oversight

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

Published by the Government Accountability Office on 2003-04-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to Congressional Committees




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




GAO-03-434
             a
                                               April 2003

                                               SMALL BUSINESS

                                               The National Veterans Business
Highlights of GAO-03-434, a report to the
                                               Development Corporation's Progress in
House and Senate Committees on Small
Business and Veterans' Affairs.
                                               Providing Small Business Assistance to
                                               Veterans


 The Veterans Entrepreneurship                 The Veterans Corporation is providing veterans with entrepreneurial
 and Small Business                            training, on-line educational resources, micro loans, business
 Development Act of 1999 (Act)                 insurance, and an on-line marketplace. The Veterans Corporation
 created the National Veterans                 identified initial challenges that slowed program progress, including
 Business Development                          getting information on transitioning military personnel; and veteran-
 Corporation (The Veterans                     owned businesses; and delays in making management appointments.
 Corporation) to address                       Because the programs are new, it is too early to determine their
 perceived gaps in providing                   effectiveness.
 small business and
 entrepreneurship assistance to                During its first 2 years of operation, The Veterans Corporation spent
 veterans. The Act requires GAO                about $5 of $8 million in total federal appropriations; about $1 million
 to review The Veterans                        in fiscal year 2001; and about $4 million in fiscal year 2002, with the
 Corporation. As agreed with                   largest part of the increase due to salaries and program costs. An
 committee staff, GAO described                external audit for fiscal year 2001 identified internal control issues,
 The Veterans Corporation’s (1)                such as the lack of adequate supporting documentation for
 efforts to provide small business             disbursements and untimely reconciliation of bank accounts.
 assistance to veterans, including             According to the external auditor, all but one of the deficiencies was
 service-disabled veterans; (2)                addressed in 2002.
 use of and controls over federal
 funds in providing these                      The Veterans Corporation has developed a financial self-sufficiency
 services; and (3) efforts to                  plan based on four major revenue sources—an on-line marketplace, a
 become financially self-                      credit card program, an insurance service program, and fund-raising.
 sufficient.                                   At the time of GAO’s review, most of these efforts were just beginning
                                               to produce revenue. According to the plan, The Veterans Corporation
                                               is not expected to achieve self-sufficiency until the fourth quarter of
                                               fiscal year 2004. If outcomes do not meet projections, Veterans
                                               Corporation officials stated that they would explore alternatives.

                                               Description and Status of Key Initiatives, as of March 2003
                                                 Initiative                 Description                             Status

                                                 Micro Loan Program         Loan referral program                   Operational in February 2002.
                                                                            with regional banks.                    Three participating banks
                                                                                                                    in eastern United States.
                                                 www.veteranscorp.org       Web site of The Veterans Corporation.   Launched in April
                                                                                                                    2002 and operational.
                                                 Veterans Marketplace       E-commerce platform that facilitates    Launched in June 2002.
                                                                            purchases between veteran-owned
                                                                            and other businesses.
                                                 Veterans Entrepreneurial
                                                 Training Program                        The
                                                                                           e
                                                                            A business training program
                                                                            consisting of 30-45 hours of
                                                                                                                    Launched in October
                                                                                                                    2002 with three pilot locations.




                                                                            Veterans
                                                                            interactive training.
                                                 Veterans Business          One-day seminars on what                Two pilot seminars held
                                                 Success Seminars           veterans need to know                   in October and November 2002.
                                                                            before starting a business.
                                                 Insurance/Benefits         Business insurance                      Launched in December 2002.


                                                                            Cor
                                                                            Corporation
www.gao.gov/cgi-bin/getrpt?GAO-03-434.           Program                    products at group rates.                                                   TM
                                                 Veterans Corporation       Credit card for business use.           Launched in January 2003.
                                                 Platinum BusinessCard
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact William O.
                                                 Veterans Capital Fund
                                                                            Success is
                                                                            S       i Contagious
                                                                                       C    i
                                                                            Venture capital fund for
                                                                            veteran-owned and other businesses;
                                                                            proceeds fund veteran programs.
                                                                                                                    In planning. Expected
                                                                                                                    to launch in 2003.

Jenkins, Jr. at (202) 512-8757, or
                                               Source: GAO.
JenkinsWO@gao.gov.
Contents



Letter                                                                                                      1
                             Results in Brief                                                               2
                             Background                                                                     4
                             The Veterans Corporation Initiates Entrepreneurial Services to
                               Veterans                                                                     5
                             The Veterans Corporation’s Use of and Controls over Federal Funds
                               Received                                                                    17
                             Financial Self-Sufficiency Plan in Place but Too Early to Determine
                               the Likelihood of Success                                                   23
                             Agency Comments and Our Evaluation                                            28


Appendixes
               Appendix I:   Scope and Methodology                                                         31
              Appendix II:   Timeline of The Veterans Corporation’s Key Efforts and
                             Activities                                                                    32



             Appendix III:   The Veterans Corporation’s Initiatives in Response to
                             Statutory Requirements                                                        34
              Appendix IV:   The Veterans Corporation’s Revenue and Expenses for Fiscal
                             Years 2001 and 2002                                                           35
              Appendix V:    The Veterans Corporation’s Salary, Bonus, and Payments to
                             Staff for Fiscal Years 2001 and 2002                                          38
             Appendix VI:    Comments from The Veterans Corporation                                        39
             Appendix VII:   GAO Contacts and Staff Acknowledgments                                        42
                             GAO Contacts                                                                  42
                             Acknowledgments                                                               42


Tables                       Table 1: The Veterans Corporation’s Schedule of Expenses for
                                      Fiscal Years Ending September 30, 2001, and 2002                     19
                             Table 2: The Veterans Corporation’s Schedule of Appropriations for
                                      Fiscal Years Ending September 30, 2001, and 2002                     35
                             Table 3: The Veterans Corporation’s Schedule of Revenue for Fiscal
                                      Years Ending September 30, 2001, and 2002                            36
                             Table 4: The Veterans Corporation’s Schedule of Contributions
                                      Receivable as of September 30, 2002                                  37




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




          Table 5: The Veterans Corporation’s Federally Funded Expenses by
                   Function for Fiscal Years Ending September 30, 2001, and
                   2002.                                                                             37
          Table 6: The Veterans Corporation’s Aggregate Compensation for
                   Executive Management and All Other Staff for Fiscal Years
                   Ending September 30, 2001, and 2002                                               38


Figures   Figure 1: The Veterans Corporation: Description and Status of Key
                    Initiatives, as of March 2003                                                    10
          Figure 2: The Veteran Corporation’s Federally Funded Expenses by
                    Function for Fiscal Years Ending September 30, 2001, and
                    2002 (dollars in thousands)                                                      20
          Figure 3: Sources of Other Income from Fund-raising and Activities
                    for Fiscal Year Ending September 30, 2002 (dollars in
                    thousands)                                                                       27




          Abbreviations

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

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          Page ii                                  GAO-03-434 Progress of The Veterans Corporation
A
United States General Accounting Office
Washington, D.C. 20548



                                    April 30, 2003                                                                          Leter




                                    Congressional Committees:

                                    A Congressional report released in January 1999, identified gaps in the
                                    federal government’s delivery of entrepreneurial services to veterans.1
                                    Recognizing the need to assist the nation’s veterans who choose to start or
                                    expand small businesses in their transition from military to civilian life,
                                    Congress created the National Veterans Business Development
                                    Corporation (The Veterans Corporation)—a chartered corporation—to
                                    provide small business and entrepreneurship assistance. The Veterans
                                    Entrepreneurship and Small Business Development Act of 1999 (Act), as
                                    amended, created The Veterans Corporation and, among other things,
                                    requires it to (1) improve access to technical assistance that promotes
                                    entrepreneurship, and (2) use public and private resources to assist
                                    veterans, including service-disabled veterans, with the formation and
                                    expansion of small businesses.2 To carry out these activities, the Act
                                    authorized the appropriation of $12 million in federal funds to The Veterans
                                    Corporation over a 4-year period. It also required that The Veterans
                                    Corporation implement a plan to raise private funds and become a self-
                                    sustaining corporation.

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

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


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




                                    Page 1                                    GAO-03-434 Progress of The Veterans Corporation
                   analyzed The Veterans Corporation’s fiscal years 2001 and 2002 financial
                   statements, obtained and reviewed minutes of board of directors meetings,
                   and interviewed The Veterans Corporation’s external auditors. We also
                   interviewed officials from the staff and board of The Veterans Corporation,
                   as well as officials from federal agencies, partnering organizations, and
                   veteran service organizations. Please see appendix I for a more complete
                   description of our scope and methodology.

