Small Business: The National Veterans Business Development Corporation Faces Challenges in Planning for and Achieving Financial Self-sufficiency
Published: 2004-08-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The National Veterans Business Development Corporation (The Veterans Corporation) was created under Pub. L. No. 106-50 to provide veterans with small business and entrepreneurship assistance. The Act authorized, and Congress has appropriated to the corporation, $12 million in funding over 4 years, ending September 30, 2004. The Act also required that The Veterans Corporation implement a plan to raise private funds and become a self-sustaining corporation. GAO evaluated the corporation's: (1) efforts in providing small business assistance to veterans; (2) internal controls, including strategic planning; and (3) progress in becoming financially self-sufficient.
section_title: What GAO Found
paragraphs: Since GAO's April 2003 report (GAO-03-434), The Veterans Corporation has continued to expand programs and refocus services in its efforts to provide small business assistance to veterans while achieving financial self-sufficiency. The centerpiece of The Veterans Corporation's efforts remains its Veterans Entrepreneurial Training program, which offers classroom instruction to veterans on how to successfully start and expand their own businesses. It also has expanded or added several services primarily in the areas of finance, accounting, and contracting. However, The Veterans Corporation reported that it continues to face ongoing challenges to fulfilling its mission. These problems stem from its responsibility for the Professional Certification Advisory Board, difficulties in identifying the veteran-owned business population, and conflicting views about its legal status as a private versus public entity. Additionally, The Veterans Corporation lacked important internal or operational controls. Specifically, its strategic plan and annual report to Congress lacked measurable goals and outcome-oriented measures. Without outcome-oriented measures, such as the number of new veteran-owned businesses or the amount of revenue generated for veteran-owned businesses, it was difficult to determine what the impact of the programs on veterans has been. In the same vein, without meaningful performance measures, The Veterans Corporation has been unable to provide Congress with significant data on its progress or the outcomes of its efforts. Finally, The Veterans Corporation faces a number of challenges in achieving self-sufficiency. Dramatically lower-than-expected revenues have resulted in the corporation revising its currently estimated date for achieving self-sufficiency from fiscal year 2004 to fiscal year 2009. Its self-sufficiency strategy is heavily dependent on its ability to develop a database of veteran-owned businesses and successfully marketing its services to these businesses. However, the plan did not discuss how The Veterans Corporation will identify this population or contain meaningful information on key assumptions underlying revenue projections. As such, it would be difficult for Congress and other stakeholders to judge the feasibility or reasonability of the corporation's estimates and projections.

section_title: Letter
paragraphs: Each year approximately 200,000 military service personnel transition to  civilian life. Some of these veterans will choose to start or expand a small  business. To help them, Congress enacted the Veterans Entrepreneurship  and Small Business Development Act of 1999 (Act), which created the  National Veterans Business Development Corporation (The Veterans  Corporation)—a federally chartered corporation—to provide veterans with  small business and entrepreneurship assistance. The Act, as amended,  requires that The Veterans Corporation use public and private resources to  assist veterans, including service-disabled veterans, with the formation and  expansion of small businesses. It authorized $12 million in federal funds for  fiscal years 2001–2004 and required that The Veterans Corporation  implement a plan to raise private funds and become financially self- sufficient.
Because The Veterans Corporation is in the last year of federal funding  authorized by the Act, you asked us to provide an update to our April 2003  report on The Veterans Corporation. After consultation with your staff of  the House and Senate Committees on Small Business and Veterans’ Affairs,  we confirmed that this report would evaluate The Veterans Corporation’s  (1) efforts in providing small business assistance to veterans; (2) internal  controls, including strategic planning; (3) use of federal funds; and (4)  progress in becoming financially self-sufficient.
To address these objectives, we obtained and reviewed program  information and corporate documents provided by The Veterans  Corporation, including its income projections, expense data, and fiscal year  2003 audited financial statements. We also interviewed officials from the  staff and board of The Veterans Corporation, as well as officials from  federal agencies, partnering organizations, veteran service organizations,  and The Veterans Corporation’s external auditors. Please see appendix I for  a more complete description of our scope and methodology.
We conducted our work in Washington, D.C.; San Francisco, California; and  Alexandria, Virginia; from December 2003 through July 2004 in accordance  with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: In the Veterans Entrepreneurship and Small Business Development Act of  1999, as amended, Congress established various programmatic  requirements for The Veterans Corporation to address perceived shortfalls  in federally provided services for veterans. For example, The Veterans  Corporation is to (1) expand the provision of and improve access to  technical assistance regarding entrepreneurship; (2) assist veterans with  the formation and expansion of small businesses by working with and  organizing public and private resources; (3) establish and maintain a  network of information and assistance centers for use by veterans; (4)  establish a Professional Certification Advisory Board (PCAB) to create  uniform guidelines and standards for the professional certification of  members of the armed services; and (5) assume the duties,  responsibilities, and authority of the Advisory Committee on Veterans  Business Affairs, a body created by the Act, by October 1, 2004.
