Small Business
The National Veterans Business Development Corporation's Progress in Providing Small Business Assistance to Veterans Gao ID: GAO-03-434 April 30, 2003The Veterans Entrepreneurship and Small Business Development Act of 1999 (Act) created the National Veterans Business Development Corporation (The Veterans Corporation) to address perceived gaps in providing small business and entrepreneurship assistance to veterans. The Act requires GAO to review The Veterans Corporation. GAO described The Veterans Corporation's (1) efforts to provide small business assistance to veterans, including service-disabled veterans; (2) use of and controls over federal funds in providing these services; and (3) efforts to become financially self- sufficient.
The Veterans Corporation is providing veterans with entrepreneurial training, on-line educational resources, micro loans, business insurance, and an on-line marketplace. The Veterans Corporation identified initial challenges that slowed program progress, including getting information on transitioning military personnel; and veteran-owned businesses; and delays in making management appointments. Because the programs are new, it is too early to determine their effectiveness. During its first 2 years of operation, The Veterans Corporation spent about $5 of $8 million in total federal appropriations; about $1 million in fiscal year 2001; and about $4 million in fiscal year 2002, with the largest part of the increase due to salaries and program costs. An external audit for fiscal year 2001 identified internal control issues, such as the lack of adequate supporting documentation for disbursements and untimely reconciliation of bank accounts. According to the external auditor, all but one of the deficiencies was addressed in 2002. The Veterans Corporation has developed a financial self-sufficiency plan based on four major revenue sources--an on-line marketplace, a credit card program, an insurance service program, and fund-raising. At the time of GAO's review, most of these efforts were just beginning to produce revenue. According to the plan, The Veterans Corporation is not expected to achieve self-sufficiency until the fourth quarter of fiscal year 2004. If outcomes do not meet projections, Veterans Corporation officials stated that they would explore alternatives.
GAO-03-434, Small Business: The National Veterans Business Development Corporation's Progress in Providing Small Business Assistance to Veterans
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Report to Congressional Committees:
April 2003:
Small Business:
The National Veterans Business Development Corporation's Progress in
Providing Small Business Assistance to Veterans:
GAO-03-434:
GAO Highlights:
Highlights of GAO-03-434, a report to the House and Senate Committees
on Small Business and Veterans' Affairs.
Why GAO Did This Study:
The Veterans Entrepreneurship and Small Business Development Act of
1999 (Act) created the National Veterans Business Development
Corporation (The Veterans Corporation) to address perceived gaps in
providing small business and entrepreneurship assistance to veterans.
The Act requires GAO to review The Veterans Corporation. As agreed
with committee staff, GAO described The Veterans Corporation‘s (1)
efforts to provide small business assistance to veterans, including
service-disabled veterans; (2) use of and controls over federal funds
in providing these services; and (3) efforts to become financially
self-sufficient.
What GAO Found:
The Veterans Corporation is providing veterans with entrepreneurial
training, on-line educational resources, micro loans, business
insurance, and an on-line marketplace. The Veterans Corporation
identified initial challenges that slowed program progress, including
getting information on transitioning military personnel; and veteran-
owned businesses; and delays in making management appointments.
Because the programs are new, it is too early to determine their
effectiveness.
During its first 2 years of operation, The Veterans Corporation spent
about $5 of $8 million in total federal appropriations; about $1
million in fiscal year 2001; and about $4 million in fiscal year 2002,
with the largest part of the increase due to salaries and program costs. An external audit for fiscal year 2001 identified internal control issues, such as the lack of adequate supporting documentation for disbursements and untimely reconciliation of bank accounts. According to the external auditor, all but one of the deficiencies was addressed in 2002.
The Veterans Corporation has developed a financial self-sufficiency
plan based on four major revenue sources”an on-line marketplace, a
credit card program, an insurance service program, and fund-raising.
At the time of GAO‘s review, most of these efforts were just beginning
to produce revenue. According to the plan, The Veterans Corporation is
not expected to achieve self-sufficiency until the fourth quarter of
fiscal year 2004. If outcomes do not meet projections, Veterans
Corporation officials stated that they would explore alternatives.
www.gao.gov/cgi-bin/getrpt?GAO-03-434.
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact William O. Jenkins, Jr. at (202)
512-8757, or JenkinsWO@gao.gov.
[End of section]
Letter:
Results in Brief:
Background:
The Veterans Corporation Initiates Entrepreneurial Services to
Veterans:
The Veterans Corporation's Use of and Controls over Federal Funds
Received:
Financial Self-Sufficiency Plan in Place but Too Early to Determine the
Likelihood of Success:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Timeline of The Veterans Corporation‘s Key Efforts and
Activities:
Appendix III: The Veterans Corporation‘s Initiatives in Response to
Statutory Requirements:
Appendix IV: The Veterans Corporation‘s Revenue and Expenses for Fiscal
Years 2001 and 2002:
Appendix V: The Veterans Corporation‘s Salary, Bonus, and Payments to
Staff for Fiscal Years 2001 and 2002:
Appendix VI: Comments from The Veterans Corporation:
Appendix VII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Acknowledgments:
Tables:
Table 1: The Veterans Corporation's Schedule of Expenses for Fiscal
Years Ending September 30, 2001, and 2002:
Table 2: The Veterans Corporation's Schedule of Appropriations for
Fiscal Years Ending September 30, 2001, and 2002:
Table 3: The Veterans Corporation's Schedule of Revenue for Fiscal Years
Ending September 30, 2001, and 2002:
Table 4: The Veterans Corporation's Schedule of Contributions
Receivable as of September 30, 2002:
Table 5: The Veterans Corporation's Federally Funded Expenses by
Function for Fiscal Years Ending September 30, 2001, and 2002:
Table 6: The Veterans Corporation's Aggregate Compensation for
Executive Management and All Other Staff for Fiscal Years Ending
September 30, 2001, and 2002:
Figures:
Figure 1: The Veterans Corporation: Description and Status of Key
Initiatives, as of March 2003:
Figure 2: The Veteran Corporation's Federally Funded Expenses by
Function for Fiscal Years Ending September 30, 2001, and 2002 (dollars
in thousands):
Figure 3: Sources of Other Income from Fund-raising and Activities for
Fiscal Year Ending September 30, 2002 (dollars in thousands):
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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Letter April 30, 2003:
Congressional Committees:
A Congressional report released in January 1999, identified gaps in the
federal government's delivery of entrepreneurial services to
veterans.[Footnote 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.[Footnote 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 analyzed The Veterans Corporation's fiscal years 2001 and 2002
financial statements, obtained and reviewed minutes of board of
directors meetings, and interviewed The Veterans Corporation's external
auditors. We also interviewed officials from the staff and board of The
Veterans Corporation, as well as officials from federal agencies,
partnering organizations, and veteran service organizations. Please see
appendix I for a more complete description of our scope and
methodology.
