Small Business: The National Veterans Business Development	 
Corporation Faces Challenges in Planning for and Achieving	 
Financial Self-sufficiency (30-AUG-04, GAO-04-893).		 
                                                                 
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.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-893 					        
    ACCNO:   A11929						        
  TITLE:     Small Business: The National Veterans Business	      
Development Corporation Faces Challenges in Planning for and	 
Achieving Financial Self-sufficiency				 
     DATE:   08/30/2004 
  SUBJECT:   Employment or training programs			 
	     Federal funds					 
	     Financial statement audits 			 
	     Internal controls					 
	     Performance measures				 
	     Program graduation 				 
	     Reporting requirements				 
	     Schedule slippages 				 
	     Small business					 
	     Small business assistance				 
	     Strategic planning 				 
	     Veterans						 
	     Veterans employment programs			 
	     National Veterans Business Development		 
	     Corporation Veterans Entrepreneurial		 
	     Training Program					 
                                                                 

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GAO-04-893

                 United States Government Accountability Office

                     GAO Report to Congressional Requesters

August 2004

SMALL BUSINESS

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

                                       a

GAO-04-893

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

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.

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, outcomeoriented 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.

August 2004

SMALL BUSINESS

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

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
selfsufficiency. 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 selfsufficiency from fiscal year 2004 to fiscal year 2009. Its
self-sufficiency strategy is heavily dependent on its ability to develop a
database of veteranowned 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.

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 [email protected].

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

1 2 3

7

18

24

31 38 39 40

Appendixes

Appendix I: Appendix II:

Appendix III:

Appendix IV: Appendix V: Scope and Methodology

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

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

Comments from The Veterans Corporation

GAO Contacts and Staff Acknowledgments

GAO Contacts
Staff Acknowledgments

44

46

48

51

54 54 54

Tables	Table 1: Table 2: Table 3: Table 4: Table 5:

The Veterans Corporation's Schedule of Expenses for
Fiscal Years Ending September 30, 2002, and 2003 28
Veterans Corporation's Schedule of Appropriations for
Fiscal Years Ending September 30, 2002, and 2003 48
Veteran Corporation's Schedule of Revenue for Fiscal
Years Ending September 30, 2002, and 2003 48
Veterans Corporation's Schedule of Contributions
Receivable As of September 30, 2003 49
Veteran Corporation's Federally Funded Expenses by
Function for Fiscal Years Ending September 30, 2002, and
2003 50

                                    Contents

Figures	Figure 1: Figure 2: Figure 3:

Figure 4: Figure 5:

Status of The Veterans Corporation's Key Initiatives, as of
June 2004 12
Differences between the Business Directory and Vendor
Information Pages 14
The Veterans Corporation's Federally Funded Expenses
by Function for Fiscal Years Ending September 30, 2002,
and 2003 29
Sources of Income from Fund-raising and Other Activities
for Fiscal Year Ending September 30, 2003 30
Projected Self-sufficiency Revenue in Fiscal Year 2009 32

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

This is a work of the U.S. government and is not subject to copyright
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separately.

A

United States Government Accountability Office Washington, D.C. 20548

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.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
selfsufficient.

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.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.3

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

2GAO, 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).

3Internal 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.

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;4 and (5) assume the duties,

4Licensing 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.

responsibilities, and authority of the Advisory Committee on Veterans
Business Affairs, a body created by the Act, by October 1, 2004.5

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 selfsufficient. 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.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-fordollar 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 selfsufficiency. 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

5The 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.

615 U.S.C. S:657c(k) (2).

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
fundraising, 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; 7 and (3) other cash
sources such as fundraising. 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

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

Corporation has revised its estimated date for achieving financial
selfsufficiency 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 selfsufficiency 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
selfsufficiency 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:

o 	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.

o 	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.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.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 SBAapproved loans.

o 	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.

o 	Merchant Processing Services. In partnership with Newtek Merchant
Solutions, The Veterans Corporation is offering credit card and debit

8According 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.

9According 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.

card processing and check verification for veteran-owned small businesses.

o 	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.

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

o 	Veterans Purchase Net. The Veterans Corporation put in place a
bidand-response system for buyers and sellers of products or services in
partnership with Diversity Vendors, Inc.11 The sellers receive nightly
emails 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

10According 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.