The Veterans Corporation is a nonprofit corporation chartered in the  District of Columbia and according to its enabling legislation has authority  to solicit, receive, and disburse funds from private, federal, state, and local  organizations. To fund The Veterans Corporation, Congress authorized $12  million in federal appropriations over 4 fiscal years—$4 million in each of  the first 2 years and $2 million in each of the following 2 years—with the  expectation that The Veterans Corporation would become financially self- sufficient. The Veterans Corporation received its first appropriation in  March 2001.
The Act also contains a matching funds provision, applicable to fiscal years  2002 through 2004, that limits the availability of appropriated funds to  amounts The Veterans Corporation certifies it will provide from sources  other than the federal government. For fiscal year 2002, the amount of  appropriated funds made available to The Veterans Corporation was  limited to not more than twice the amount the corporation certified it  would provide for that fiscal year from sources other than the federal  government. In effect, The Veterans Corporation received $2 in federal  appropriations for every $1 it raised from nonfederal sources. For the  remaining 2 fiscal years, the matching requirement was on a dollar-for- dollar basis.
section_title: Veterans Corporation Has Continued to Add, Refocus, and Expand Programs and Services to Fulfill Its Mission
paragraphs: The Veterans Corporation has continued to add, refocus, and expand its  programs and services to veterans to better respond to its entrepreneurial  assistance and training mandates under the Act. The VET program has  remained, however, at the center of the organization’s business assistance  and training efforts. Additionally, The Veterans Corporation’s services  generally complemented federal programs in that they were either targeted  specifically to veterans or not offered elsewhere. Although in one instance,  the efforts of The Veterans Corporation and VA to create separate veterans  business directories appeared to be largely duplicative. According to an  official at The Veterans Corporation, collaboration with federal agencies  has improved as evidenced by the mutually beneficial ventures it has  undertaken with these agencies. However, The Veterans Corporation faces  several challenges, described in our previous report, that still impede its  progress in fulfilling other mandates under the Act. They include lack of  staff and funding for the PCAB and the question of whether the PCAB  mission can be accommodated within The Veterans Corporation,  identification of veteran-owned businesses, and how to address its legal  status concerns.
subsections: section_title: The Veterans Corporation Has Continued to Add, Refocus, and Expand Programs, but VET Program Has Remained the Focus of Its Services
paragraphs: At the time of our last report, many of The Veterans Corporation  entrepreneurial services, such as a microloan program, business insurance,  and online buying and selling of veteran-owned goods and services, had  started. Since then, The Veterans Corporation has expanded or added  several services primarily in the areas of finance, accounting, and  contracting-related opportunities:   Veterans Marketplace. The Veterans Corporation has pilot efforts under  way to allow veterans to sell goods and services online to a VA hospital  and a school district. Also, since our last report, The Veterans  Corporation has expanded this program to include a separate trading  directory in which veteran-owned businesses can be listed as suppliers  within a private business directory. The directory is managed by The  Veterans Corporation’s partnering organization, Perfect Commerce.
Veterans Small Business Finance Program. The Veterans Corporation  has partnered with Newtek Small Business Finance, Inc., a provider of  loans and other financing options to small businesses throughout the  United States. Newtek provides loans (ranging from $50,000 to   $2 million) at discounted rates from the lender’s normal loan rates and  assists in making SBA loan guarantees available to qualified veteran  businesses nationwide. Loan applications are completed electronically  through The Veterans Corporation’s Web site. As of June 30, 2004, The  Veterans Corporation helped create 473 applications and 9 SBA- approved loans.
Accounting and Tax Services. The Veterans Corporation is partnering  with Newtek Business Services, Inc., to offer services such as bill  payment, periodic financial statements and reports, and tax filing and  planning services for veteran-owned small businesses at a discount.
Merchant Processing Services. In partnership with Newtek Merchant  Solutions, The Veterans Corporation is offering credit card and debit  card processing and check verification for veteran-owned small  businesses.