We conducted our review from June 2002 through April 2003 in accordance
with generally accepted government auditing standards. Written comments
on a draft of this report from The Veterans Corporation appear in
appendix VI. We also obtained technical comments from the Small
Business Administration (SBA) and the Department of Veterans' Affairs
(VA) that have been incorporated where appropriate.
Results in Brief:
The Veterans Corporation has made progress toward providing
entrepreneurial services to veterans, despite some initial challenges.
The Veterans Corporation officials stated that they have been careful
not to duplicate existing services. The Veterans Corporation has
launched efforts to provide entrepreneurial education and training
through classroom instruction, seminars, and on-line educational
resources. It has also started to provide entrepreneurial services to
veteran-owned small businesses such as micro loans, business insurance,
and on-line buying and selling of veteran-owned products and services.
Officials identified some initial challenges that they faced, such as
the difficulty in obtaining information from government sources on
transitioning military personnel and veteran businesses, limited
government participation in The Veterans Corporation activities, and
delays in management appointments. Because The Veterans Corporation
programs and processes are relatively new, it is too early to determine
their effectiveness. However, The Veterans Corporation plans to assess
program effectiveness periodically. As required by the Act, The
Veterans Corporation has established a Professional Certification
Advisory Board (PCAB) to (1) assist in creating uniform guidelines for
the professional certification of transitioning members of the military
and (2) remove license and certification barriers.
In fiscal years 2001 and 2002, Congress appropriated a total of $8
million for The Veterans Corporation. These funds remain available to
The Veterans Corporation until expended. According to The Veterans
Corporation's audited financial statements for these 2 years, the
Corporation spent about $4.7 million of the $8 million primarily on
start-up costs, leaving an available balance of about $3.3 million as
of September 30, 2002. Management has stated that its approach is to
spend conservatively on programs and operating expenses in the start-up
period so that unused federal appropriations can be used in future
years. In fiscal year 2001, The Veterans Corporation spent about
$985,000 for salaries, professional services, and other start-up costs,
all funded by its federal appropriations and related interest earnings.
In fiscal year 2002, The Veterans Corporation used federal funds to pay
for salaries, professional services, start-up expenses, and program
activities, including expenses related to The Veterans Marketplace--an
on-line service that allows veteran-owned businesses to sell goods and
services over the Internet. In fiscal year 2002, The Veterans
Corporation began to realize other revenues, such as pledges,
contributed services and in-kind contributions from nonfederal sources.
As a result, federal appropriations accounted for about 57 percent of
The Veterans Corporation's total revenues for fiscal year 2002. The
Board of Directors is required to prescribe the manner in which the
obligations of The Veterans Corporation may be incurred and how its
expenses are allowed and paid. In The Veterans Corporation's first
fiscal year, 2001, its external auditor identified some internal
control issues, such as the failure to reconcile bank accounts on a
timely basis and segregate cash duties, as well as the failure to
maintain a filing system for accounting records. According to the
external auditor, The Veterans Corporation has implemented corrective
measures in fiscal year 2002 to address all but one of the identified
deficiencies. The Veterans Corporation has acknowledged the remaining
deficiency and plans to take corrective action in fiscal year 2003.
The Veterans Corporation has developed a plan to achieve financial
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
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.[Footnote 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.
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 Corporation Initiates Entrepreneurial Services to
Veterans:
The Veterans Corporation has several initiatives under way to provide
small business education, training, and entrepreneurial services to
veterans. Officials additionally have identified some initial
challenges that have slowed the progress of these efforts, including
(1) the inability to collect data on the veteran population, (2)
limited government participation in The Veterans Corporation
activities, (3) delays in appointing management, and (4) unclear
corporate legal status of The Veterans Corporation. The Veterans
Corporation has broad performance measures in place to monitor its
programs at this early stage and are planning to develop more refined
measures to assess effectiveness as the programs mature. The Veterans
Corporation has established a PCAB--a body mandated by Congress to
assist service members transition from the military to private-sector
employment--but the issues surrounding private-sector recognition of
military experience and training are large and complex, according to
some officials.
Educational and Training Programs Under Way and The Veterans
Corporation Is Developing Entrepreneurial Services:
According to an official at The Veterans Corporation, their corporate
strategy has been to organize, coordinate, enhance, and expand existing
business programs and services to military veterans interested in
entrepreneurship. Additionally, their strategy is to provide programs
not otherwise available to veteran-owned businesses. Officials at The
Veterans 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.
The Veterans Corporation has also piloted two, 1-day Veterans Business
Success Seminars on the skills needed to start a business. The seminars
were held in Boise, Idaho, and Cleveland, Ohio, and included
discussions on business plans, marketing analysis, and financing.
According to an official at The Veterans Corporation, 30 veterans
participated in the first two seminars. The official explained that
they are adopting a new strategy to more consistently meet the mandate
to establish and maintain a network of information and assistance
centers for use by veterans and the public. Under this strategy, The
Veterans Corporation will utilize community-based organizations to
provide veterans support with a combination of workshops, seminars and
courses tailored to local needs. The official added that The Veterans
Corporation is in discussions with the SBA on funding four test sites
to be launched by May 2003.
On-Line Educational Resources:
In April 2002, The Veterans Corporation's Web site became operational;
it contains information on training, capital, and other business
resources. A board member of The Veterans Corporation told us that The
Veterans Corporation views this Web site as helping to fulfill the
requirement under the Act to establish and maintain a network of
information and assistance centers for use by veterans and the public.
The board member explained that building brick and mortar development
centers would be prohibitively expensive and that the board's initial
goal was to focus on leveraging existing services rather than
duplicating private-sector services. For example, the Web site has
links to other small business resources, including Entreworld, an on-
line small business resource library. Entreworld, which is sponsored by
the Ewing Marion Kauffman Foundation, was one of the first Web sites
assisting small businesses since 1996, according to the Entreworld Web
site. Additionally, The Veterans Corporation's Web site has links to
other on-line resources for veterans, such as those of the Department
of Defense (DOD), SBA, and Department of Veterans Affairs (VA).
Services to Entrepreneurs:
The Veterans Corporation has launched or started to develop various
initiatives to provide entrepreneurial services, such as access to
capital through a micro loan program, business insurance, and on-line
buying and selling of veteran-owned goods and services. While these
services are intended to assist veterans with formulating or expanding
businesses, some of the services also provide revenue to The Veterans
Corporation. (We discuss The Veterans Corporation's efforts to become
self-sufficient later in this report.):
:
* Micro loan program. To help veterans gain access to capital, The
Veterans Corporation established a regional micro loan program[Footnote
4] for start-up businesses. The Veterans Corporation is working with
regional banks to provide the loans. Participating banks in the micro
loan program may also use SBA loan guarantees to help veterans obtain
access to capital. An official told us that as of January 2003, the
first early stage loan of $25,000 was made to a start-up, veteran-owned
business and two other SBA lines of credit up to $150,000 were close to
being finalized. As of April 2003, The Veterans Corporation has an
agreement with Newtek Small Business Finance, Inc., to offer SBA loans
and other services. The Veterans Corporation will be able to provide
nationwide service in conjunction with its existing lenders.