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



Results in Brief   The Veterans Corporation has made progress toward providing
                   entrepreneurial services to veterans, despite some initial challenges. The
                   Veterans Corporation officials stated that they have been careful not to
                   duplicate existing services. The Veterans Corporation has launched efforts
                   to provide entrepreneurial education and training through classroom
                   instruction, seminars, and on-line educational resources. It has also started
                   to provide entrepreneurial services to veteran-owned small businesses
                   such as micro loans, business insurance, and on-line buying and selling of
                   veteran-owned products and services. Officials identified some initial
                   challenges that they faced, such as the difficulty in obtaining information
                   from government sources on transitioning military personnel and veteran
                   businesses, limited government participation in The Veterans Corporation
                   activities, and delays in management appointments. Because The Veterans
                   Corporation programs and processes are relatively new, it is too early to
                   determine their effectiveness. However, The Veterans Corporation plans to
                   assess program effectiveness periodically. As required by the Act, The
                   Veterans Corporation has established a Professional Certification Advisory
                   Board (PCAB) to (1) assist in creating uniform guidelines for the
                   professional certification of transitioning members of the military and (2)
                   remove license and certification barriers.

                   In fiscal years 2001 and 2002, Congress appropriated a total of $8 million
                   for The Veterans Corporation. These funds remain available to The
                   Veterans Corporation until expended. According to The Veterans
                   Corporation's audited financial statements for these 2 years, the
                   Corporation spent about $4.7 million of the $8 million primarily on start-up



                   Page 2                             GAO-03-434 Progress of The Veterans Corporation
costs, leaving an available balance of about $3.3 million as of September 30,
2002. Management has stated that its approach is to spend conservatively
on programs and operating expenses in the start-up period so that unused
federal appropriations can be used in future years. In fiscal year 2001, The
Veterans Corporation spent about $985,000 for salaries, professional
services, and other start-up costs, all funded by its federal appropriations
and related interest earnings. In fiscal year 2002, The Veterans Corporation
used federal funds to pay for salaries, professional services, start-up
expenses, and program activities, including expenses related to The
Veterans Marketplace—an on-line service that allows veteran-owned
businesses to sell goods and services over the Internet. In fiscal year 2002,
The Veterans Corporation began to realize other revenues, such as pledges,
contributed services and in-kind contributions from nonfederal sources. As
a result, federal appropriations accounted for about 57 percent of The
Veterans Corporation’s total revenues for fiscal year 2002. The Board of
Directors is required to prescribe the manner in which the obligations of
The Veterans Corporation may be incurred and how its expenses are
allowed and paid. In The Veterans Corporation's first fiscal year, 2001, its
external auditor identified some internal control issues, such as the failure
to reconcile bank accounts on a timely basis and segregate cash duties, as
well as the failure to maintain a filing system for accounting records.
According to the external auditor, The Veterans Corporation has
implemented corrective measures in fiscal year 2002 to address all but one
of the identified deficiencies. The Veterans Corporation has acknowledged
the remaining deficiency and plans to take corrective action in fiscal year
2003.

The Veterans Corporation has developed a plan to achieve financial self-
sufficiency by September 30, 2004. The plan is based on four major sources
of revenue: (1) an on-line electronic marketplace for veteran-owned
business goods and services, (2) a credit card program targeted to veteran-
owned businesses, (3) an insurance service program designed to meet the
needs of veteran-owned small businesses, and (4) fund-raising. To calculate
revenue assumptions, The Veterans Corporation relied on input from their
partners on these efforts, which operate similar programs. It is too early to
determine whether The Veterans Corporation will achieve its goal of
becoming financially self-sufficient by September 30, 2004. At the time of
our review, three of the efforts were just beginning to produce revenue.
Further, according to the plan, The Veterans Corporation is not expected to
achieve self-sufficiency until the fourth quarter of fiscal year 2004.
Additionally, The Veterans Corporation earned about $2.8 million in cash,
cash pledges, contributed services, and in-kind donations in fiscal year



Page 3                             GAO-03-434 Progress of The Veterans Corporation
             2002, fulfilling the Act’s mandate that it raise an amount equal to one-half of
             its $4 million fiscal year 2002 federal appropriation. The Veterans
             Corporation intends to evaluate the plan on a quarterly basis to assess
             whether its strategies are sufficient to meet targeted projections. If these
             projections are not met, The Veterans Corporation officials stated that they
             would then consider alternative revenue sources to allow them to meet
             their self-sufficiency goal.



Background   In the Veterans Entrepreneurship and Small Business Development Act of
             1999, as amended, Congress established various programmatic
             requirements for The Veterans Corporation to address perceived shortfalls
             in federally provided services for veterans. The Veterans Corporation is
             required to, among other things, (1) expand the provision of and improve
             access to technical assistance regarding entrepreneurship; (2) assist
             veterans with the formation and expansion of small businesses by working
             with and organizing public and private resources; (3) establish and
             maintain a network of information and assistance centers for use by
             veterans; (4) establish a PCAB to create uniform guidelines and standards
             for the professional certification of members of the armed services; and (5)
             assume the duties, responsibilities, and authority of the Advisory
             Committee on Veterans Business Affairs from the SBA by October 1, 2004.3

             To fund The Veterans Corporation, Congress authorized $12 million in
             federal appropriations over 4 fiscal years—$4 million in the first year, $4
             million in the second year, and $2 million in each of the following 2 years—
             with the expectation that The Veterans Corporation would become
             financially self-sufficient. The Veterans Corporation received its first
             appropriation in March 2001. The Veterans Corporation is a nonprofit
             corporation chartered in the District of Columbia and has authority to,
             among other things, manage the manner in which it conducts business,
             enter into contracts, hire and dismiss officers and employees, and solicit,
             disburse, and manage its funds and assets.



             3
              The Advisory Committee on Veterans Business Affairs was created by the same legislation
             that created The Veterans Corporation. The purpose of the Advisory Committee on Veterans
             Business Affairs is to serve as an independent source of advice and policy recommendations
             to the Administrator of the SBA, the Associate Administrator for Veterans Business
             Development of the SBA, the Congress, the President, and other policymakers. It consists of
             15 members, who are veteran small business owners or representatives of veteran’s
             organizations and appointed by the Administrator of the SBA to serve 3-year terms.




             Page 4                                   GAO-03-434 Progress of The Veterans Corporation
                        The Act requires The Veterans Corporation to raise funds in order to match
                        its federal appropriations. For the first fiscal year (fiscal year 2001), no
                        matching requirement applied. For the second fiscal year (fiscal year 2002),
                        The Veterans Corporation was required to raise $1 for every $2 of federal
                        appropriations. For the remaining 2 fiscal years, The Veterans Corporation
                        is required to raise matching funds on a dollar-for-dollar basis.

                        A 12-member board of directors governs The Veterans Corporation. Nine
                        voting members are presidential appointees, with not more than five
                        members of the same political party. The three remaining members are
                        nonvoting, representing the Administrator of the SBA, the Secretary of
                        Defense, and the Secretary of Veterans Affairs. Voting members serve 6-
                        year terms; however, the terms of the initial appointees are staggered: three
                        for a term of 2 years and three for a term of 4 years. The chairperson is one
                        of the nine voting members and is elected by these members for a 2-year
                        term. The chairperson supervises and controls all affairs of The Veterans
                        Corporation in accordance with policies and directives approved by the
                        board of directors. The board is organized into four committees: (1)
                        executive, (2) corporate governance, (3) audit, and (4) business
                        development. The corporate governance committee is responsible for,
                        among other things, overseeing the strategic and business plans. The
                        Veterans Corporation staff, of which there are 14, use these plans to help
                        define their overall strategy and assess how well they are achieving their
                        goals and objectives. Goals and objectives are then evaluated at the board
                        meetings. The board met for the first time in September 2000; the board
                        currently meets approximately on a quarterly basis.



The Veterans            The Veterans Corporation has several initiatives under way to provide
                        small business education, training, and entrepreneurial services to
Corporation Initiates   veterans. Officials additionally have identified some initial challenges that
Entrepreneurial         have slowed the progress of these efforts, including (1) the inability to
                        collect data on the veteran population, (2) limited government
Services to Veterans    participation in The Veterans Corporation activities, (3) delays in
                        appointing management, and (4) unclear corporate legal status of The
                        Veterans Corporation. The Veterans Corporation has broad performance
                        measures in place to monitor its programs at this early stage and are
                        planning to develop more refined measures to assess effectiveness as the
                        programs mature. The Veterans Corporation has established a PCAB—a
                        body mandated by Congress to assist service members transition from the
                        military to private-sector employment—but the issues surrounding private-




                        Page 5                             GAO-03-434 Progress of The Veterans Corporation
                              sector recognition of military experience and training are large and
                              complex, according to some officials.



