending September 30, 2001, and 2002 (dollars in
thousands) 20 Figure 3: Sources of Other Income from Fund- raising and
Activities

for Fiscal Year Ending September 30, 2002 (dollars in thousands) 27

Abbreviations

CCR Central Contractor Registration CEO Chief Executive Officer CFO Chief
Financial Officer DOD Department of Defense FAR Federal Acquisition
Regulations OGC Office of General Counsel PCAB Professional Certification
Advisory Board PCLAC Professional Certification and Licensing Advisory
Committee PRO- Net Procurement Marketing and Access Network SBA Small
Business Administration SBIC Small Business Investment Corporation UMET
Use Your Military Experience and Training VA Department of Veteran Affairs
VET Veterans Entrepreneurial Training

This is a work of the U. S. Government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. It may contain
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a

GAO United States General Accounting Office

The Veterans Corporation is providing veterans with entrepreneurial
training, on- line educational resources, micro loans, business insurance,
and an on- line marketplace. The Veterans Corporation identified initial
challenges that slowed program progress, including getting information on
transitioning military personnel; and veteranowned businesses; and delays
in making management appointments. Because the programs are new, it is too
early to determine their effectiveness.

During its first 2 years of operation, The Veterans Corporation spent
about $5 of $8 million in total federal appropriations; about $1 million
in fiscal year 2001; and about $4 million in fiscal year 2002, with the
largest part of the increase due to salaries and program costs. An
external audit for fiscal year 2001 identified internal control issues,
such as the lack of adequate supporting documentation for disbursements
and untimely reconciliation of bank accounts. According to the external
auditor, all but one of the deficiencies was addressed in 2002.

The Veterans Corporation has developed a financial self- sufficiency plan
based on four major revenue sources* an on- line marketplace, a credit
card program, an insurance service program, and fund- raising. At the time
of GAO*s review, most of these efforts were just beginning to produce
revenue. According to the plan, The Veterans Corporation is not expected
to achieve self- sufficiency until the fourth quarter of fiscal year 2004.
If outcomes do not meet projections, Veterans Corporation officials stated
that they would explore alternatives.

Description and Status of Key Initiatives, as of March 2003 Success is
Contagious TM

Thee Veterans Veterans Corporation Cor S iCi

Initiative Description Status www. veteranscorp. org Web site of The
Veterans Corporation. Launched in April

2002 and operational.

Micro Loan Program Loan referral program with regional banks. Operational
in February 2002. Three participating banks

in eastern United States.

Veterans Marketplace E- commerce platform that facilitates purchases
between veteran- owned and other businesses.

Launched in June 2002.

Veterans Entrepreneurial Training Program A business training program

consisting of 30- 45 hours of interactive training.

Launched in October 2002 with three pilot locations.

Veterans Corporation Platinum BusinessCard Credit card for business use.
Launched in January 2003.

Veterans Capital Fund Venture capital fund for veteran- owned and other
businesses; proceeds fund veteran programs.

In planning. Expected to launch in 2003.

Veterans Business Success Seminars One- day seminars on what

veterans need to know before starting a business.

Two pilot seminars held in October and November 2002.

Insurance/ Benefits Program Business insurance

products at group rates. Launched in December 2002. Source: GAO. SMALL
BUSINESS

The National Veterans Business Development Corporation's Progress in
Providing Small Business Assistance to Veterans

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 434. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact William O. Jenkins, Jr. at (202) 512- 8757, or
JenkinsWO@ gao. gov.

Highlights of GAO- 03- 434, a report to the House and Senate Committees on
Small Business and Veterans' Affairs.

April 2003

The Veterans Entrepreneurship and Small Business Development Act of 1999
(Act) created the National Veterans Business Development Corporation (The
Veterans Corporation) to address perceived gaps in providing small
business and entrepreneurship assistance to veterans. The Act requires GAO
to review The Veterans Corporation. As agreed with committee staff, GAO
described The Veterans Corporation*s (1) efforts to provide small business
assistance to veterans, including service- disabled veterans; (2) use of
and controls over federal funds in providing these services; and (3)
efforts to become financially self sufficient.

Page i GAO- 03- 434 Progress of The Veterans Corporation

Contents

Contents

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Appendix I

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Appendix II

Appendix II Timeline of The Veterans Corporation*s Key Efforts and
Activities

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Appendix III

Page 35 GAO- 03- 434 Progress of The Veterans Corporation

Appendix IV

Appendix IV The Veterans Corporation*s Revenue and Expenses for Fiscal
Years 2001 and 2002

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Appendix IV The Veterans Corporation*s Revenue and Expenses for Fiscal
Years 2001 and 2002

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Appendix V

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Appendix VI

Appendix VI Comments from The Veterans Corporation

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Appendix VI Comments from The Veterans Corporation

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Appendix VII

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