* Veterans Marketplace. The Veterans Marketplace is an on-line purchase
program for products and services produced by veteran-owned small
businesses. The Veterans Corporation is partnering with eScout, a
company that operates a similar electronic procurement business. The
Veterans Marketplace targets procurements of $2,500 or less using an
electronic purchase card system. Although the system is operational,
The Veterans Corporation is in the process of building their customer
lists of government and private companies. As of January 2003, there
were 16 veteran-owned business sellers and 150 veteran-owned business
buyers listed on The Veterans Marketplace. The Veterans Corporation
plans to earn income from this effort through a 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.
* 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.
Figure 1: The Veterans Corporation: Description and Status of Key
Initiatives, as of March 2003:
[See PDF for image]
Note: GAO analysis of The Veterans Corporation data.
[End of figure]
Outreach to Service-Disabled Veterans:
Officials at The Veterans Corporation describe their outreach as
targeting 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.
Initial Challenges Slow Progress of The Veterans Corporation's Programs
and Initiatives:
The Veterans Corporation officials said that progress on programs has
been hampered by their inability to collect information from government
sources on military personnel transitioning to civilian life and
existing veteran-owned businesses. One of the officials explained that
the success of programs such as The Veterans Marketplace and VET
program is largely dependent on their ability to identify and reach
transitioning service members and veteran-owned businesses. The
Veterans Corporation officials said that if they were not successful in
obtaining this data, they would have to rely on developing data from
attendance lists from their training and education programs and other
available sources. Officials stressed that this would slow the
development of a client database.
Privacy Issues Prevent Government Agencies from Sharing Information on
Veterans; Publicly Available Data Are Limited:
The Veterans Corporation has requested information from DOD and VA,
respectively, on (1) military service members nearing retirement or
separation and (2) veteran-owned and service-disabled, veteran-owned
businesses. Both DOD and VA officials said that privacy laws prohibit
them from providing personal information such as names and addresses of
the military and veteran population. A DOD official stated that their
policy prohibits them from releasing private information on enlisted
military to any public or private organization. The DOD official
further cited a November 9, 2001, memorandum for DOD Freedom of
Information Act Offices that supports the withholding of personally
identifiable information for security reasons in response to the events
of September 11, 2001. VA's Office of the General Counsel (OGC) issued
a legal opinion on December 12, 2002, which states that the Act does
not direct the Secretary of VA to construct a database for use by The
Veterans Corporation. Furthermore, VA's OGC stated that there are no
provisions within existing confidentiality laws that would permit the
sharing of information as proposed. However, in response to our draft
report, VA concluded that it could disclose a list of names and
addresses of veterans and their small businesses to the public,
including The Veterans Corporation. Further, VA officials stated that
arrangements are under way to make this information available on their
Web site. However, it remains to be seen whether the information that
will be available on VA's Web site will meet The Veterans Corporation's
needs.
The Veterans Corporation has obtained access to some government
databases as well as other publicly available information on veterans-
-for example, SBA's Procurement Marketing and Access Network (PRO-Net)
database, which contains information on veteran-owned business. The
Veterans Corporation has also gained access to DOD's Central Contractor
Registration (CCR) database that contains information on prime and
subcontractors of the federal government. CCR contains over 200,000
business listings of which 30,000 were listed as veteran-owned. DOD has
required that The Veterans Corporation sign a standard nondisclosure
agreement. But, an official at The Veterans Corporation said that the
agreement contains language that they "shall not use such data for
commercial purposes;" the agreement is currently under legal review at
The Veterans Corporation. According to SBA officials, PRO-Net is
currently merging with CCR, and current registrants from both databases
are being asked to reregister into the combined database.
The Veterans Corporation has also utilized some publicly available
information on veterans, but the information is in aggregate form and
does not enable them to identify individuals seeking entrepreneurial
assistance. According to officials at The Veterans Corporation, they
were not aware of any public sources of data with names and addresses
that could be used to identify veterans who may be seeking
entrepreneurial assistance. For instance, The Veterans Corporation
officials said they used public data from the VA Web site for
information on where veterans live, by state and county and for age and
gender. This information was used to help determine locations for VET
classes and Veterans Business Success Seminars. Additionally, The
Veterans Corporation identified a private data source that lists about
190,000 veteran-owned businesses. An official said that the private
data source does not collect E-mail addresses and questioned whether
the records have current mailing addresses. Officials said that this
effort has been put on hold because it was not viewed as worth the
$90,000 acquisition cost.
Government Agencies Had Limited Participation in The Veterans
Corporation Activities:
The Veterans Corporation is required to work with and organize public
and private resources, including those of the federal government. An
official at The Veterans Corporation indicated that collaboration with
other federal agencies has been limited because of other priorities at
these agencies and because agencies are not required to carry out these
multiagency initiatives. As stated previously, due to privacy issues
The Veterans Corporation has had difficulty in obtaining data from DOD
on military personnel transitioning to civilian life and from VA on
veteran-owned businesses. The Veterans Corporation official suggested
that a federal directive, such as a presidential executive order or
Office of Management and Budget guidance, would help federal agencies
understand The Veterans Corporation's mission and provide the agencies
with instructions for assisting in these efforts.
Government officials with whom we spoke provided some examples of early
collaboration with The Veterans Corporation. For instance, an SBA
official stated that they have been active participants at board
meetings, helped develop initiatives such as The Veterans Capital Fund
(see fig. 1), and provided technical assistance. According to the
official, SBA envisions that there will be additional, mutually
beneficial relationships with other programs. A VA official stated that
collaboration between VA and The Veterans Corporation has included
establishing links on the respective Web sites, and invitations to
speak at VA conferences. A DOD official also mentioned that the DOD Web
site has a link to The Veterans Corporation's Veterans Entrepreneurial
Training Program.
Delays in Management Appointments Slowed The Veterans Corporation's
Activity:
Officials at The Veterans Corporation said that progress on their
programs was initially hampered by delays in management appointments
for positions such as the Chief Executive Officer (CEO) and board
members. The officials explained that much time was spent searching for
a permanent CEO. The CEO was appointed in October 2001. Until August
2001, the staff at The Veterans Corporation were temporary employees,
operating as contractors. Subsequently, the entire management team was
hired in fiscal year 2002. Additionally, the Act called for the initial
board members to be appointed by the President of the United States no
later than 60 days after the legislation was enacted on August 17,
1999. The initial presidential appointments, however, did not occur
until a year after enactment. Eight of the nine voting members were
appointed between August and December 2000, while the ninth member was
appointed in November 2001.