Educational and Training      According to an official at The Veterans Corporation, their corporate
Programs Under Way and        strategy has been to organize, coordinate, enhance, and expand existing
                              business programs and services to military veterans interested in
The Veterans Corporation Is   entrepreneurship. Additionally, their strategy is to provide programs not
Developing Entrepreneurial    otherwise available to veteran-owned businesses. Officials at The Veterans
Services                      Corporation said that they have been careful not to duplicate existing
                              services but rather to leverage existing services whenever possible. The
                              Managing Director of Operations and Government Relations at The
                              Veterans Corporation stated that their approach is to develop public and
                              private resources that may include coordinating with local business
                              services where appropriate.

Education and Training        In response to veteran needs for small business education and training, The
                              Veterans Corporation has offered classroom instruction, seminars, and on-
                              line educational resources. The Veterans Corporation has hosted three
                              initial Veterans Entrepreneurial Training (VET) programs, which produced
                              64 graduates, for veterans interested in starting a business or seeking to
                              improve their current business. The initial locations included Riverside,
                              California; Portland, Maine; and Arlington, Virginia. The VET program
                              incorporates classroom instruction, mentoring, networking, and
                              technology training. An official at The Veterans Corporation stated that
                              program participants pay $350 of the program’s $1,850 cost for 45 hours of
                              classroom instruction and, as an added benefit, receive a voucher valued at
                              $675 to purchase a Gateway computer upon successfully completing the
                              program. The Veterans Corporation officials said that the program is a
                              partnership with the Ewing Marion Kauffman Foundation’s FastTrac
                              Program, a successful entrepreneurship-training program. Statistics from
                              The Veterans Corporation’s Web site makes reference to the Kauffman
                              Foundation’s overall success, which indicates that 60,000 people have
                              completed the FastTrac program since 1987. Additionally, of this number,
                              88 percent were still in business 2 years later, and 77 percent were still in
                              business and turning a profit 5 years later; overall, 64 percent have seen
                              their sales increase. An official at The Veterans Corporation said that for
                              fiscal year 2003, they are planning a total of 30 VET courses. The official
                              added that the program draws support from local Service Corps of Retired
                              Executives chapters and Small Business Development Centers, whose
                              members and staff serve as either mentors or classroom speakers.




                              Page 6                             GAO-03-434 Progress of The Veterans Corporation
                                The Veterans Corporation has also piloted two, 1-day Veterans Business
                                Success Seminars on the skills needed to start a business. The seminars
                                were held in Boise, Idaho, and Cleveland, Ohio, and included discussions
                                on business plans, marketing analysis, and financing. According to an
                                official at The Veterans Corporation, 30 veterans participated in the first
                                two seminars. The official explained that they are adopting a new strategy
                                to more consistently meet the mandate to establish and maintain a network
                                of information and assistance centers for use by veterans and the public.
                                Under this strategy, The Veterans Corporation will utilize community-based
                                organizations to provide veterans support with a combination of
                                workshops, seminars and courses tailored to local needs. The official
                                added that The Veterans Corporation is in discussions with the SBA on
                                funding four test sites to be launched by May 2003.

On-Line Educational Resources   In April 2002, The Veterans Corporation’s Web site became operational; it
                                contains information on training, capital, and other business resources. A
                                board member of The Veterans Corporation told us that The Veterans
                                Corporation views this Web site as helping to fulfill the requirement under
                                the Act to establish and maintain a network of information and assistance
                                centers for use by veterans and the public. The board member explained
                                that building brick and mortar development centers would be prohibitively
                                expensive and that the board’s initial goal was to focus on leveraging
                                existing services rather than duplicating private-sector services. For
                                example, the Web site has links to other small business resources,
                                including Entreworld, an on-line small business resource library.
                                Entreworld, which is sponsored by the Ewing Marion Kauffman
                                Foundation, was one of the first Web sites assisting small businesses since
                                1996, according to the Entreworld Web site. Additionally, The Veterans
                                Corporation’s Web site has links to other on-line resources for veterans,
                                such as those of the Department of Defense (DOD), SBA, and Department
                                of Veterans Affairs (VA).

Services to Entrepreneurs       The Veterans Corporation has launched or started to develop various
                                initiatives to provide entrepreneurial services, such as access to capital
                                through a micro loan program, business insurance, and on-line buying and
                                selling of veteran-owned goods and services. While these services are
                                intended to assist veterans with formulating or expanding businesses,
                                some of the services also provide revenue to The Veterans Corporation.
                                (We discuss The Veterans Corporation’s efforts to become self-sufficient
                                later in this report.)




                                Page 7                            GAO-03-434 Progress of The Veterans Corporation
• Micro loan program. To help veterans gain access to capital, The
  Veterans Corporation established a regional micro loan program4 for
  start-up businesses. The Veterans Corporation is working with regional
  banks to provide the loans. Participating banks in the micro loan
  program may also use SBA loan guarantees to help veterans obtain
  access to capital. An official told us that as of January 2003, the first
  early stage loan of $25,000 was made to a start-up, veteran-owned
  business and two other SBA lines of credit up to $150,000 were close to
  being finalized. As of April 2003, The Veterans Corporation has an
  agreement with Newtek Small Business Finance, Inc., to offer SBA loans
  and other services. The Veterans Corporation will be able to provide
  nationwide service in conjunction with its existing lenders.

• Veterans Marketplace. The Veterans Marketplace is an on-line purchase
  program for products and services produced by veteran-owned small
  businesses. The Veterans Corporation is partnering with eScout, a
  company that operates a similar electronic procurement business. The
  Veterans Marketplace targets procurements of $2,500 or less using an
  electronic purchase card system. Although the system is operational,
  The Veterans Corporation is in the process of building their customer
  lists of government and private companies. As of January 2003, there
  were 16 veteran-owned business sellers and 150 veteran-owned
  business buyers listed on The Veterans Marketplace. The Veterans
  Corporation plans to earn income from this effort through a revenue-
  sharing agreement with eScout that is based on volume of transactions,
  new member agreements, on-line purchases, and auction events hosted.

• Business Insurance Program. In December 2002, The Veterans
  Corporation started offering insurance services through the Aon
  Financial Institution Alliance to veteran-owned businesses. The services
  include health insurance for employees, legal representation, and, for
  small businesses, computer protection assistance against viruses and
  hackers. The Veterans Corporation anticipates producing revenue from
  this effort by collecting commissions from the Aon Financial Institution
  Alliance. An official at The Veterans Corporation stated that as of April
  2003, the first small group health insurance policy was sold as well as
  over 100 quotes requested or applications completed.



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




Page 8                                   GAO-03-434 Progress of The Veterans Corporation
• Veterans Corporation Platinum BusinessCard. The Veterans
  Corporation began offering a veterans business credit card in January
  2003. The card includes features such as a business credit line and cash
  back on purchases. According to an official at The Veterans
  Corporation, 165 credit cards have been approved and issued, as of April
  2003.

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

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




Page 9                             GAO-03-434 Progress of The Veterans Corporation
                               Figure 1: The Veterans Corporation: Description and Status of Key
                               Initiatives, as of March 2003

                                 Initiative                 Description                             Status

                                 Micro Loan Program         Loan referral program                   Operational in February 2002.
                                                            with regional banks.                    Three participating banks
                                                                                                    in eastern United States.
                                 www.veteranscorp.org       Web site of The Veterans Corporation.   Launched in April
                                                                                                    2002 and operational.
                                 Veterans Marketplace       E-commerce platform that facilitates    Launched in June 2002.
                                                            purchases between veteran-owned
                                                            and other businesses.
                                 Veterans Entrepreneurial
                                 Training Program                        The
                                                                           e
                                                            A business training program
                                                            consisting of 30-45 hours of
                                                                                                    Launched in October
                                                                                                    2002 with three pilot locations.




                                                            Veterans
                                                            interactive training.
                                 Veterans Business          One-day seminars on what                Two pilot seminars held
                                 Success Seminars           veterans need to know                   in October and November 2002.
                                                            before starting a business.
                                 Insurance/Benefits         Business insurance                      Launched in December 2002.


                                                            Cor
                                                            Corporation
                                 Program                    products at group rates.                                                   TM
                                 Veterans Corporation       Credit card for business use.           Launched in January 2003.
                                 Platinum BusinessCard
                                 Veterans Capital Fund
                                                            Success iis C
                                                            S           Contagious
                                                                              i
                                                            Venture capital fund for
                                                            veteran-owned and other businesses;
                                                            proceeds fund veteran programs.
                                                                                                    In planning. Expected
                                                                                                    to launch in 2003.


                               Source: GAO.

                               Note: GAO analysis of The Veterans Corporation data.


Outreach to Service-Disabled   Officials at The Veterans Corporation describe their outreach as targeting
Veterans                       all veterans, including service-disabled veterans. Generally, they do not
                               have separate efforts for the service-disabled population. The officials,
                               however, referenced efforts to make certain programs and services
                               available to the service-disabled population. For example, the VET program
                               reserves 10 spaces in each class for the service-disabled. In the first three
                               VET courses completed, 19 of 64 graduates, or 30 percent, registered as
                               service-disabled veterans. In another effort just recently launched, service-
                               disabled veterans who purchase insurance products through The Veterans
                               Corporation will receive an additional discount. Officials further said that
                               in the future, they would like to offer distance learning in their
                               entrepreneurial training program to provide greater access to the
                               physically disabled veteran.