Veterans Corporation Business Directory. In May 2003, The Veterans  Corporation created this directory with assistance from SBA to help  veteran-owned businesses and businesses owned by Army Reserve and  National Guard service members advertise their services. The directory  contains information such as company profiles and is available on the  Internet to anyone interested in working with veteran-owned  businesses. The directory listed approximately 2,668 businesses as of  June 30, 2004.
Veterans Pipeline. In partnership with ePipeline, this subscription  service targets veteran small business owners interested in federal or  state contracting opportunities. Veteran subscribers may access  research on more than 7,000 contracting opportunities, including  information on who received prior awards and subcontracts.
Veterans Purchase Net. The Veterans Corporation put in place a bid- and-response system for buyers and sellers of products or services in  partnership with Diversity Vendors, Inc. The sellers receive nightly e- mails related to contracting opportunities; the sellers can then submit  bids to compete for these contracts. This is a subscription service for  veteran-owned small businesses.
While The Veterans Corporation has expanded and added programs, the  VET program has continued to be the focal point of its efforts. As  mentioned in our earlier report, the program is a partnership with the  Ewing Marion Kauffman Foundation’s FastTrac Program, a successful  entrepreneurship-training program. The VET program incorporates  classroom instruction, mentoring, networking, and technology training.  Officials at The Veterans Corporation told us that the VET program was  their most successful effort to date. Since our last report, The Veterans  Corporation has expanded the number of class sites and locations for its  three VET courses: (1) The New Venture, which focuses on starting a  business; (2) The Planning Program, which focuses on expanding a  business; and (3) Listening to Your Business, a seminar which focuses on  assessing the health and market share of an existing business. In fiscal year  2003, The Veterans Corporation hosted 33 courses in eight states; 506  veterans participated in the program. Of the 506 participants, 458 graduated  in fiscal year 2003, which included 77 veterans that graduated from VET  courses held at local SBA-sponsored Small Business Development Centers.  These centers provide one-stop management and technical assistance to  individuals and small businesses at locations such as colleges and  universities.
Additionally, some programs and services were still evolving to better  address Veterans Corporation mandates. For example, the organization has  refocused the Veterans Business Success Seminars, mentioned in our  previous report, to use community-based organizations (CBO), to help  veterans with training and services not currently available to veteran  entrepreneurs. A Veterans Corporation official stated that this new strategy  more consistently meets the mandate to establish and maintain a network  of information and assistance centers that veterans and the public can use.
However, the refocused program, now called the National Veterans  Community-Based Organization Initiative, was still in its early stages. An  official at The Veterans Corporation stated that the purpose of the program  is to direct veterans to existing local service providers that offer assistance  to small businesses and identify and address gaps in service. For example,  The Veterans Corporation initially funded two CBOs, the Veteran Advocacy  Foundation in St. Louis, Missouri, and the American Veterans Coalition in  San Francisco, California, to survey the extent of entrepreneurial services  to veterans in their communities. After completing its survey, the St. Louis  CBO also received additional funding to implement its plan to enhance  entrepreneurial opportunities for veterans. A third CBO, Robert Morris  University in Pittsburgh, Pennsylvania, was also funded to survey the  availability of local business services to veterans in its community.
According to officials at The Veterans Corporation, they were also  developing another program intended to address their mandate to organize  public and private resources to assist veterans with the formation and  expansion of small businesses. Officials first met to discuss the new  program, the National Veterans Entrepreneurial Education Initiative, in  April 2004. The intent of this effort is to leverage resources from the private  and public sectors to coordinate and focus (at a national level)  entrepreneurial education and educational assistance. The initial  participants included, but were not limited to, VA, SBA, and Small Business  Development Centers. The Veterans Corporation board chair explained  that besides education, other elements of this initiative might include  mentoring, counseling, and early-stage and advanced small business  training. At the time of our review, The Veterans Corporation was  developing a detailed concept paper on this initiative.
Figure 1 shows the status of key initiatives that The Veterans Corporation  has undertaken. Additionally, appendix II lists activities that address  statutory requirements under the Act (Pub. L. No. 106-50).
section_title: Veterans Corporation Services Generally Complemented Federal Efforts
paragraphs: The services offered by The Veterans Corporation generally complemented  services offered by federal agencies, including VA and SBA. As noted in our  previous report, Veterans Corporation officials said that they have been  careful not to duplicate existing services. Most of The Veterans  Corporation’s programs were intended to fill gaps in federal services by  offering services that were either targeted specifically to veterans or  unavailable elsewhere. For example, the VET program provides small  business training to veterans. Although such training is widely available in  both the public and private sectors, The Veterans Corporation’s program is  unique because it limits enrollment to veterans and their spouses,  subsidizes course fees for veterans, and tailors curricula to the needs and  experiences of veterans. The Veterans Corporation’s small business finance  program is another program that complements existing federal programs  and efforts. While SBA provides loan guarantees for many small business  owners, including veterans, veterans generally receive no discounts from  their lenders when qualifying for this financing. In contrast, The Veterans  Corporation collaborates with a private lender to obtain reduced loan rates  for veterans on SBA-guaranteed loans. We were unable to identify any  other loan program specifically targeting veterans in this manner.