Although initial board members had diverse backgrounds such as banking,
engineering, and social services, Veterans Corporation and board
officials said they would like to have board members with specific
qualifications such as connections to corporations for fund-raising or
political clout, experience on other boards of successful businesses,
or first-hand entrepreneurial experience. Further, The Veterans
Corporation staff believes that once government funding ends, they may
benefit from a board whose voting members are not wholly presidentially
appointed. They explained that the discretion to recruit board members
from the private sector would allow The Veterans Corporation to augment
the board's membership with the required business expertise necessary
for The Veterans Corporation's long-term success. The Act does not
include any specific rules or guidance for how The Veterans Corporation
is to make the transition from a largely government-funded to a
private, self-sufficient corporation. As one step in this transition,
The Veterans Corporation has proposed that the Act creating the
corporation be revised to give The Veterans Corporation input into the
selection of the board after government funding ends. Specifically, the
proposal calls for a board structure similar to that of Fannie Mae, a
government-sponsored enterprise that engages in secondary loan market
activity, in which only one-third of the directors are presidentially
appointed.
Status of The Veterans Corporation as a Public Agency or Private
Corporation Is Open to Interpretation:
Officials at The Veterans Corporation have indicated that differences
in interpretation regarding the legal status of The Veterans
Corporation as either a public agency or private corporation have, at
times, complicated 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 Plans to Put Evaluative Performance Measures
in Place:
It is too early to determine the effectiveness of The Veterans
Corporation programs to the veteran population because the programs are
relatively new and, in some cases, just under way. Officials indicated
that they have broad performance measures for programs such as
participants' satisfaction ratings of the VET program and quantitative
measures, such as the number of credit cards and insurance policies
issued, and dollar volume of transactions for the Veterans Marketplace,
which are used to determine whether they are meeting early program
objectives. The Veterans Corporation's business plan has outlined some
corporate objectives for fiscal year 2003, including delivering VET
programs to at least 500 veterans and transitioning military personnel.
Other objectives identified in the business plan include constructing a
database that contains accurate information on at least 250,000 veteran
business owners and expanding the micro loan program nationwide.
According to The Veterans Corporation officials, corporate objectives
will be reviewed quarterly. As programs mature, The Veterans
Corporation intends to assess program effectiveness periodically.
Officials indicated that they do not yet have refined and tested
measures to assess the extent their programs impact Veterans who seek
to develop or expand their own businesses. The officials explained that
at this early stage, there is a lack of historical [baseline]
information against which to measure progress. Additionally, they plan
to continue developing performance measures that assess overall program
effectiveness.
Professional Certification Advisory Board Established but Progress Is
Limited Because of Complex Issues:
As mandated by the Act, The Veterans Corporation formed a Professional
Certification Advisory Board (PCAB) to (1) create uniform guidelines
and standards for the professional certification of military personnel
transitioning to civilian occupations and (2) remove potential
licensure and certification barriers. Officials from another
certification group told us that veterans traditionally have a hard
time transitioning into private-sector employment because prospective
employers have difficulty understanding military experience and
training. Private sector employers are increasingly requiring proof or
certification of certain skills. Licensing and certification are the
two primary types of credentialing for individuals seeking civilian
positions that are equivalent to enlisted military occupations.
Occupations within the military that require private-sector
certification or licensing include, among other things, automotive
mechanic, dental assistant, electrician, flight engineer, medical
laboratory technician, plumber, police officer, and truck driver.
Licenses are granted by federal, state, and local government agencies
while certification is the process by which a nongovernmental agency,
association, or private sector company recognizes certain
qualifications. PCAB officials agreed that the task at hand is quite
large, involving multiple government entities.
The PCAB held its first meeting in October 2001. Subsequent, initial
meetings were spent identifying the scope of issues and key players.
The PCAB meets quarterly and has 26 members that serve voluntarily. The
board established three committees, including the (1) Barriers
Identification Committee, which is tasked with reviewing studies and
research to identify barriers that affect transitioning military
personnel; (2) Information Clearinghouse Committee, which is
responsible for obtaining and disseminating certification, licensure,
and small business development information; and (3) Research and
Legislative Action Committee, which will analyze barriers and develop
recommendations. According to the PCAB chairman, the committees are
developing their goals and have not yet produced deliverables. The
chairman explained that the Research and Legislation Action Committee
would use information from the other two committees to develop
recommendations.
One PCAB member acknowledged that while progress has been slow, he was
uncertain whether the PCAB committees could work any faster. He
stressed that the task at hand is quite large and that the pace of work
is dependent on the collective efforts of 26 members who serve on a
voluntary basis. For instance, one of the PCAB's committees established
to identify certification and licensing obstacles is looking at which
of the 105 identified military occupations have barriers, and it is
reviewing the licensing procedures of 53 states and jurisdictions.
Some PCAB members also represent other certification groups, such as
the Council of Licensure, Enforcement, and Regulation and the
Commission for Certification in Geriatric Pharmacy. A few board members
told us that representation from other certification efforts helps to
avoid duplication and complements the efforts of other groups. For
instance, one board member who also oversees the Department of Labor's
"Use Your Military Experience and Training" (UMET) Web site on
certification and licensing information stated that there is no overlap
of effort. In fact, he said that the PCAB is utilizing UMET as a
resource to obtain information on certification issues. Another board
member, who also chairs VA's Professional Certification and Licensing
Advisory Committee (PCLAC), agreed that the groups did not duplicate
each other's efforts and explained that VA offers financial assistance
to service members to cover the cost of certification, up to $2,000.
PCLAC advises VA on the certification requirements that entities must
meet in order to qualify for payment.
A Veterans Corporation board member with whom we spoke identified some
concerns about communication between the PCAB and The Veterans
Corporation board of directors. For instance, the official commented
that there has been limited interaction between the PCAB and The
Veterans Corporation board of directors. Others, including an official
at The Veterans Corporation and a veterans group with whom we spoke,
question whether The Veterans Corporation was the appropriate
organization to carry out the PCAB's mission. They stated that the PCAB
might distract The Veterans Corporation's management and board of
directors from their principal activities. An official at The Veterans
Corporation explained that producing uniform standards and guidelines
for certification was a large and complicated task and inconsistent
with the overall goals of The Veterans Corporation, which are to
provide entrepreneurial services.