                               Page 10                                         GAO-03-434 Progress of The Veterans Corporation
Initial Challenges Slow            The Veterans Corporation officials said that progress on programs has been
Progress of The Veterans           hampered by their inability to collect information from government
                                   sources on military personnel transitioning to civilian life and existing
Corporation’s Programs and         veteran-owned businesses. One of the officials explained that the success
Initiatives                        of programs such as The Veterans Marketplace and VET program is largely
                                   dependent on their ability to identify and reach transitioning service
                                   members and veteran-owned businesses. The Veterans Corporation
                                   officials said that if they were not successful in obtaining this data, they
                                   would have to rely on developing data from attendance lists from their
                                   training and education programs and other available sources. Officials
                                   stressed that this would slow the development of a client database.

Privacy Issues Prevent             The Veterans Corporation has requested information from DOD and VA,
Government Agencies from           respectively, on (1) military service members nearing retirement or
Sharing Information on Veterans;   separation and (2) veteran-owned and service-disabled, veteran-owned
Publicly Available Data Are        businesses. Both DOD and VA officials said that privacy laws prohibit them
Limited                            from providing personal information such as names and addresses of the
                                   military and veteran population. A DOD official stated that their policy
                                   prohibits them from releasing private information on enlisted military to
                                   any public or private organization. The DOD official further cited a
                                   November 9, 2001, memorandum for DOD Freedom of Information Act
                                   Offices that supports the withholding of personally identifiable information
                                   for security reasons in response to the events of September 11, 2001. VA’s
                                   Office of the General Counsel (OGC) issued a legal opinion on December
                                   12, 2002, which states that the Act does not direct the Secretary of VA to
                                   construct a database for use by The Veterans Corporation. Furthermore,
                                   VA’s OGC stated that there are no provisions within existing confidentiality
                                   laws that would permit the sharing of information as proposed. However,
                                   in response to our draft report, VA concluded that it could disclose a list of
                                   names and addresses of veterans and their small businesses to the public,
                                   including The Veterans Corporation. Further, VA officials stated that
                                   arrangements are under way to make this information available on their
                                   Web site. However, it remains to be seen whether the information that will
                                   be available on VA’s Web site will meet The Veterans Corporation’s needs.

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



                                   Page 11                            GAO-03-434 Progress of The Veterans Corporation
                                  subcontractors of the federal government. CCR contains over 200,000
                                  business listings of which 30,000 were listed as veteran-owned. DOD has
                                  required that The Veterans Corporation sign a standard nondisclosure
                                  agreement. But, an official at The Veterans Corporation said that the
                                  agreement contains language that they “shall not use such data for
                                  commercial purposes;” the agreement is currently under legal review at
                                  The Veterans Corporation. According to SBA officials, PRO-Net is currently
                                  merging with CCR, and current registrants from both databases are being
                                  asked to reregister into the combined database.

                                  The Veterans Corporation has also utilized some publicly available
                                  information on veterans, but the information is in aggregate form and does
                                  not enable them to identify individuals seeking entrepreneurial assistance.
                                  According to officials at The Veterans Corporation, they were not aware of
                                  any public sources of data with names and addresses that could be used to
                                  identify veterans who may be seeking entrepreneurial assistance. For
                                  instance, The Veterans Corporation officials said they used public data
                                  from the VA Web site for information on where veterans live, by state and
                                  county and for age and gender. This information was used to help
                                  determine locations for VET classes and Veterans Business Success
                                  Seminars. Additionally, The Veterans Corporation identified a private data
                                  source that lists about 190,000 veteran-owned businesses. An official said
                                  that the private data source does not collect E-mail addresses and
                                  questioned whether the records have current mailing addresses. Officials
                                  said that this effort has been put on hold because it was not viewed as
                                  worth the $90,000 acquisition cost.

Government Agencies Had           The Veterans Corporation is required to work with and organize public and
Limited Participation in The      private resources, including those of the federal government. An official at
Veterans Corporation Activities   The Veterans Corporation indicated that collaboration with other federal
                                  agencies has been limited because of other priorities at these agencies and
                                  because agencies are not required to carry out these multiagency
                                  initiatives. As stated previously, due to privacy issues The Veterans
                                  Corporation has had difficulty in obtaining data from DOD on military
                                  personnel transitioning to civilian life and from VA on veteran-owned
                                  businesses. The Veterans Corporation official suggested that a federal
                                  directive, such as a presidential executive order or Office of Management
                                  and Budget guidance, would help federal agencies understand The
                                  Veterans Corporation’s mission and provide the agencies with instructions
                                  for assisting in these efforts.




                                  Page 12                           GAO-03-434 Progress of The Veterans Corporation
                                  Government officials with whom we spoke provided some examples of
                                  early collaboration with The Veterans Corporation. For instance, an SBA
                                  official stated that they have been active participants at board meetings,
                                  helped develop initiatives such as The Veterans Capital Fund (see fig. 1),
                                  and provided technical assistance. According to the official, SBA envisions
                                  that there will be additional, mutually beneficial relationships with other
                                  programs. A VA official stated that collaboration between VA and The
                                  Veterans Corporation has included establishing links on the respective Web
                                  sites, and invitations to speak at VA conferences. A DOD official also
                                  mentioned that the DOD Web site has a link to The Veterans Corporation’s
                                  Veterans Entrepreneurial Training Program.

Delays in Management              Officials at The Veterans Corporation said that progress on their programs
Appointments Slowed The           was initially hampered by delays in management appointments for
Veterans Corporation’s Activity   positions such as the Chief Executive Officer (CEO) and board members.
                                  The officials explained that much time was spent searching for a
                                  permanent CEO. The CEO was appointed in October 2001. Until August
                                  2001, the staff at The Veterans Corporation were temporary employees,
                                  operating as contractors. Subsequently, the entire management team was
                                  hired in fiscal year 2002. Additionally, the Act called for the initial board
                                  members to be appointed by the President of the United States no later
                                  than 60 days after the legislation was enacted on August 17, 1999. The
                                  initial presidential appointments, however, did not occur until a year after
                                  enactment. Eight of the nine voting members were appointed between
                                  August and December 2000, while the ninth member was appointed in
                                  November 2001.

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



                                  Page 13                            GAO-03-434 Progress of The Veterans Corporation
                                 proposed that the Act creating the corporation be revised to give The
                                 Veterans Corporation input into the selection of the board after
                                 government funding ends. Specifically, the proposal calls for a board
                                 structure similar to that of Fannie Mae, a government-sponsored enterprise
                                 that engages in secondary loan market activity, in which only one-third of
                                 the directors are presidentially appointed.

Status of The Veterans           Officials at The Veterans Corporation have indicated that differences in
Corporation as a Public Agency   interpretation regarding the legal status of The Veterans Corporation as
or Private Corporation Is Open   either a public agency or private corporation have, at times, complicated
to Interpretation                organizational and program development efforts. The Veterans Corporation
                                 has obtained various legal opinions on its corporate legal status with
                                 respect to personnel and procurement requirements with differing results.
                                 They referenced an opinion from the Office of Personnel Management on
                                 whether the provisions of Title 5 of the U.S.C. applied to The Veterans
                                 Corporation. In a letter dated November 13, 2001, the Office of Personnel
                                 Management concluded that The Veterans Corporation was a government-
                                 controlled corporation and is subject to most provisions of Title 5,
                                 including provisions related to premium pay, awards, leave, and health
                                 benefits, among other things. In contrast, a law firm performing pro bono
                                 legal assistance to The Veterans Corporation—Fried, Frank, Harris, Shriver
                                 & Jacobson—issued a memorandum dated December 5, 2001, that stated
                                 “considering all the relevant factors, we believe that a court would find the
                                 NVBDC [Veterans Corporation] is not a Government-controlled
                                 corporation under 5 U.S.C. §103 to which the 5 U.S.C. §5373 pay cap
                                 applies.” In another instance, another law firm that also represents The
                                 Veterans Corporation—Hale and Dorr LLP—issued a memorandum dated
                                 April 2, 2002, that stated that The Veterans Corporation “does not meet the
                                 definition of an executive agency [executive department, military
                                 department, wholly-owned government corporation, or independent
                                 establishments] triggering FAR [Federal Acquisition Regulations] mandates
                                 for procurement.”