We also identified several instances of collaboration between The Veterans  Corporation and federal agencies that serve veterans. Although, as  indicated in our previous report, such collaboration was limited, an official  at The Veterans Corporation explained that collaboration has improved  since then to include mutually beneficial ventures with federal agencies  that also provides veteran entrepreneurial services. For example, SBA’s  Office of Veterans Business Development (OVBD) provided The Veterans  Corporation with support for the VET and CBO programs, including  assistance with program design and a $45,000 grant to help initiate the VET  program in three pilot locations. These activities support the missions of  both The Veterans Corporation and OVBD to assist veterans. Furthermore,  The Veterans Corporation entered into an agreement with SBA’s OVBD and  a Florida Small Business Development Center to provide resources in  exchange for the opportunity to promote its services to veterans that  complete the course. The Veterans Corporation was also collaborating with  CVE to link their online veteran-owned business directories. Thus, veterans  who register for one directory would access the registration page of the  other directory by clicking a single button.
While the work of The Veterans Corporation generally has complemented  the work of federal agencies, based on our analysis it appeared that there  was substantial duplication between The Veterans Corporation’s online  Business Directory and CVE’s online business directory, the Vendor  Information Pages. The directories both (1) aid federal and private-sector  purchasing agents by identifying the goods and services offered by veteran- owned and service-disabled veteran-owned businesses; (2) are of similar  size, were developed from similar information sources, and employ similar  methods to identify and register veteran-owned businesses on their sites;  and (3) actively seek the agreement of purchasing agents or prime  contractors to use the directory before using any other source of  information about veteran-owned businesses.
While officials from The Veterans Corporation and VA acknowledged that  their directories were similar, they did not believe they were in  competition. According to these officials, some differences exist between  the two directories, including different registration requirements and  different emphases on public versus private purchasing. Differences we  identified are listed in figure 2.
Additionally, each agency had a different motivation for creating its  directory. CVE built its database to fulfill a mandate to provide federal  agencies with information about service-disabled veteran-owned small  businesses. The Veterans Corporation’s primary motive was to provide a  service that would attract veteran entrepreneurs to whom The Veterans  Corporation could later market its products and services. Neither agency  believes that its databases could be merged because The Veterans  Corporation markets its services to its database members, and CVE is  prohibited from releasing information for this purpose. As mentioned  previously, The Veterans Corporation and CVE have links on both their  Web sites to encourage veterans to sign up for both databases.
section_title: Continuing Challenges Have Slowed Progress of The Veterans Corporation’s Programs and Initiatives
paragraphs: In our earlier report, we noted several challenges that hindered The  Veterans Corporation from fulfilling its mandates under the Act. They  included achieving the complex goals derived from the PCAB’s mission,  identifying the veteran-owned business population, and clarifying the  unclear legal status of The Veterans Corporation. According to Veterans  Corporation officials, the organization still faces these challenges.
subsections: section_title: PCAB Has Plans to Recommend That Another Federal Agency Assume Its Responsibilities
paragraphs: In our earlier report, The Veterans Corporation officials expressed their  opinion that the PCAB would be more appropriately led by another entity  and that The Veterans Corporation had not been provided the funding or  authority to achieve the PCAB mandates. During our review, The Veterans  Corporation officials reiterated these same concerns. The PCAB chair  pointed out that the mandate to address certification and licensing  guidelines and barriers did not directly relate to The Veterans Corporation’s  core mission to assist veterans with entrepreneurship activities. The PCAB  chair also questioned the board’s ability to carry out mandated activities  without a paid professional staff. PCAB members serve on a volunteer  basis with no operating budget.