The Veterans Corporation's Use of and Controls over Federal Funds
Received:
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 funds primarily on start-up costs. In fiscal year 2001, The
Veterans Corporation spent about $985,000 for salaries, professional
services, and other start-up costs.[Footnote 5] In fiscal year 2002,
The Veterans Corporation spent approximately $3.7 million in
appropriations for that year on expenditures related to establishing
its programs, as well as salaries, professional services, and other
start-up costs. The Veterans Corporation has implemented various
controls over its obligation and expenditure payment processes,
including limits on the ability of management officials to make check
disbursements without board of director approval. According to The
Veterans Corporation's external auditor, The Veterans Corporation had
internal control issues in fiscal year 2001. However, the external
auditor determined that these deficiencies did not constitute material
weaknesses and that all but one of the deficiencies had been corrected
in fiscal year 2002.
Most of The Veterans Corporation's Expenditures
to Date Have Been Start-up Costs:
The Veteran Corporation's management officials stated that their
approach was to spend conservatively on program and operating expenses
in the start-up period so that unused federal appropriations could be
spent in future periods. During fiscal year 2001, The Veterans
Corporation's sole sources of funding were from federal appropriations
and related interest earnings. Of the $4 million in appropriations
received during fiscal year 2001, it spent less than $1 million on
start-up costs such as salaries, professional services, and other
administrative costs. In fiscal year 2002, The Veterans Corporation
spent approximately $3.7 million of its federal funds to establish its
Veterans Marketplace--an on-line service for selling goods and services
of veteran-owned businesses--as well as for other 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.
Table 1: The Veterans Corporation's Schedule of Expenses for Fiscal
Years Ending September 30, 2001, and 2002:
Dollars in thousands.
Salaries and benefits; Dollars in thousands: 2001: $101; Dollars in
thousands: 2002: $1,275; Dollars in thousands: Combined total: $1,376.
Professional services; Dollars in thousands: 2001: 500; Dollars in
thousands: 2002: 596; Dollars in thousands: Combined total: 1,096.
Travel and recruitment; Dollars in thousands: 2001: 122; Dollars in
thousands: 2002: 94; Dollars in thousands: Combined total: 216.
Marketplace fees and; E-commerce; Dollars in thousands: 2001:N/A;
Dollars in thousands: 2002:1,187; Dollars in thousands: Combined
total:1,187.
Rent; Dollars in thousands: 2001: 77; Dollars in thousands: 2002: 136;
Dollars in thousands: Combined total: 213.
Other; Dollars in thousands: 2001: 185; Dollars in thousands: 2002:
467; Dollars in thousands: Combined total: 652.
Total expenses using federal appropriations; Dollars in thousands:
2001:$985; Dollars in thousands: 2002:$3,754; Dollars in
thousands: Combined total:$4,740.
Nonfederal expenses:; Dollars in thousands: 2001: [Empty]; Dollars in
thousands: 2002: [Empty]; Dollars in thousands: Combined total:
[Empty].
Donated Services[A]; Dollars in thousands: 2001: N/A; Dollars in
thousands: 2002: 1,417; Dollars in thousands: Combined total: 1,417.
Other; Dollars in thousands: 2001: N/A; Dollars in thousands: 2002: 44;
Dollars in thousands: Combined total: 44.
Total expenses; Dollars in thousands: 2001: $985; Dollars in thousands:
2002: $5,216; Dollars in thousands: Combined total: $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.
[End of table]
Figure 2 shows The Veterans Corporation's expenses for both fiscal
years 2001 and 2002 by function (program, administrative, and fund-
raising). Financial reporting under U.S. generally accepted accounting
principles requires expenses by type and function.
Figure 2: The Veteran Corporation's Federally Funded Expenses by
Function for Fiscal Years Ending September 30, 2001, and 2002 (dollars
in thousands):
[See PDF for image]
Notes: Analysis of The Veterans Corporation's audited financial
statements.
[End of figure]
Percentages may not total to 100 because of rounding.
The majority of The Veterans Corporation's federally funded functional
expenses pertain to program activities--59 percent for fiscal year 2001
and 64 percent for fiscal year 2002. Fund-raising costs were less than
20 percent for both fiscal years: 3 percent for fiscal year 2001 and 13
percent for fiscal year 2002. Administrative costs were 39 percent for
fiscal year 2001, which primarily represented legal fees and
recruitment costs, and were 23 percent for fiscal year 2002, which
primarily represented salaries and board expenses. As The Veterans
Corporation's operations expand, we expect that the amount of program
activities relative to total expenses will grow and the ratio of
administrative and fund-raising to total expenditures will decrease.
:
Board of Directors Vests Expense Approval Authority in Executive Staff:
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. To fulfill this responsibility, the
board approved a financial policy in December 2000, before it received
its first appropriations; officials of The Veterans Corporation were
unable to locate the text of the policy. However, minutes from the
March 2001 board meeting show that the board established initial
disbursement authority for executive-level staff in March 2001, the
same month in which they were hired. The board authorized the acting
CEO and the acting associate director to sign checks, drafts, or orders
(1) in amounts no greater than $50,000 without further action of the
board; (2) in amounts greater than $50,000 but less than $100,000 with
the additional signature of one member of the executive committee; and
(3) in amounts greater than $100,000 with the additional signature of
one member of the executive committee and to notify all board members
in writing of the disbursement, at least 7 days prior to issuance for
checks, drafts, or orders.[Footnote 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.
:
Early Financial Management Practices Showed Weaknesses, but Were
Addressed by New Leadership:
According to The Veterans Corporation's external auditor, The Veterans
Corporation had internal control issues that could have adversely
affected its ability to administer a major federal program in
accordance with applicable laws, regulations, contracts, and
grants.[Footnote 7] However, the external auditor determined that these
conditions did not cause The Veterans 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;[Footnote 8] and:
* maintain a filing system for accounting records.
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.[Footnote 9] These reportable
conditions were detailed in a letter to management.[Footnote 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-Sufficiency Plan in Place but Too Early to Determine the
Likelihood of Success:
To address the requirement to become a self-sustaining entity, The
Veterans Corporation has developed a plan to become self-sufficient
based on four major sources of revenue--an electronic marketplace, a
credit card program, an insurance program, and fund-raising. According
to an official at The Veterans Corporation, the revenue assumptions
were developed based on discussions and input from their partners such
as eScout, Advanta, and Aon Financial Institution Alliance. Revenue
assumptions contained in the self-sufficiency plan cover fiscal years
2003 and 2004. At the time of our review, three of the four efforts--
the electronic marketplace, credit card and insurance services--were
just starting to produce revenue. According to the CFO, fund-raising
goals are targeted toward supporting education and training efforts. In
fiscal year 2002, The Veterans Corporation earned approximately $2.8
million to satisfy federal matching requirements. Additionally, the
plan calls for quarterly reviews to assess targeted projections.