The Veterans Corporation         It is too early to determine the effectiveness of The Veterans Corporation
Plans to Put Evaluative          programs to the veteran population because the programs are relatively
                                 new and, in some cases, just under way. Officials indicated that they have
Performance Measures in
                                 broad performance measures for programs such as participants’
Place                            satisfaction ratings of the VET program and quantitative measures, such as
                                 the number of credit cards and insurance policies issued, and dollar
                                 volume of transactions for the Veterans Marketplace, which are used to
                                 determine whether they are meeting early program objectives. The



                                 Page 14                            GAO-03-434 Progress of The Veterans Corporation
                             Veterans Corporation’s business plan has outlined some corporate
                             objectives for fiscal year 2003, including delivering VET programs to at
                             least 500 veterans and transitioning military personnel. Other objectives
                             identified in the business plan include constructing a database that
                             contains accurate information on at least 250,000 veteran business owners
                             and expanding the micro loan program nationwide.

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



Professional Certification   As mandated by the Act, The Veterans Corporation formed a Professional
Advisory Board Established   Certification Advisory Board (PCAB) to (1) create uniform guidelines and
                             standards for the professional certification of military personnel
but Progress Is Limited
                             transitioning to civilian occupations and (2) remove potential licensure and
Because of Complex Issues    certification barriers. Officials from another certification group told us that
                             veterans traditionally have a hard time transitioning into private-sector
                             employment because prospective employers have difficulty understanding
                             military experience and training. Private sector employers are increasingly
                             requiring proof or certification of certain skills. Licensing and certification
                             are the two primary types of credentialing for individuals seeking civilian
                             positions that are equivalent to enlisted military occupations. Occupations
                             within the military that require private-sector certification or licensing
                             include, among other things, automotive mechanic, dental assistant,
                             electrician, flight engineer, medical laboratory technician, plumber, police
                             officer, and truck driver. Licenses are granted by federal, state, and local
                             government agencies while certification is the process by which a
                             nongovernmental agency, association, or private sector company
                             recognizes certain qualifications. PCAB officials agreed that the task at
                             hand is quite large, involving multiple government entities.

                             The PCAB held its first meeting in October 2001. Subsequent, initial
                             meetings were spent identifying the scope of issues and key players. The
                             PCAB meets quarterly and has 26 members that serve voluntarily. The
                             board established three committees, including the (1) Barriers



                             Page 15                             GAO-03-434 Progress of The Veterans Corporation
Identification Committee, which is tasked with reviewing studies and
research to identify barriers that affect transitioning military personnel; (2)
Information Clearinghouse Committee, which is responsible for obtaining
and disseminating certification, licensure, and small business development
information; and (3) Research and Legislative Action Committee, which
will analyze barriers and develop recommendations. According to the
PCAB chairman, the committees are developing their goals and have not
yet produced deliverables. The chairman explained that the Research and
Legislation Action Committee would use information from the other two
committees to develop recommendations.

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

Some PCAB members also represent other certification groups, such as the
Council of Licensure, Enforcement, and Regulation and the Commission
for Certification in Geriatric Pharmacy. A few board members told us that
representation from other certification efforts helps to avoid duplication
and complements the efforts of other groups. For instance, one board
member who also oversees the Department of Labor’s “Use Your Military
Experience and Training” (UMET) Web site on certification and licensing
information stated that there is no overlap of effort. In fact, he said that the
PCAB is utilizing UMET as a resource to obtain information on certification
issues. Another board member, who also chairs VA’s Professional
Certification and Licensing Advisory Committee (PCLAC), agreed that the
groups did not duplicate each other’s efforts and explained that VA offers
financial assistance to service members to cover the cost of certification,
up to $2,000. PCLAC advises VA on the certification requirements that
entities must meet in order to qualify for payment.

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



Page 16                             GAO-03-434 Progress of The Veterans Corporation
                             whether The Veterans Corporation was the appropriate organization to
                             carry out the PCAB’s mission. They stated that the PCAB might distract The
                             Veterans Corporation’s management and board of directors from their
                             principal activities. An official at The Veterans Corporation explained that
                             producing uniform standards and guidelines for certification was a large
                             and complicated task and inconsistent with the overall goals of The
                             Veterans Corporation, which are to provide entrepreneurial services.



The Veterans                 In its first 2 years of operations, The Veterans Corporation received $8
                             million in federal appropriations and spent about $4.7 million of the federal
Corporation’s Use of         funds primarily on start-up costs. In fiscal year 2001, The Veterans
and Controls over            Corporation spent about $985,000 for salaries, professional services, and
                             other start-up costs.5 In fiscal year 2002, The Veterans Corporation spent
Federal Funds                approximately $3.7 million in appropriations for that year on expenditures
Received                     related to establishing its programs, as well as salaries, professional
                             services, and other start-up costs. The Veterans Corporation has
                             implemented various controls over its obligation and expenditure payment
                             processes, including limits on the ability of management officials to make
                             check disbursements without board of director approval. According to The
                             Veterans Corporation’s external auditor, The Veterans Corporation had
                             internal control issues in fiscal year 2001. However, the external auditor
                             determined that these deficiencies did not constitute material weaknesses
                             and that all but one of the deficiencies had been corrected in fiscal year
                             2002.



Most of The Veterans         The Veteran Corporation’s management officials stated that their approach
Corporation’s Expenditures   was to spend conservatively on program and operating expenses in the
                             start-up period so that unused federal appropriations could be spent in
to Date Have Been Start-up   future periods. During fiscal year 2001, The Veterans Corporation’s sole
Costs                        sources of funding were from federal appropriations and related interest
                             earnings. Of the $4 million in appropriations received during fiscal year
                             2001, it spent less than $1 million on start-up costs such as salaries,
                             professional services, and other administrative costs. In fiscal year 2002,
                             The Veterans Corporation spent approximately $3.7 million of its federal
                             funds to establish its Veterans Marketplace—an on-line service for selling
                             goods and services of veteran-owned businesses—as well as for other


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




                             Page 17                                   GAO-03-434 Progress of The Veterans Corporation
program activities, salaries, professional services, and other start-up costs.
Beginning in fiscal year 2002, The Veterans Corporation also began to
receive other revenue, such as cash pledges, contributed services and in-
kind contributions from nonfederal sources. As of September 30, 2002, The
Veterans Corporation had approximately $3.3 million in unexpended
federal appropriations—approximately 40 percent of its $8 million in total
appropriations. The Veterans Corporation’s federal appropriations are
provided on a “no year” basis; therefore, unused appropriations can be
carried forward and applied to expenses in future fiscal years.

Federal appropriations have been a major source of revenue to The
Veterans Corporation since its inception. In fiscal year 2001, The Veterans
Corporation’s sole sources of funding were from federal appropriations and
related interest earnings. Beginning in fiscal year 2002, The Veterans
Corporation recognized cash contributions and pledges of approximately
$1.3 million and contributed services and in-kind contributions of
approximately $1.5 million as revenue from other sources. Contributed
services included legal services, Web site design, and use of a proprietary
Web site. As a result, the federal appropriations used in fiscal year 2002
made up approximately 57 percent of The Veterans Corporation’s total
revenues. Appendix IV provides more detail on The Veterans Corporation’s
revenue and expenses for fiscal years 2001 and 2002.

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




Page 18                            GAO-03-434 Progress of The Veterans Corporation
Table 1: The Veterans Corporation’s Schedule of Expenses for Fiscal Years Ending
September 30, 2001, and 2002

Dollars in thousands

Expenses                                          2001                 2002        Combined total
Salaries and benefits                             $101               $1,275                   $1,376
Professional services                               500                  596                   1,096
Travel and recruitment                              122                   94                     216
Marketplace fees and
E-commerce                                          N/A                1,187                   1,187
Rent                                                 77                  136                     213
Other                                               185                  467                     652
Total expenses using
federal appropriations                            $985               $3,754                   $4,740
Nonfederal expenses:
Donated Servicesa                                   N/A                1,417                   1,417
Other                                               N/A                   44                          44
Total expenses                                    $985               $5,216                   $6,201
Source: The Veterans Corporation.

Notes: Numbers may not sum to total because of rounding.
Information derived from audited financial statements.
N/A means not applicable.
a
 Under the American Institute of Certified Public Accountants’ Audit and Accounting Guide, Not-for-
Profit Organizations, donated services are a form of in-kind contribution and are recognized as
revenues and expenses.


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




Page 19                                       GAO-03-434 Progress of The Veterans Corporation
Figure 2: The Veteran Corporation’s Federally Funded Expenses by Function for Fiscal Years Ending September 30, 2001, and
2002 (dollars in thousands)

                 3%                   $26

                                                                                                                       $480
                                                                                               13%



                          39%         $379                                                            23%              $864
       59%
                                                                             64%




                                      $580                                                                             $2,410
               FY 01                                                                   FY 02

                                                 Program activities

                                                 Administrative

                                                 Fund-raising

Source: GAO.