In response to these concerns, the PCAB drafted an issue paper that  provides an overview and assessment of licensure and certification  resources, organizations, and tools available to assist active-duty and  transitioning military personnel seeking employment. Moreover, the paper  provides recommendations to The Veterans Corporation’s board of  directors, requesting that Congress eliminate its requirement to create  uniform guidelines and standards for the professional certification of  armed services members and expand an existing Army certification and  licensing effort to the entire Department of Defense (DOD). According to  the PCAB chair, the PCAB mission would better fit with the missions of  DOL or DOD because these two departments have been involved in  licensing and certification issues. Moreover, the two departments signed a  memorandum of understanding in July 2003 that included a provision to  promote cooperative efforts relating to licensing and certification issues.
section_title: Lack of Comprehensive Information on Veteran-Owned Businesses Has Been a Major Obstacle
paragraphs: We noted in our earlier report that The Veterans Corporation experienced  difficulties in obtaining information from government sources on military  personnel transitioning to civilian life and existing veteran-owned  businesses because of privacy law restrictions. As a result, as of June 30,  2004, The Veterans Corporation identified approximately 12,000 veteran- owned and potential veteran businesses, primarily through its Web site or  Business Directory registrations. According to Veterans Corporation  officials, they would need to identify about 250,000-300,000 veteran  business owners to effectively carry out its mission of providing services  and achieving self-sufficiency. One of the officials explained that the  industry guidance related to its business model (marketing to an affinity  group) suggested that at least 250,000 names would be needed to generate  desired revenue from commissions based on sales volume. Specifically,  based on this model, The Veterans Corporation could expect to generate  between $10-$20 for each affinity member—money that would help it  achieve its self-sufficiency goals. (We discuss efforts to achieve self- sufficiency in more detail later in this report.)
The officials with whom we spoke explained that they have not been able  to mount a comprehensive, targeted effort to identify this population. Other  efforts to identify veteran-owned businesses have all had limited success.  According to these officials, they have tried to identify veterans through (1)  advertising in journals aimed at veterans, (2) issuing press releases in  newspapers, (3) making public service announcements on television and  radio, (4) undertaking speaking engagements at trade associations, (5)  participating at government-sponsored small business fairs, and (6)  communicating with veterans through The Veterans Corporation’s Web site  and its VET program. Additionally, The Veterans Corporation has acquired  some information through two other databases, SBA’s Procurement  Marketing and Access Network (PRO-Net) and DOD’s Central Contractor  Registration (CCR) database. In June 2004, The Veterans Corporation  began a marketing effort to identify the veteran-owned business  population. It is using a direct marketing firm to reach this population  through e-mail, telemarketing, and direct mail. A Veterans Corporation  official stated that its initial marketing effort indicated that direct mail was  the most effective way of obtaining new members. The Veterans  Corporation plans to meet with the direct marketing firm in September  2004 to discuss additional work.
section_title: Legal Status of The Veterans Corporation Has Continued to Affect Its Operations
paragraphs: During our work on our last report, officials at The Veterans Corporation  indicated that questions about the legal status of The Veterans Corporation  as either a public agency or private corporation had, at times, complicated  organizational and program development efforts. An official at The  Veterans Corporation expressed concerns that if The Veterans Corporation  were a federal agency, its ability to raise private funds and become self- sustaining, as contemplated in the Act, would be compromised. On the  other hand, according to The Veterans Corporation official, federal  agencies such as DOD and DOL had not been willing to share nonpublic  information and resources (that they could share with other federal  agencies) because of concerns that The Veterans Corporation was a private  entity. As we discussed in our last report, The Veterans Corporation  received conflicting opinions from the Office of Personnel Management  (OPM) and private law firms, with OPM concluding that the corporation is  a government-controlled corporation subject to most provisions of Title 5  of the United States Code, and the law firms concluding that the  corporation is not a government-controlled corporation or executive  agency for purposes of certain laws applicable to federal agencies,  including provisions of Title 5 and the Federal Acquisition Regulations.
In March 2004, the Department of Justice’s Office of Legal Counsel (OLC)  issued a memorandum in response to an Office of Management and Budget  (OMB) request to further clarify The Veterans Corporation’s legal status.  The OLC opinion concluded that The Veterans Corporation is a  “government corporation” under 5 U.S.C. § 103 (2000) and an “agency”  under 31 U.S.C. § 9102 (2000). According to officials of The Veterans  Corporation, based on the OLC opinion, OMB has advised The Veterans  Corporation that it must comply with laws, regulations, and guidance  applicable to executive branch agencies. The Veterans Corporation  officials observed that this would mean, among other things, compliance  with OPM personnel reporting and other personnel-related requirements,  as well as budget and accounting requirements.