Officials said that if projections are not met, unsuccessful programs
may be discontinued and alternative revenue sources will be developed.
:
The Veterans Corporation Implements Self-Sufficiency Plan:
The Act requires that The Veterans Corporation raise private funds and
become a self-sustaining corporation. The Veterans Corporation has
implemented a plan to achieve financial self-sufficiency by September
30, 2004, that is based on four major sources of revenue:
* Veterans Marketplace. According to the plan, The Veterans Marketplace
is expected to generate the greatest share of revenue--approximately 43
percent--to The Veterans Corporation in fiscal year 2004, the final
fiscal year of federal funding. The revenue sharing agreement between
The Veterans Corporation and eScout, which operates the on-line
marketplace, allows for The Veterans Corporation to collect 49 percent
of revenues received from on-line purchases and other transactional
services purchased by members of The Veterans Marketplace, as well as
20 percent of the fees paid by members who access products.
* Veterans Platinum BusinessCard. About 19 percent of fiscal year 2004
revenue will come from the credit card program for each new activated
account as well as a share (0.2 percent) of eligible purchases made
with the card.
* Veterans Affinity Insurance Program. Approximately 19 percent of
revenue will come from sales of business insurance and other products
to veteran-owned businesses. According to its agreement with Aon
Financial Institution Alliance, The Veterans Corporation receives
commissions or fees, which are structured differently for each
insurance product.
* Fund-raising. The Veterans Corporation has implemented a multiyear,
multimillion-dollar, fund-raising campaign primarily to support The
Veterans Entrepreneurial Training program. The self-sufficiency plan
includes only a part of their fund-raising goals (15 percent of funds
raised that are retained for overhead costs) plus any interest income.
In fiscal year 2004, this is expected to account for 19 percent of
revenue.
Although The Veterans Corporation has other initiatives under way that
are expected to generate revenue, such as The Veterans Capital Fund or
micro loan program, they were not considered to be primary revenue
sources for meeting self-sufficiency.
:
The CFO at The Veterans Corporation said that the revenue assumptions
were based on input from partners that operate similar programs. For
instance, revenue assumptions for The Veterans Marketplace were based
on a discussion with eScout personnel on (1) building similar private
exchanges and (2) customer and revenue projections. The process was
similar for the credit card and insurance programs, and included
discussions with Advanta and Aon Financial Institution Alliance,
respectively. The official indicated that both Advanta and Aon were
reluctant to offer revenue projections, but they provided enough
information to enable The Veterans Corporation to project revenue. The
self-sufficiency plan is based on revenue assumptions over fiscal years
2003 and 2004.
It is too early to determine if The Veterans Corporation will become
financially self-sufficient by September 30, 2004. At the time of our
review, three of its efforts were just beginning to produce revenue.
For instance, The Veterans Marketplace, while operational since June
2002, was in the process of building a customer list. The other two
efforts, the credit card and insurance services, were just launched in
January 2003 and December 2002, respectively. Further, according to the
plan, total revenue from these activities is not expected to exceed
expenses until the fourth quarter of fiscal year 2004.
Because The Veterans Corporation's federal appropriations are provided
on a "no year" basis, unused appropriations can be carried over into
future fiscal years and, thus, are available to cover future years'
expenses. An official at The Veterans Corporation stated that they
expect to have a surplus of funds at the end of the fourth year of
government support which, if necessary, would cover their operating
costs in the following year.
Funds Raised Will Be Used to Support the VET Program:
The Veterans Corporation has a fund-raising goal of $2.5 million in
fiscal year 2003 and $3 million in fiscal year 2004 to support
education and training efforts, primarily the VET program. In fiscal
year 2002, The Veterans Corporation earned about $2.8 million,
exceeding its goal of $2 million. To help raise funds, they contracted
with Changing Our World, a fund-raising organization, and are
establishing a fund-raising advisory board of approximately 12 to 15
individuals. A Veterans Corporation official explained that it
initially planned to rely on fund-raising to support operations until
other revenue sources were in place, but the corporation refocused in
light of current economic conditions and limited success in raising
funds for operations. The corporation's revised fund-raising strategy
focuses on financing VET program costs. The official further explained
that money raised would be used for direct program expenses and not for
The Veterans Corporation administrative expenses. VET course
administration and materials cost The Veterans Corporation about $1,850
per student, of which enrollees pay $350. As identified in its business
plan, the VET corporate objective for fiscal year 2003 is to deliver
the program to 500 participants.
The Veterans Corporation Is Developing Other Sources of Income:
While The Veterans Corporation only had two sources of income for
fiscal year 2001, which were federally appropriated funds and the
interest earned on them, sources of income for fiscal year 2002
included federal appropriations and interest income plus cash
donations, pledges for future cash donations, contributed services, in-
kind donations, contract revenue from the federal government, and other
sources. It is important to note however, that approximately $1.2
million of The Veterans Corporation's fiscal year 2002 revenues were
pledges for future payments to The Veterans Corporation.[Footnote 11]
Figure 3 shows The Veterans Corporation's income for fiscal year 2002,
exclusive of federally appropriated funds and interest earned on those
funds.
Figure 3: Sources of Other Income from Fund-raising and Activities for
Fiscal Year Ending September 30, 2002 (dollars in thousands):
[See PDF for image]
Notes: Analysis of The Veterans Corporation's audited financial
statements.
[End of figure]
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 Will Measure Progress Toward Self-Sufficiency
in Fiscal Year 2003:
The Veterans Corporation intends to evaluate the self-sufficiency plan
on a quarterly basis to assess whether its strategies are sufficient to
meet targeted projections. The CFO of The Veterans Corporation said
that management would review the progress of the plan, including
decisions to discontinue unsuccessful programs. In the event that
projections are not met for 2003, a Veterans Corporation official
stated that they would then consider alternative revenue sources to
allow them to meet their 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 Our Evaluation:
We received written comments on a draft of this report from The
Veterans Corporation. We also obtained technical comments from SBA and
VA that have been incorporated into this report where appropriate.
* The Veterans Corporation commented that their programs have broad
measures, quantitative and/or qualitative, that are used to assess
early program objectives. In addition, corporation representatives
pointed out that they have not yet refined and tested measures to
assess whether their programs ultimately have a positive effect on
veterans who own or want to start their own businesses. We discussed
this issue with The Veterans Corporation and obtained additional
documentation supporting these broad measures and noted this in the
report.
* Representatives of The Veterans Corporation expressed their concern
with the inability to obtain information about transitioning service
members and Veterans from federal agencies. In response to our draft
report, VA concluded that they could disclose a list of names and
addresses of veterans and their small businesses to the public,
including The Veterans Corporation. Further, VA officials stated that
arrangements are under way to make this information available on their
Web site. However, it remains to be seen whether the information that
will be available on VA's Web site will meet The Veterans Corporation's
needs.