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


                                         The majority of The Veterans Corporation’s federally funded functional
                                         expenses pertain to program activities—59 percent for fiscal year 2001 and
                                         64 percent for fiscal year 2002. Fund-raising costs were less than 20 percent
                                         for both fiscal years: 3 percent for fiscal year 2001 and 13 percent for fiscal
                                         year 2002. Administrative costs were 39 percent for fiscal year 2001, which
                                         primarily represented legal fees and recruitment costs, and were 23 percent
                                         for fiscal year 2002, which primarily represented salaries and board
                                         expenses. As The Veterans Corporation’s operations expand, we expect
                                         that the amount of program activities relative to total expenses will grow
                                         and the ratio of administrative and fund-raising to total expenditures will
                                         decrease.




                                         Page 20                                      GAO-03-434 Progress of The Veterans Corporation
Board of Directors Vests     The board of directors is required to prescribe the manner in which the
Expense Approval Authority   obligations of The Veterans Corporation may be incurred and how its
                             expenses are allowed and paid. To fulfill this responsibility, the board
in Executive Staff           approved a financial policy in December 2000, before it received its first
                             appropriations; officials of The Veterans Corporation were unable to locate
                             the text of the policy. However, minutes from the March 2001 board
                             meeting show that the board established initial disbursement authority for
                             executive-level staff in March 2001, the same month in which they were
                             hired. The board authorized the acting CEO and the acting associate
                             director to sign checks, drafts, or orders (1) in amounts no greater than
                             $50,000 without further action of the board; (2) in amounts greater than
                             $50,000 but less than $100,000 with the additional signature of one member
                             of the executive committee; and (3) in amounts greater than $100,000 with
                             the additional signature of one member of the executive committee and to
                             notify all board members in writing of the disbursement, at least 7 days
                             prior to issuance for checks, drafts, or orders.6

                             Minutes of an executive committee meeting in May 2001 show that the
                             executive committee reduced the limit on expense authority from $50,000
                             to $10,000. All amounts in excess of $10,000 would require the signature of
                             one executive committee member and also require notification to the chair
                             of the executive committee. In January 2002, the board again amended the
                             expense authority based upon a proposal of the Chief Financial Officer
                             (CFO). Since January 2002, the board has retained authority to approve
                             expenditures in excess of $25,000 and has delegated disbursement
                             authority to executive-level staff. For example, the board authorizes the
                             CEO to disburse up to $25,000 per transaction; single transactions in excess
                             of $25,000 and contracts with a total value greater than $25,000 require the
                             approval of either the executive committee or the full board of directors. In
                             addition, the board resolved that checks written in amounts of $5,000 or
                             less require one authorized signature; those in excess of $5,000 require two
                             authorized signatures. Both the CEO and the Managing Director of
                             Operations are authorized to sign checks.




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




                             Page 21                               GAO-03-434 Progress of The Veterans Corporation
Early Financial          According to The Veterans Corporation’s external auditor, The Veterans
Management Practices     Corporation had internal control issues that could have adversely affected
                         its ability to administer a major federal program in accordance with
Showed Weaknesses, but   applicable laws, regulations, contracts, and grants.7 However, the external
Were Addressed by New    auditor determined that these conditions did not cause The Veterans
Leadership               Corporation to misrepresent its financial condition or operating results for
                         fiscal year 2001. Specifically, the external auditor found in its fiscal year
                         2001 audit that The Veterans Corporation did not

                         • reconcile bank accounts on a timely basis and segregate cash duties;

                         • maintain adequate internal controls surrounding payroll processing;

                         • provide supporting documentation marked with an indication of review,
                           approval, and payment for all cash disbursements;8 and

                         • maintain a filing system for accounting records.




                         7
                          The financial audit of The Veterans Corporation was not designed to provide assurance on
                         internal controls. However, in planning and performing the audit, the auditors considered
                         The Veterans Corporation’s internal controls sufficient to plan the audit to determine the
                         nature, timing, and extent of its auditing procedures for the purpose of expressing an
                         opinion on the Corporation’s financial statements. The auditors also evaluated the
                         effectiveness of controls relevant to preventing or detecting material noncompliance with
                         requirements applicable to the Corporation resulting from its receipt of federal
                         appropriations.
                         8
                          The external auditor found that The Veterans Corporation initially lacked documentation to
                         support $212,800 in payments to consultants, but support was later located for $115,000 of
                         this amount. The auditor subsequently satisfied themselves as to the reasonableness of the
                         remaining $97,800 by conducting alternative procedures to justify the reported payments.




                         Page 22                                  GAO-03-434 Progress of The Veterans Corporation
                         The external auditor classified these internal control matters as reportable
                         conditions, and did not identify any instances of material weaknesses,
                         which would indicate a potentially greater detrimental effect on an entity’s
                         internal controls.9 These reportable conditions were detailed in a letter to
                         management.10 The partner of The Veterans Corporation’s external auditor,
                         who oversaw the audit, stated that such accounting deficiencies are not
                         unusual for start-up small businesses. According to The Veterans
                         Corporation’s external auditor, the reported deficiencies have been
                         addressed in fiscal year 2002, with one exception—reconciliation of bank
                         accounts on a timely basis.



Financial Self-          To address the requirement to become a self-sustaining entity, The Veterans
                         Corporation has developed a plan to become self-sufficient based on four
Sufficiency Plan in      major sources of revenue—an electronic marketplace, a credit card
Place but Too Early to   program, an insurance program, and fund-raising. According to an official
                         at The Veterans Corporation, the revenue assumptions were developed
Determine the            based on discussions and input from their partners such as eScout,
Likelihood of Success    Advanta, and Aon Financial Institution Alliance. Revenue assumptions
                         contained in the self-sufficiency plan cover fiscal years 2003 and 2004. At
                         the time of our review, three of the four efforts—the electronic
                         marketplace, credit card and insurance services—were just starting to
                         produce revenue. According to the CFO, fund-raising goals are targeted
                         toward supporting education and training efforts. In fiscal year 2002, The
                         Veterans Corporation earned approximately $2.8 million to satisfy federal
                         matching requirements. Additionally, the plan calls for quarterly reviews to
                         assess targeted projections. Officials said that if projections are not met,
                         unsuccessful programs may be discontinued and alternative revenue
                         sources will be developed.




                         9
                          Reportable conditions are matters coming to the auditor’s attention that, in his/her
                         judgment, should be communicated to the board of directors because they represent
                         significant deficiencies in the design or operation of internal controls, which could
                         adversely affect the organization’s ability to record, process, summarize, and report
                         financial data consistent with the assertions of management in the financial statements.
                         10
                            The external auditor identified other internal control matters in the letter to management,
                         such as the lack of a written procurement policy, but did not classify them as reportable
                         conditions.




                         Page 23                                    GAO-03-434 Progress of The Veterans Corporation
The Veterans Corporation      The Act requires that The Veterans Corporation raise private funds and
Implements Self-Sufficiency   become a self-sustaining corporation. The Veterans Corporation has
                              implemented a plan to achieve financial self-sufficiency by September 30,
Plan                          2004, that is based on four major sources of revenue:

                              • Veterans Marketplace. According to the plan, The Veterans Marketplace
                                is expected to generate the greatest share of revenue—approximately 43
                                percent—to The Veterans Corporation in fiscal year 2004, the final fiscal
                                year of federal funding. The revenue sharing agreement between The
                                Veterans Corporation and eScout, which operates the on-line
                                marketplace, allows for The Veterans Corporation to collect 49 percent
                                of revenues received from on-line purchases and other transactional
                                services purchased by members of The Veterans Marketplace, as well as
                                20 percent of the fees paid by members who access products.

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

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

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

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




                              Page 24                           GAO-03-434 Progress of The Veterans Corporation
                             The CFO at The Veterans Corporation said that the revenue assumptions
                             were based on input from partners that operate similar programs. For
                             instance, revenue assumptions for The Veterans Marketplace were based
                             on a discussion with eScout personnel on (1) building similar private
                             exchanges and (2) customer and revenue projections. The process was
                             similar for the credit card and insurance programs, and included
                             discussions with Advanta and Aon Financial Institution Alliance,
                             respectively. The official indicated that both Advanta and Aon were
                             reluctant to offer revenue projections, but they provided enough
                             information to enable The Veterans Corporation to project revenue. The
                             self-sufficiency plan is based on revenue assumptions over fiscal years 2003
                             and 2004.

                             It is too early to determine if The Veterans Corporation will become
                             financially self-sufficient by September 30, 2004. At the time of our review,
                             three of its efforts were just beginning to produce revenue. For instance,
                             The Veterans Marketplace, while operational since June 2002, was in the
                             process of building a customer list. The other two efforts, the credit card
                             and insurance services, were just launched in January 2003 and December
                             2002, respectively. Further, according to the plan, total revenue from these
                             activities is not expected to exceed expenses until the fourth quarter of
                             fiscal year 2004.