11According 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.

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.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

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

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

                                                Initiative Description Status 
          www.veteranscorp.org Web site of The Veterans Corporation. Veterans 
               Marketplace Veterans Entrepreneurial Training program Veterans 
                Purchase Net Veterans Small Business Finance program Veterans 
           Pipeline Accounting and Tax Services Veterans Corporation Platinum 
             BusinessCard Veterans Corporation Business Directory Launched in 
         April 2002. Members: 11,506. Launched in June 2002. Two pilots under 
              way with VA and St. Louis, Missouri School District. E-commerce 
          platform that facilitates purchases between veteran-owned and other 
             businesses. Launched in October 2002. Graduates since inception: 
                879. A business training program consisting of 30-45 hours of 
                 interactive training. Veterans Insurance program Launched in 
            December 2002. Health plans sold: 5. Business insurance products. 
                 Launched in January 2003. Cards issued: 203. Credit card for 
                 business use. Launched in April 2003. Members: 2,668. Online 
                directory of veteran-owned businesses, highlighting mobilized 
          members of the Reserve and Guard. Launched in April 2003. Accounts: 
         57. Registered veteran-owned businesses: 1,280. Subscription service 
         utlizing a bid-andresponse system for buyers and sellers of products 
                 and services. Launched in May 2003. Loans approved: 9. Small 
          business loans nationwide offering SBA loan guarantees from $50,000 
         to $2 million. Launched in July 2003. Sales to date: 0. Subscription 
             service that provides federal contracting research for companies 
           seeking to sell to the government. Launched in July 2003. Sales to 
         date: 0. Services include bill payment, maintaining general ledgers, 
          financial report preparation, and tax services. Merchant Processing 
               Services Launched in November 2003. Sales to date: 3. Merchant 
         processing services such as credit card and debit card transactions. 
           National Veterans Community-Based Organization Initiative Launched 
         in June 2004. Initial test site locations: San Francisco, St. Louis, 
                       and Pittsburgh. Comprehensive local delivery system of 
                                      entrepreneurial education and services. 

             Source: GAO analysis of The Veterans Corporation data.

Veterans Corporation The services offered by The Veterans Corporation
generally complemented Services Generally services offered by federal
agencies, including VA and SBA. As noted in our Complemented Federal
previous report, Veterans Corporation officials said that they have been

careful not to duplicate existing services. Most of The Veterans

Efforts	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 veteranowned 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

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.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.

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

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

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

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

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.

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.

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
veteranowned 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 selfsufficiency
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.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 During our work on our last report, officials
at The Veterans Corporation

Corporation Has Continued to indicated that questions about the legal
status of The Veterans Corporation

Affect Its Operations	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

14On 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.

were a federal agency, its ability to raise private funds and become
selfsustaining, 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.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. S: 103 (2000) and an "agency" under 31 U.S.C.
S: 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.

15GAO-03-434, p. 14.

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.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 According to its external auditor, The Veterans
Corporation's had internal Addressed Identified control issues that could
have adversely affected its ability to administer a Financial Control
major federal program in accordance with applicable laws, regulations,

Weaknesses

16The 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.

contracts, and grants.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.18 This reportable condition was
detailed in a letter to management.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

17The 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.

18Reportable 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.

19The 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.

full board.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.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.

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

21GAO-03-434.

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:

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

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

o 	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.

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

o 	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 outcomeoriented. 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 veteranowned
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,
selfsufficiency 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

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

o  the year's performance targets,

o  whether the targets were met, and

o 	explanations and plans for corrective action when targets were not
met.22

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

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.23

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

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. 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

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

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.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

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

graduate.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

26Each 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.

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 Nonfederal expenses: Donated servicesb 1,417 440

                                         Expenses     2002               2003 
                            Salaries and benefits    $1,275            $1,289 
                           Professional servicesa      596                652 
                           Travel and recruitment      94       
                   Marketplace fee and e-commerce     1,187               358 
                                             Rent      136                151 
                Veterans Entrepreneurial Training      N/A                551 
                                            Other      467                215 
                     Total expenses using federal               
                                   appropriations    $3,754            $3,312 

                                  Other 44 300

                          Total expenses $5,216 $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.

aAmounts 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.

bUnder 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.