* The Veterans Corporation reiterated that the Professional
Certification Advisory Board would be more appropriately led by an
entity other than The Veterans Corporation and that it has not been
provided adequate funding or appropriate authority to achieve the goal
of creating uniform standards for professional certification. However,
The Veterans Corporation stated their commitment to carrying out the
Professional Certification Advisory Board's mission as mandated in the
Act.
* In reference to The Veterans Corporation's reported accounting
deficiency for fiscal year 2002, it submitted a copy of management's
response, which outlines the steps that it plans to take in response to
this issue.
:
We will send copies of this report to interested congressional
committees and the President and CEO of The Veterans Corporation. We
will make copies available to others on request. In addition, this
report will also be available at no charge on our homepage at http://
www.gao.gov:
If you or your staff have any questions on this report, please contact
me at (202) 512-8678, jenkinswo@gao.gov or Harry Medina at (415) 904-
2000, medinah@gao.gov. Key contributors are listed in appendix VII.
William O. Jenkins, Jr.
Director, Financial Markets and Community Investment:
Signed by William O. Jenkins, Jr.:
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:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
To describe The Veterans Corporation's efforts in providing small
business assistance to veterans, we collected and analyzed program
information such as planning documents, contracts, legal opinions, and
program literature. Additionally, we interviewed staff and board
officials from The Veterans Corporation, as well as partnering
organizations including officials from eScout, Changing Our World,
Equisource, and Southern Financial Bank. We also interviewed officials
from federal agencies, including the Small Business Administration,
Department of Defense, Department of Veterans Affairs, and Department
of Labor, and officials from a veteran service organization, the
Vietnam Veterans of America, as well as a consultant--Halsey, Rains,
and Associates.
To meet our objective to describe The Veterans Corporation's use of and
controls over federal funds, we:
* Obtained and analyzed The Veterans Corporation's fiscal year 2001 and
2002 financial statements and audit reports, and management letter for
2001. We did not evaluate the quality of the other auditor's work on
the financial statement or conduct our own tests of the financial
statement balances;
* Reviewed The Veterans Corporation's contract with the external
auditor for the 2002 financial statement audit to understand the nature
of the audit services to be provided and the extent of the auditor's
proposed work on internal control;
* Obtained and reviewed minutes of meetings of the board of directors
and the board's executive committee to determine the board's policies
as they related to the disbursement and use of federal funds;
* Communicated with The Veterans Corporation's external auditor to,
among other things, determine the extent of financial management
deficiencies in The Veterans Corporation; and:
* Interviewed the Chief Financial Officer (CFO) of The Veterans
Corporation.
To determine what efforts The Veterans Corporation made to become
financially self-sufficient, we reviewed their self-sufficiency plan
and discussed it with The Veterans Corporation's CFO. We did not
independently assess the financial assumptions presented in the plan.
[End of section]
Appendix II: Timeline of The Veterans Corporation's Key Efforts and
Activities:
Effective date: October 1998; Efforts and activities: Report of the
Small Business Administration Veterans Affairs Task Force for
Entrepreneurship, "Leading the Way: What Veterans Need From the SBA,"
presented to Congress.
Effective date: August 1999; Efforts and activities: Veterans
Entrepreneurship and Small Business Development Act (Public Law 106-50)
enacted.
Effective date: October 1999; Efforts and activities: National Veterans
Business Development Corporation is incorporated in the District of
Columbia.
Effective date: August - December 2000; Efforts and activities:
President appoints eight board members.
Efforts and activities: Effective dateMarch 2001: First Board of
Directors meeting in September 2000.
Effective date: March 2001; Efforts and activities: The Veterans
Corporation receives initial federal funding ($4 million).
Effective date: October 2001; Efforts and activities: The Veterans
Corporation receives second installment of federal funding ($4
million).
Efforts and activities: Effective date: Charles R. Henry hired as CEO
and president.
Efforts and activities: Effective dateNovember 2001: First meeting of
the Professional Certification Advisory Board (PCAB).
Effective date: November 2001; Efforts and activities: The President
appoints ninth and final board member.
Effective date: December 2001; Efforts and activities: Kauffman
Foundation grants The Veterans Corporation permission to use
EntreWorld.
Effective date: January 2002; Efforts and activities: Agreement reached
with eScout to develop the Veterans Marketplace.
Efforts and activities: Effective dateFebruary 2002: Agreement reached
with Equisource to create the Veterans Capital Fund.
Effective date: February 2002; Efforts and activities: Micro loan
program initiated with Southern Financial Bank, Virginia.
Effective date: April 2002; Efforts and activities:
www.veteranscorp.org Web site operational.
Efforts and activities: Effective dateMay 2002: Brigadier General
Robert Cocroft (United States Army Retired) appointed chairman of the
PCAB.
Effective date: May 2002; Efforts and activities: Agreement signed with
eScout to license the Veterans Marketplace.
Efforts and activities: Effective dateJuly 2002: Legacy Bank,
Pennsylvania, enters micro loan program.
Effective date: July 2002; Efforts and activities: Changing Our World
engaged to lead fund-raising effort.
Efforts and activities: Effective dateAugust 2002: First Tennessee
Bank, Tennessee, enters micro loan program.
Effective date: August 2002; Efforts and activities: Public service
announcements launched with Time-Warner Cable Television.
Effective date: September 2002; Efforts and activities: PCAB committees
formed.
Efforts and activities: Effective date: Memorandum of Understanding
signed with National Defense Industrial Association (NDIA) to conduct
joint meetings nationwide to emphasize business opportunities for
veterans and NDIA.
Efforts and activities: Effective date: Agreement reached with Advanta
Bank to develop The Veterans Corporation Platinum BusinessCard.
Efforts and activities: Effective date: Agreement reached with First
American Engineering to sponsor Veteran Business Success Seminars.
Efforts and activities: Effective dateOctober 2002: Agreement reached
with Defense Logistics Agency to enhance business assistance to
veterans and service-disabled veterans.
Effective date: October 2002; Efforts and activities: Contract signed
with Gateway Computer for computers and computer training for Veteran
Entrepreneurial Training (VET) graduates.
Efforts and activities: Effective date: Agreement reached with Aon
Financial Institution for insurance/benefits program.
Efforts and activities: Effective date: Agreement reached with Lee
Wayne Inc., to promote independent business opportunities for veterans.
Efforts and activities: Effective date: First Veteran Business Success
Seminar, Idaho.
Efforts and activities: Effective date: 15 Facilitators trained to
teach VET program.
Efforts and activities: Effective date: Site agreement reached with
George Mason University, Virginia, and Riverside Community District
College, California for VET Program.