                             Because The Veterans Corporation’s federal appropriations are provided on
                             a “no year” basis, unused appropriations can be carried over into future
                             fiscal years and, thus, are available to cover future years’ expenses. An
                             official at The Veterans Corporation stated that they expect to have a
                             surplus of funds at the end of the fourth year of government support which,
                             if necessary, would cover their operating costs in the following year.



Funds Raised Will Be Used    The Veterans Corporation has a fund-raising goal of $2.5 million in fiscal
to Support the VET Program   year 2003 and $3 million in fiscal year 2004 to support education and
                             training efforts, primarily the VET program. In fiscal year 2002, The
                             Veterans Corporation earned about $2.8 million, exceeding its goal of $2
                             million. To help raise funds, they contracted with Changing Our World, a
                             fund-raising organization, and are establishing a fund-raising advisory
                             board of approximately 12 to 15 individuals. A Veterans Corporation
                             official explained that it initially planned to rely on fund-raising to support
                             operations until other revenue sources were in place, but the corporation
                             refocused in light of current economic conditions and limited success in
                             raising funds for operations. The corporation’s revised fund-raising strategy



                             Page 25                             GAO-03-434 Progress of The Veterans Corporation
                              focuses on financing VET program costs. The official further explained
                              that money raised would be used for direct program expenses and not for
                              The Veterans Corporation administrative expenses. VET course
                              administration and materials cost The Veterans Corporation about $1,850
                              per student, of which enrollees pay $350. As identified in its business plan,
                              the VET corporate objective for fiscal year 2003 is to deliver the program to
                              500 participants.



The Veterans Corporation Is   While The Veterans Corporation only had two sources of income for fiscal
Developing Other Sources      year 2001, which were federally appropriated funds and the interest earned
                              on them, sources of income for fiscal year 2002 included federal
of Income
                              appropriations and interest income plus cash donations, pledges for future
                              cash donations, contributed services, in-kind donations, contract revenue
                              from the federal government, and other sources. It is important to note
                              however, that approximately $1.2 million of The Veterans Corporation’s
                              fiscal year 2002 revenues were pledges for future payments to The Veterans
                              Corporation.11 Figure 3 shows The Veterans Corporation’s income for
                              fiscal year 2002, exclusive of federally appropriated funds and interest
                              earned on those funds.




                              11
                                 The Veterans Corporation recorded the pledges it expects to receive in future years as
                              contributions receivable at their present value in accordance with U.S. generally accepted
                              accounting principles for not-for-profit organizations.




                              Page 26                                  GAO-03-434 Progress of The Veterans Corporation
                             Figure 3: Sources of Other Income from Fund-raising and Activities for Fiscal Year
                             Ending September 30, 2002 (dollars in thousands)

                                                                             Less than 1% Other ($11)
                                                                             2% Cash contributions ($66)




                                                            43%              Cash pledges ($1,197)
                                     54%




                                                                             Contributed services and
                                                                             in-kind contributions ($1,517)
                             Source: GAO.


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


                             Most of the other funds raised in fiscal year 2002 were in the form of
                             contributed services, such as legal services and ability to provide the
                             EntreWorld on-line library through The Veterans Corporation’s Web site at
                             no cost to The Veterans Corporation, as well as pledges for future
                             payments of cash. Ten pledges were made, two of which are collectible
                             over a period of 10 years. The Veterans Corporation raised approximately
                             $66,000 in cash, $5,100 in contract revenue from the federal government,
                             and $5,900 in other funds in fiscal year 2002.



The Veterans Corporation     The Veterans Corporation intends to evaluate the self-sufficiency plan on a
Will Measure Progress        quarterly basis to assess whether its strategies are sufficient to meet
                             targeted projections. The CFO of The Veterans Corporation said that
Toward Self-Sufficiency in   management would review the progress of the plan, including decisions to
Fiscal Year 2003             discontinue unsuccessful programs. In the event that projections are not



                             Page 27                                      GAO-03-434 Progress of The Veterans Corporation
                      met for 2003, a Veterans Corporation official stated that they would then
                      consider alternative revenue sources to allow them to meet their self-
                      sufficiency goal. In addition, officials at The Veterans Corporation told us
                      that they continuously look for potential business opportunities to
                      complement their efforts and have had some early discussions on other
                      possible ventures.



Agency Comments and   We received written comments on a draft of this report from The Veterans
                      Corporation. We also obtained technical comments from SBA and VA that
Our Evaluation        have been incorporated into this report where appropriate.

                      • The Veterans Corporation commented that their programs have broad
                        measures, quantitative and/or qualitative, that are used to assess early
                        program objectives. In addition, corporation representatives pointed out
                        that they have not yet refined and tested measures to assess whether
                        their programs ultimately have a positive effect on veterans who own or
                        want to start their own businesses. We discussed this issue with The
                        Veterans Corporation and obtained additional documentation
                        supporting these broad measures and noted this in the report.

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

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

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



                      Page 28                            GAO-03-434 Progress of The Veterans Corporation
   response, which outlines the steps that it plans to take in response to
   this issue.


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

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




William O. Jenkins, Jr.
Director, Financial Markets
 and Community Investment




Page 29                            GAO-03-434 Progress of The Veterans Corporation
List of Committees

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

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

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

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




Page 30                           GAO-03-434 Progress of The Veterans Corporation
Appendix I

Scope and Methodology                                                                         AA
                                                                                               ppp
                                                                                                 ep
                                                                                                  ned
                                                                                                    n
                                                                                                    x
                                                                                                    id
                                                                                                     e
                                                                                                     x
                                                                                                     Iis




             To describe The Veterans Corporation’s efforts in providing small business
             assistance to veterans, we collected and analyzed program information
             such as planning documents, contracts, legal opinions, and program
             literature. Additionally, we interviewed staff and board officials from The
             Veterans Corporation, as well as partnering organizations including
             officials from eScout, Changing Our World, Equisource, and Southern
             Financial Bank. We also interviewed officials from federal agencies,
             including the Small Business Administration, Department of Defense,
             Department of Veterans Affairs, and Department of Labor, and officials
             from a veteran service organization, the Vietnam Veterans of America, as
             well as a consultant—Halsey, Rains, and Associates.

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

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

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

             • Obtained and reviewed minutes of meetings of the board of directors
               and the board’s executive committee to determine the board’s policies
               as they related to the disbursement and use of federal funds;

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

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

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




             Page 31                            GAO-03-434 Progress of The Veterans Corporation
Appendix II

Timeline of The Veterans Corporation’s Key
Efforts and Activities                                                                                                   Appendx
                                                                                                                               Ii




Effective date           Efforts and activities
October 1998             Report of the Small Business Administration Veterans Affairs Task Force for Entrepreneurship,
                         “Leading the Way: What Veterans Need From the SBA,” presented to Congress
August 1999              Veterans Entrepreneurship and Small Business Development Act (Public Law 106-50) enacted
October 1999             National Veterans Business Development Corporation is incorporated in the District of
                         Columbia
August - December 2000   President appoints eight board members
                         First Board of Directors meeting in September 2000
March 2001               The Veterans Corporation receives initial federal funding ($4 million)
October 2001             The Veterans Corporation receives second installment of federal funding ($4 million)
                         Charles R. Henry hired as CEO and president
                         First meeting of the Professional Certification Advisory Board (PCAB)
November 2001            The President appoints ninth and final board member
December 2001            Kauffman Foundation grants The Veterans Corporation permission to use EntreWorld
January 2002             Agreement reached with eScout to develop the Veterans Marketplace
                         Agreement reached with Equisource to create the Veterans Capital Fund
February 2002            Micro loan program initiated with Southern Financial Bank, Virginia
April 2002               www.veteranscorp.org Web site operational
                         Brigadier General Robert Cocroft (United States Army Retired) appointed chairman of the
                         PCAB
May 2002                 Agreement signed with eScout to license the Veterans Marketplace
                         Legacy Bank, Pennsylvania, enters micro loan program
July 2002                Changing Our World engaged to lead fund-raising effort
                         First Tennessee Bank, Tennessee, enters micro loan program
August 2002              Public service announcements launched with Time-Warner Cable Television
September 2002           PCAB committees formed
                         Memorandum of Understanding signed with National Defense Industrial Association (NDIA) to
                         conduct joint meetings nationwide to emphasize business opportunities for veterans and NDIA
                         Agreement reached with Advanta Bank to develop The Veterans Corporation Platinum
                         BusinessCard
                         Agreement reached with First American Engineering to sponsor Veteran Business Success
                         Seminars
                         Agreement reached with Defense Logistics Agency to enhance business assistance to veterans
                         and service-disabled veterans
October 2002             Contract signed with Gateway Computer for computers and computer training for Veteran
                         Entrepreneurial Training (VET) graduates
                         Agreement reached with Aon Financial Institution for insurance/benefits program
                         Agreement reached with Lee Wayne Inc., to promote independent business opportunities for
                         veterans




                               Page 32                                   GAO-03-434 Progress of The Veterans Corporation
                                       Appendix II
                                       Timeline of The Veterans Corporation’s Key
                                       Efforts and Activities




(Continued From Previous Page)
Effective date                   Efforts and activities
                                 First Veteran Business Success Seminar, Idaho
                                 15 Facilitators trained to teach VET program
                                 Site agreement reached with George Mason University, Virginia, and Riverside Community
                                 District College, California for VET Program
                                 First 3 VET programs launched in Maine, California, and Virginia
Source: GAO.