section_title: Financial Statement Audit Identified No Internal Control Weaknesses, but Veterans Corporation Lacked Some Operational Controls
paragraphs: Although the external audit did not identify material weaknesses in The  Veterans Corporation’s internal controls, The Veterans Corporation lacked  some key operational controls. Specifically, based on its fiscal year 2003  external audit, The Veterans Corporation did have internal control  deficiencies over financial reporting; however, its external auditor  determined that these were not material weaknesses. According to  Veterans Corporation officials, the corporation implemented corrective  actions for the issues the external auditor identified and also implemented  controls to prevent duplicate payments identified by GAO. Additionally,  The Veterans Corporation has implemented various controls over its  obligation and expenditure payment processes, including limits on the  ability of management officials to make check disbursements without  board of director approval. However, The Veterans Corporation lacked  some important operational controls for its planning and reporting  processes. More specifically, although The Veterans Corporation adopted  some strategic planning best practices, it did not use others. For instance,  the strategic plan generally did not contain outcome-oriented or  measurable goals and objectives, which prevented The Veterans  Corporation from assessing the effectiveness of its program and services.  Additionally, without meaningful performance measures, The Veterans  Corporation has been unable to provide Congress, through its annual  report, with an assessment of its progress or outcomes of its efforts.
subsections: section_title: Veterans Corporation Has Addressed Identified Financial Control Weaknesses
paragraphs: According to its external auditor, The Veterans Corporation’s had internal  control issues that could have adversely affected its ability to administer a  major federal program in accordance with applicable laws, regulations,  contracts, and grants. Specifically, the external auditor found in its fiscal  year 2003 audit that The Veterans Corporation did not consistently enforce  its expense reimbursement policy. The external auditor classified the  internal control matter as a reportable condition and did not identify any  instances of material weaknesses. This reportable condition was detailed  in a letter to management. According to Veterans Corporation officials,  they have addressed the reported deficiencies.
In our review of The Veterans Corporation fiscal year 2003 expenditures,  we found that The Veterans Corporation made two duplicate payments— one payment in the amount of $3,142 and the other in the amount of $8,976  to the same vendor. The amounts were not material to the financial  statements. According to The Veterans Corporation officials, The Veterans  Corporation has taken steps to prevent future duplicate payments and  pursued reimbursement from the vendor.
section_title: Board of Directors Revised Disbursement Authorities while Board Chair Took More Active Role in Veterans Corporation Operations
paragraphs: According to The Veterans Corporation officials, in May 2003, the board of  directors significantly restructured its operations, responsibilities, and  procedures and those of its committees. The board has primary  responsibility for the governance of The Veterans Corporation and  exercises that governance, both directly and indirectly, through delegation  of authority to the chief executive officer (CEO). To accomplish the  restructuring, the board passed a series of resolutions, which transferred  many of the previous authorities vested in the executive committee to the  full board. Among other things, the board amended the CEO’s expense  authority based upon a recommendation from the executive committee.  Specifically, it authorized the CEO to sign all contracts or expenditures that  relate to strategies and business initiatives previously discussed with and  approved by the board or executive committee up to and including  $100,000. However, the board retained authority to approve new  expenditures in excess of $25,000. As we previously reported, the board  first established disbursement authorities for executive–level staff in  March 2001, but from March 2001 to April 2003, the executive committee  was responsible for making time-sensitive decisions on behalf of the board  between quarterly board meetings. Additionally, as stated in our previous  report, the board resolved that checks written in amounts of $5,000 or less  require one authorized signature; those in excess of $5,000 require two  authorized signatures. Moreover, both the CEO and the senior vice  president were authorized to sign checks.
Since the restructuring, the board chair has taken a more active role in the  operations of The Veterans Corporation. While day-to-day management is  the responsibility of the CEO and management, the board chair meets  weekly with the CEO to discuss the corporation’s activities. Additionally,  the board reviews monthly activity reports and quarterly financial data  such as income statements and balance sheets.
section_title: Strategic Plan Lacked Key Operational Controls— Measurable and Outcome- Oriented Goals and Objectives
paragraphs: We identified weaknesses in The Veterans Corporation’s planning and  reporting processes that primarily resulted from a lack of measurable,  outcome-oriented performance measures. The Veterans Corporation relied  on its strategic plan, an important operational control, for both planning  and reporting on its programs. It prepared a 5-year strategic plan, which  outlined the corporate mission, goals, and priorities; and an annual  business plan, which contained more detailed objectives and action plans  for each division within the organization. Additionally, as required by the  Act, The Veterans Corporation submitted an annual report to Congress,  which was based on its strategic plan. Staff members also prepared  periodic reports for the board of directors and a public annual report.
We evaluated The Veterans Corporation’s planning and reporting processes  according to best practices identified by government and nonprofit  strategic planning literature and experts, including the following:  The mission statement should identify what makes the organization  unique and define the outcomes of its activities.