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

Fiscal year 2002 (Dollars in thousands) Fiscal year 2003 (Dollars in
thousands)

                                 $3,754 $3,312

Fund-raising

                                 Administration

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

                               Program activities

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

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

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.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

(Dollars in thousands)

Cash pledges ($101,000)

Cash contributions ($156,934)

Other ($233,277)

Contributed serviceand in-kind contributions ($440,294)

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

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

Challenges to Achieving Financial Self-sufficiency Included Lack of
Comprehensive Selfsufficiency 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
selfsufficient. 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 Selfsufficiency 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 travelrelated 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 selfsufficiency 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

Veterans Marketplace

Fund-raising

Affinity programs

Source: GAO analysis of The Veterans Corporation's Self-sufficiency Plan.

                                    $318,717

532,000

                                   1,450,000

                                   $2,300,717

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:

o 	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.

o 	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  1/2
basis points on all disbursed loans.

o 	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.

o 	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.

o 	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 The Veterans Corporation's revenue-generating strategy
relies to a great Assumptions Rest on extent on first identifying the
veteran-owned business population and then Creating a Comprehensive
successfully marketing its services to this population. The Veterans

Corporation officials explained that its self-sufficiency strategy is
modeledDatabase of Veteran-Owned on AARP, an organization that markets
goods and services to a specific Businesses population (affinity group)
and receives commissions based on sales

volume.28 The Veterans Corporation's goal to achieve financial
selfsufficiency 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 To assist in identifying veteran business
owners, in June 2004 The Veterans

Strategy to Identify Veteran Corporation began testing a new marketing
strategy with the help of Mal

Businesses	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 veteranowned 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

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

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 The Veterans Corporation recognized that in
addition to building a Have Not Been Widely Marketed database of
veteran-owned businesses, the organization must also

Fund-raising Has Not Met Expectations

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 veteranowned
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.

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 The Veterans Corporation's corporate
management indicated that they did Asserted That the Corporation's not
know the full impact of the Department of Justice's recent legal opinion
Legal Status Likely Would Affect (that is, that The Corporation is a
"government corporation" and an

                             Self-sufficiency Goals

"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
selfsufficiency 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.29 At the time of our review,
The Veterans Corporation was seeking legislative relief to address this
issue.30

Nonprofit Experts Also We spoke to representatives of the Urban
Institute's Center on Nonprofits

Acknowledged The Veterans and Philanthropy to gain insight on how The
Veterans Corporation

Corporation's Difficulties in compares with similar nonprofits. Based on
information we provided on

Achieving Self-sufficiency	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 selfsufficiency 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 While we discussed The Veterans Corporation's
strategic planning and Report to Congress May reporting efforts earlier in
this report, self-sufficiency was also one of the Hinder Congressional
corporate goals identified in its strategic plan. However, in reviewing
The

Veterans Corporation's annual report to Congress for fiscal year 2003,
weOversight found that The Veterans Corporation did not incorporate its
plans for and

29See, e.g., Miscellaneous Receipts Act, 31 U.S.C. S: 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.

30On 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.

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

o 	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.

o 	To potentially reduce overall expenses and aid in efforts to achieve
selfsufficiency, 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.

o 	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 selfsufficient, particularly in the event that The Veterans
Corporation's selfsufficiency 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 http://www.gao.gov.

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

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

o 	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;

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

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

o 	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;

o 	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;

o 	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;

Appendix I Scope and Methodology

o 	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;

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

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

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

o  consulted with government and nonprofit strategic planning experts;

o  reviewed strategic planning literature;

o 	gathered and analyzed salary surveys and literature about nonprofit
compensation; and

o 	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
selfsufficient, 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.