                                       Note: Analysis of The Veterans Corporation data.




                                       Page 33                                      GAO-03-434 Progress of The Veterans Corporation
Appendix III

The Veterans Corporation’s Initiatives in
Response to Statutory Requirements                                                                                                          Appendx
                                                                                                                                                  iI




Statutory requirement                                                  Initiative
PROGRAMMATIC
Expand provision of and improve access to technical assistance         •   www.veteranscorp.org
regarding entrepreneurship for veterans.                               •   EntreWorld on-line small business resource library
                                                                       •   Veterans Entrepreneurial Training program
                                                                       •   Veterans Business Success seminars
Assist veterans, including service-disabled veterans, with the         •   Micro loan program
formation and expansion of small businesses.                           •   Veterans Entrepreneurial Training program
                                                                       •   Veterans Marketplace
                                                                       •   Veterans Capital Fund
                                                                       •   Veterans Corporation Platinum BusinessCard
                                                                       •   Insurance/benefits program
                                                                       •   America’s Business Network
                                                                       •   Develop business opportunities for veterans through alliances:
                                                                           Lee Wayne, Inc., Defense Logistics Agency, National Defense
                                                                           Industrial Association, First American Engineering
Organize public and private resources, including those of federal      • Meetings with federal agencies: DOL, DOD, SBA, VA
agencies.                                                              • Veterans Capital Fund
                                                                       • Micro loan program
Establish and maintain a network of information and assistance         • www.veteranscorp.org
centers for use by veterans and the public.
Establish Professional Certification Advisory Board.                   • 26-member board
                                                                       • Three committees
Assume duties, responsibility, and authority of the Advisory           • Business plan
Committee on Veterans Affairs on October 1, 2004.
ORGANIZATION DEVELOPMENT
Institute and implement a fund-raising and self-sufficiency plan.      • Business plan
                                                                       • Self-sufficiency plan
                                                                       • Revenue-producing ventures: Veterans Marketplace, Veterans
                                                                         Corporation Platinum BusinessCard, Insurance/benefits, Veterans
                                                                         Capital Fund, Micro loan program
Raise matching funds to fulfill conditions for receipt of federal funds. • Changing Our World
                                                                         • Fund-raising advisory board
Transmit an annual report to the President and to Congress.            • Annual reports
Board of Directors oversight of Corporation’s obligations and          • Audit committee
expenses.
Source: The Veterans Corporation.

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




                                                Page 34                                     GAO-03-434 Progress of The Veterans Corporation
Appendix IV

The Veterans Corporation’s Revenue and
Expenses for Fiscal Years 2001 and 2002                                                                       Appendx
                                                                                                                    iIV




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



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

               Dollars in thousands
                                                                                             2001         2002
               Federal appropriations received                                             $4,000       $4,000
               Federal appropriations used                                                    985        3,754
               Subtotal: current year’s unused appropriations                               3,015          246
               Unexpended appropriations, beginning balance                                   N/A        3,015
               Unexpended appropriations, ending balance                                   $3,015       $3,261
               Source: The Veterans Corporation.

               Notes: Data from audited financial statements.

               N/A means not applicable.

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




               Page 35                                          GAO-03-434 Progress of The Veterans Corporation
Appendix IV
The Veterans Corporation’s Revenue and
Expenses for Fiscal Years 2001 and 2002




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

Dollars in thousands
                                       2001               2002             Combined total
Revenue                             Dollars Percent   Dollars    Percent     Dollars Percent
Federal
appropriations used                   $985       93   $3,754         57      $4,739         62
Cash contributions
and pledges                            N/A     N/A      1,263        19        1,263        16
Contributed services
and in-kind
contributions                          N/A     N/A      1,517        23        1,517        20
Interest income                         71        7        63         1         134          2
Other                                  N/A     N/A         11       N/A           11      N/A
Total revenue                       $1,055     100    $6,609        100      $7,664       100
Source: The Veterans Corporation.

Notes: Data from audited financial statements.
Numbers may not sum to total because of rounding.
N/A means not applicable.


The Veterans Corporation reported approximately $1.3 million in cash
contributions and pledges in 2002 as revenue. The majority of the revenue,
$1.2 million, pertained to unconditional pledges that The Veterans
Corporation recognized as temporarily restricted revenue when the
corporation was notified of the pledges. The Veterans Corporation
recorded the pledges it expects to receive in future years as contributions
receivable at their present value in accordance with U.S. generally
accepted accounting principles for not-for-profit organizations. See table 4
for a schedule of The Veterans Corporation’s contributions receivable as of
September 30, 2002.




Page 36                                        GAO-03-434 Progress of The Veterans Corporation
Appendix IV
The Veterans Corporation’s Revenue and
Expenses for Fiscal Years 2001 and 2002




Table 4: The Veterans Corporation’s Schedule of Contributions Receivable as of
September 30, 2002

Dollars in thousands
Contributions receivable to be received in                                Dollars         Percent
Less than 1 year                                                            $262              22
One to 5 years                                                                784             66
Greater than 5 years                                                          303             25
Subtotal                                                                   $1,349            113
Less: present value discount                                                  152             13
Contributions receivable                                                   $1,197            100
Source: The Veterans Corporation.

Note: Data from audited financial statements.


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



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

Dollars in thousands
                                                 2001                              2002
Functional areas                       Dollars          Percent          Dollars          Percent
Program activities                        $580               59           $2,410              64
Fund-raising                                    25            3              480              13
Administrative                             379               39              864              23
Total expenses                            $985             100            $3,754             100
Source: The Veterans Corporation.

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




Page 37                                         GAO-03-434 Progress of The Veterans Corporation
Appendix V

The Veterans Corporation’s Salary, Bonus, and
Payments to Staff for Fiscal Years 2001 and
2002                                                                                                                                                     Append
                                                                                                                                                              x
                                                                                                                                                              i
                                                                                                                                                              V




                                                             Table 6 shows The Veterans Corporation’s aggregate compensation
                                                             amounts for executive management and all other staff for fiscal years 2001
                                                             and 2002.1 Six employees comprised executive management and all other
                                                             staff consisted of 13 employees, however not all staff were employed
                                                             concurrently. For fiscal year 2001, the data are disaggregated by salary and
                                                             payments to contract workers for the provision of services. Prior to August
                                                             2001, the board of The Veterans Corporation did not hire permanent
                                                             employees. Instead, they executed contracts with individuals to provide
                                                             services. These payments are represented as payments to contract
                                                             workers, as shown in table 6 below. For fiscal year 2002, the salary data is
                                                             disaggregated by wage and bonus payments.



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

Dollars in thousand
                                                                            FY 2001                                         FY 2002
                                                           Payments to
                                                              contract           Salarya
                                                              workers         (August –
Employee classification                                  (March – July)      September)             Total           Wage        Bonus     Total salarya
Executive management                                             $131,000         $55,793        $186,793       $557,000      $137,500       $694,500
All other staff                                                    97,800          37,845         135,645        430,290        12,500         442,790
Total                                                            $228,800         $93,638        $322,438       $987,290      $150,000      $1,137,290
Source: GAO analysis of The Veterans Corporation data.
                                                             a
                                                             Salary does not include benefits.




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




                                                             Page 38                                    GAO-03-434 Progress of The Veterans Corporation
Appendix VI

Comments from The Veterans Corporation                                  Appendx
                                                                              iVI




              Page 39     GAO-03-434 Progress of The Veterans Corporation
Appendix VI
Comments from The Veterans Corporation




Page 40                              GAO-03-434 Progress of The Veterans Corporation
Appendix VI
Comments from The Veterans Corporation




Page 41                              GAO-03-434 Progress of The Veterans Corporation
Appendix VII

GAO Contacts and Staff Acknowledgments                                                             Append
                                                                                                        x
                                                                                                        iVI




GAO Contacts      William O. Jenkins, Jr. (202) 512-8678
                  Harry Medina (415) 904-2000



Acknowledgments   In addition to the persons named above, Janet Fong, Jeanette M. Franzel,
                  Marc W. Molino, Charles E. Norfleet, Julie T. Phillips, Barbara M.
                  Roesmann, Kathryn M. Supinski, and Paul G. Thompson made key
                  contributions to this report.




(250090)          Page 42                            GAO-03-434 Progress of The Veterans Corporation
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