Goals should be aligned with the mission statement, as well as with  strategies for achieving goals.
Goals and objectives should be measurable and outcome-oriented,  rather than process-oriented. Thus, rather than measuring the number  of activities, they should measure the end results of activities on the  target population.
The plan should identify and discuss internal and external factors that  could affect the performance of the organization.
The plan should be developed in consultation with key stakeholders,  including, in this case, Congress.
The Veterans Corporation has adopted several of these practices. For  instance, its mission statement defined the outcomes of its activities—the  formation and expansion of small business concerns by veterans, including  service-disabled veterans. The strategic plan also had long-term corporate  goals that were aligned to the mission statement. According to The  Veterans Corporation officials, these long-term corporate goals established  broad board directives for its staff. Furthermore, the strategic plan also  contained annual objectives that supported the corporate goals, and the  business plan contained action plans to meet these annual objectives. For  example, for fiscal year 2004, The Veterans Corporation wanted to increase  the number of VET graduates to 750 and have VET programs with certified  facilitators and administrators in at least 15 states. The action plan  indicated that staff would analyze historical results to date and project the  numbers by fiscal year quarters and locations to achieve this objective.  Moreover, The Veterans Corporation’s business plan included an analysis of  internal and external factors that might affect the performance of the  corporation, and officials told us that they regularly consulted with  veterans groups and other stakeholders.
However, many of the goals and objectives in The Veterans Corporation’s  strategic plan were not measurable. Thus, they generally did not define  specific methods for measuring success over the short and long term.  While a few of its annual objectives had some performance measures in  place, such as the target number of participants in the VET program and  fund-raising amounts, The Veterans Corporation had only two measurable  long-term goals, including achieving financial self-sufficiency. The other  goals and many of the objectives lacked performance measures to indicate  the expected progress over the 5 years covered by the strategic plan. For  example, one fiscal year 2004 objective was to conduct the affairs of The  Veterans Corporation in an effective, efficient, and responsible manner.  However, the objective did not define how effectiveness or efficiency  would be measured. Without measurable goals and objectives, The  Veterans Corporation will have difficulty ensuring and demonstrating the  success of its programs.
Additionally, most of the goals and objectives in The Veterans Corporation’s  strategic planning documents were process-oriented, rather than outcome- oriented. Thus, they tended to focus on program outputs and activities,  such as the number of veterans receiving training, rather than on their  impact on veterans, such as the number of new businesses opened by  program participants or the amount of revenue generated by veteran- owned businesses. For example, one goal was to develop and implement  programs that provide veterans access to knowledge, tools, and resources  necessary to succeed in their entrepreneurial efforts. However, there were  no performance measures to gauge how well the programs are providing  necessary tools and resources or whether those resources are helping  veterans succeed in their businesses. Without outcome-oriented goals, The  Veterans Corporation will have difficulty demonstrating that achieving all  its goals and objectives would lead to the fulfillment of its mission to assist  veteran entrepreneurs.
We also reviewed examples of measurable, outcome-oriented performance  measures from federal agencies such as the Department of Transportation  (DOT) and the Social Security Administration (SSA). For instance, one of  DOT’s goals was to reduce highway fatalities to not more than 1.0 per 100  million vehicle-miles traveled by 2008. Similarly, by 2008 SSA intends to  increase the number of disability beneficiaries who achieve employment by  50 percent from 2001 levels. Both of these goals focused on the outcomes  on citizens rather than the activities of their programs and provide a  measurable point of success.
The chair of The Veterans Corporation’s board of directors acknowledged  that The Veterans Corporation would need to do more work to develop  outcome-oriented performance measures. Other officials from The  Veterans Corporation noted that many of their programs were too new for  outcomes on veteran entrepreneurs to be apparent. However, the strategic  plan, which spans fiscal years 2004 to 2008, also has not defined which  outcomes will be measured when data become available. At the time of our  review, The Veterans Corporation was beginning to collect outcome data  for the first three groups of participants in the VET program, including  surveys of former participants to determine if they began a new business or  expanded their existing business after taking the training. These data  should prove helpful in determining the outcomes of this program, but the  strategic plan contained no performance measures against which to  measure these statistics. Officials from The Veterans Corporation told us  that they were monitoring the performance of the affinity programs by  counting the number of veterans who signed up for services. They said that  service usage was an indication that the services were of value to veterans.
section_title: Annual Report to Congress Also Lacked Outcome- Oriented Information
paragraphs: The Veterans Corporation’s fiscal year 2003 annual report to Congress  consisted of descriptions of programs, along with some data on the growth  of programs. It lacked any estimate of the benefits these programs  provided to veteran entrepreneurs. Thus, it was output-, rather than  outcome-oriented. Also, in reviewing The Veterans Corporation’s annual  report to Congress for fiscal year 2003, we found that The Veterans  Corporation had not incorporated its plans for, and progress toward, self- sufficiency in this report. (We discuss the self-sufficiency plan in greater  detail later in this report.) According to the Government Performance and  Results Act, an annual report to Congress should include  a clear demonstration of how the corporate goals are aligned to the  mission of the organization,  the year’s performance targets,  whether the targets were met, and  explanations and plans for corrective action when targets were not  met.