Appendix II

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

Statutory requirement Program or initiative

Programmatic

Expand provision of and improve access to technical assistance  o 
www.veteranscorp.org
regarding entrepreneurship for veterans.  o  EntreWorld, an online small
business resource library

o  Veterans Entrepreneurial TrainingSM program

o  National Veterans Community-Based Organization Initiative

Assist veterans, including service-disabled veterans, with the  o 
Veterans Small Business Finance program formation and expansion of small
businesses.  o  Veterans Entrepreneurial TrainingSM program

o  Veterans Marketplace

o  Veterans Capital Fund

o  Veterans Corporation Platinum BusinessCard

o  Veterans Insurance program

o  Veterans Corporation Business Directory

o  Veterans Purchase Net

o  Veterans Pipeline

o  Accounting and Tax Services

o  Merchant Processing Services

o  Develop business opportunities for veterans through alliances: Lee
Wayne, Inc., Defense Logistics Agency, National Defense Industrial
Association

Organize public and private resources, including those of federal  o 
Meetings and collaboration with federal agencies: Department agencies. of
Labor, Department of Defense, Small Business

Administration, Department of Veterans Affairs, Service Corps

of Retired Executives Association  o  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

o  Veterans Capital Fund

o  Veterans Small Business Finance program

o  National Veterans Entrepreneurial Education Initiative

Establish and maintain a network of information and assistance  o 
www.veteranscorp.org
centers for use by veterans and the public.  o  National Veterans
Community-Based Organization Initiative

Establish Professional Certification Advisory Board.  o  21-member board

o  Three committees

Assume duties, responsibility, and authority of the Advisory  o  Business
plan
Committee on Veterans Affairs on October 1, 2004.  o  Ongoing liaison with
advisory committee

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

                         (Continued From Previous Page)

     Statutory requirement Program or initiative Organizational development

Institute and implement a fund-raising and self-sufficiency plan.  o 
Business plan

o  Self-sufficiency plan

o  Revenue-producing ventures: Veterans Marketplace, Veterans Corporation
Platinum BusinessCard, Veterans Insurance program, Veterans Capital Fund,
Veterans Small Business Finance program

Raise matching funds to fulfill conditions for receipt of federal  o 
Fund-raising advisory board funds.

Transmit an annual report to the President and to Congress.  o  Annual
reports

Have board of directors conduct oversight of corporation's  o  Audit
committee obligations and expenses.

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

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

                                                              2002   
               Unexpended appropriations, beginning balance  $3,015    $3,261 
                            Federal appropriations received  4,000      2,000 
              Subtotal: unexpended appropriations available  7,015      5,261 
                          Less: federal appropriations used  3,754      3,312 
                      Less: miscellaneous reconciling items      N/A 
           Total: unexpended appropriations, ending balance  $3,261    $1,944 

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 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

                            2002               2003            Combined total 
          Revenue        Dollars Percentage Dollars Percentage        Dollars 
                                                                   Percentage 
          Federal        $3,754          57 $3,312          78      $7,066 65 
    appropriations used                                        
    Cash contributions     1,263         19   258            6       1,521 14 
        and pledges                                            
     Donated services      1,517         23   440           10       1,957 18 
      Interest income         63          1      29          1           92 1 

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

                         (Continued From Previous Page)

                              Dollars in thousands

                        2002               2003              Combined total   
        Revenue      Dollars Percentage Dollars Percentage Dollars Percentage 
       Fast Trac           5        N/A   184            4        189         
       Revenuea                                            
         Other             6        N/A      49          1             55 N/A 
     Total revenue    $6,609        100 $4,273         100      $10,882       

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.
aFast Trac revenue is revenue associated with the VET program.

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-forprofit 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 Dollars

                             Less than 1 year $394

1 to 5 years

Greater than 5 years

                                Subtotal $1,323

Less: present value discount

                        Contributions receivable $1,200

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 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

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

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

                                   2002 2003

             Functional areas    Dollars    Percentage   Dollars   Percentage 
           Program activities     $2,410            64    $2,403 
                 Fund-raising        480            13       419 
               Administrative        864            23       491 
               Total expenses     $3,754      100         $3,312          100 

Source: The Veterans Corporation.

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

                                  Appendix IV

                     Comments from The Veterans Corporation

Appendix IV
Comments from The Veterans Corporation

Appendix IV
Comments from The Veterans Corporation

Appendix V

                     GAO Contacts and Staff Acknowledgments

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

Staff 	In addition to the persons named above, Elizabeth H. Curda, Janet
Fong, Yola Lewis, Brittni Milam, Marc W. Molino, Julie T. Phillips,
Barbara M.

Acknowledgments Roesmann, and Paul G. Thompson made key contributions to
this report.

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