Efforts and activities: Effective dateEfforts and activities: First 3
VET programs launched in Maine, California, and Virginia.
Source: GAO.
Note: Analysis of The Veterans Corporation data.
[End of table]:
[End of section]
Appendix III: The Veterans Corporation's Initiatives in Response to
Statutory Requirements:
Statutory requirement: PROGRAMMATIC: Expand provision of and improve
access to technical assistance regarding entrepreneurship for
veterans.; Initiative: * www.veteranscorp.org; * EntreWorld on-line
small business resource library; * Veterans Entrepreneurial Training
program; * Veterans Business Success seminars.
Statutory requirement: PROGRAMMATIC: Assist veterans, including
service-disabled veterans, with the formation and expansion of small
businesses.; Initiative: * Micro loan program; * 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.
Statutory requirement: PROGRAMMATIC: Organize public and private
resources, including those of federal agencies.; Initiative: * Meetings
with federal agencies: DOL, DOD, SBA, VA; * Veterans Capital Fund; *
Micro loan program.
Statutory requirement: PROGRAMMATIC: Establish and maintain a network
of information and assistance centers for use by veterans and the
public.; Initiative: * www.veteranscorp.org.
Statutory requirement: PROGRAMMATIC: Establish Professional
Certification Advisory Board.; Initiative: * 26-member board; * Three
committees.
Statutory requirement: PROGRAMMATIC: Assume duties, responsibility,
and authority of the Advisory Committee on Veterans Affairs on October
1, 2004.; Initiative: * Business plan.
Statutory requirement: PROGRAMMATIC: ORGANIZATION DEVELOPMENT;
Initiative: [Empty].
Statutory requirement: PROGRAMMATIC: Institute and implement a fund-
raising and self-sufficiency plan.; Initiative: * Business plan; *
Self-sufficiency plan; * Revenue-producing ventures: Veterans
Marketplace, Veterans Corporation Platinum BusinessCard, Insurance/
benefits, Veterans Capital Fund, Micro loan program.
Statutory requirement: PROGRAMMATIC: Raise matching funds to fulfill
conditions for receipt of federal funds.; Initiative: * Changing Our
World; * Fund-raising advisory board.
Statutory requirement: PROGRAMMATIC: Transmit an annual report to the
President and to Congress.; Initiative: * Annual reports.
Statutory requirement: PROGRAMMATIC: Board of Directors oversight of
Corporation's obligations and expenses.; Initiative: * Audit committee.
Source: The Veterans Corporation.
Note: GAO analysis of 15 U.S.C. Sec. 657c and The Veterans Corporation
data.
[End of table]:
[End of section]
Appendix IV: The Veterans Corporation's Revenue and Expenses for Fiscal
Years 2001 and 2002:
As noted in table 2, The Veterans Corporation received federal
appropriations of $4 million in each of fiscal years 2001 and 2002 and
used approximately $1 million and $3.7 million in fiscal years 2001 and
2002, respectively. At the end of fiscal years 2001 and 2002, The
Veterans Corporation had approximately $3 million and $3.3 million,
respectively, in unexpended appropriations.
Table 2: The Veterans Corporation's Schedule of Appropriations for
Fiscal Years Ending September 30, 2001, and 2002:
Dollars in thousands.
Federal appropriations received; Dollars in thousands: 2001: $4,000;
Dollars in thousands: 2002: $4,000.
Federal appropriations used; Dollars in thousands: 2001: 985; Dollars
in thousands: 2002: 3,754.
Subtotal: current year's unused appropriations; Dollars in thousands:
2001: 3,015; Dollars in thousands: 2002: 246.
Unexpended appropriations, beginning balance; Dollars in thousands:
2001: N/A; Dollars in thousands: 2002: 3,015.
Unexpended appropriations, ending balance; Dollars in thousands: 2001:
$3,015; Dollars in thousands: 2002: $3,261.
Source: The Veterans Corporation.
Notes: Data from audited financial statements.
:
N/A means not applicable.
[End of table]
As shown in table 3, federal appropriations were the major source of
revenue to The Veterans Corporation in fiscal years 2001 and 2002.
Beginning in fiscal year 2002, The Veterans Corporation began to
realize revenue from cash contributions and pledges, as well as
contributed services and in-kind contributions.
Table 3: The Veterans Corporation's Schedule of Revenue for Fiscal
Years Ending September 30, 2001, and 2002:
[See PDF for image]
Source: The Veterans Corporation.
Notes: Data from audited financial statements.
Numbers may not sum to total because of rounding.
N/A means not applicable.
[End of table]
The Veterans Corporation reported approximately $1.3 million in cash
contributions and pledges in 2002 as revenue. The majority of the
revenue, $1.2 million, pertained to unconditional pledges that The
Veterans Corporation recognized as temporarily restricted revenue when
the corporation was notified of the pledges. The Veterans Corporation
recorded the pledges it expects to receive in future years as
contributions receivable at their present value in accordance with U.S.
generally accepted accounting principles for not-for-profit
organizations. See table 4 for a schedule of The Veterans Corporation's
contributions receivable as of September 30, 2002.
Table 4: The Veterans Corporation's Schedule of Contributions
Receivable as of September 30, 2002:
Dollars in thousands; [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.
[End of table]
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.
[See PDF for image]
[End of table]
[End of section]
Appendix V: The Veterans Corporation's Salary, Bonus, and Payments to
Staff for Fiscal Years 2001 and 2002:
Table 6 shows The Veterans Corporation's aggregate compensation amounts
for executive management and all other staff for fiscal years 2001 and
2002.[Footnote 12] 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:
[See PDF for image]
[End of table]
[End of section]
Appendix VI: Comments from The Veterans Corporation:
[See PDF for image]
[End of figure]
[See PDF for image]
[End of figure]
[See PDF for image]
[End of figure]
[End of section]
Appendix VII GAO Contacts and Staff Acknowledgments:
GAO Contacts :
William O. Jenkins, Jr. (202) 512-8678
Harry Medina (415) 904-2000:
Acknowledgments:
In addition to the persons named above, Janet Fong, Jeanette M.
Franzel, Marc W. Molino, Charles E. Norfleet, Julie T. Phillips,
Barbara M. Roesmann, Kathryn M. Supinski, and Paul G. Thompson made key
contributions to this report.
:
(250090):
:
:
FOOTNOTES
[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).
[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.
[4] The Veterans Corporation's micro loan program is not affiliated
with SBA's micro loan program.
[5] Professional services include accounting, auditing, legal,
consultants, and writers.
[6] The executive committee consists of four board members who
generally may make decisions on behalf of the full board.
[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.
[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.
[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.
[12] The Veterans Corporation's payments to consultants were $403,291
in fiscal year 2001 and $845,530 in fiscal year 2002.
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