Additionally, management provided monthly activity reports to the board of  directors to help them fulfill their responsibilities for oversight, guidance,  and direction. According to the board chair, the board also used the  information contained in the activity reports to inform congressional  committees of corporate activities. The chairman added that the activity  report format evolved over the last year to also include a snapshot of the  cumulative results of several efforts. For example, the July 2004 monthly  activity report indicated that since its inception the Veterans Small  Business Finance program created 473 applications and had 9 loans  approved.
section_title: The Veterans Corporation Relied on Federal Funds to Pay for Salaries and Services and Establish and Operate Programs
paragraphs: Federal appropriations have been The Veterans Corporation’s primary  source of funding. The Veterans Corporation used approximately $3.3  million in federal appropriations in fiscal year 2003 to cover expenditures  related to paying for salaries and professional services and establishing and  operating programs. More specifically, payments for salaries and  professional services accounted for 58 percent of its expenditures in that  year and program-related activities accounted for the rest. Additionally, as  revenue levels from other sources declined, The Veterans Corporation used  proportionately more federal money for fiscal year 2003 expenditures.  Appendix III provides more detail on The Veterans Corporation’s revenue  and expenses for fiscal years 2002 and 2003.
subsections: section_title: Most of The Veterans Corporation Expenditures Related to Salaries and Professional Services
paragraphs: During fiscal year 2003, The Veterans Corporation’s primary source of  funding was from federal appropriations. As of September 30, 2002, The  Veterans Corporation had about $3.3 million of unexpended appropriations  available for future spending. Because The Veterans Corporation federal  appropriations are provided on a “no year” basis, this amount was carried  forward to apply to expenses in future fiscal years. In addition, during fiscal  year 2003, The Veterans Corporation received $2 million in appropriations.  Of the nearly $5.3 million available, it used approximately $3.3 million of its  federal funds.
It used approximately $1.9 million (58 percent) of the $3.3 million to pay for  salaries and professional services to establish and run programs.
Executive salaries at The Veterans Corporation in fiscal year 2003 appeared  consistent with the information sources it consulted regarding salaries at  other organizations, although these sources did not provide information on  comparable organizations. For example, the Veterans Corporation used  federal pay schedules and Web sites such as Salary.com, which rarely  distinguished between nonprofit and for-profit positions. Additionally, the  Internal Revenue Service applies three conditions when evaluating whether  nonprofit salaries are reasonable: (1) approval by a board of directors that  does not have a conflict of interest with respect to the compensation  arrangement, (2) reliance on comparable data such as salary surveys, and  (3) adequate documentation of the basis for the determination. Although  The Veterans Corporation fulfilled these requirements to some extent, it  relied on data that were not entirely comparable and also did not fully  document the basis for its decisions. The salary that The Veterans  Corporation paid in fiscal year 2003 to the previous CEO was somewhat  higher than the range of salaries suggested by its information sources. The  salaries of other positions we evaluated, including Director of Information  Systems and Program Director, were within the ranges suggested by these  sources.
Caution is advisable when evaluating appropriateness of salaries paid by  The Veterans Corporation due to the variable nature of nonprofits and a  lack of data on relevant variables. In conducting this work, we spoke with  representatives of the Center on Nonprofits and Philanthropy of the Urban  Institute who referred us to a November 2001 study on executive  compensation in the nonprofit sector. The study concluded that salary  determinations are defined largely by the characteristics and  circumstances of individual nonprofits. The study also stated that the  variability in nonprofit wages and benefits suggests that generalizations  concerning compensation patterns are difficult. To accurately assess the  reasonableness of The Veterans Corporation’s executive compensation, it  would be necessary to obtain information from organizations of the same  type (for example, religion-based versus nonreligion-based), size, activities,  and sources of revenue (for example, fees versus donations). As noted  previously, the data sources used by The Veterans Corporation were limited  in terms of information on comparable organizations. We were also unable  to locate reliable sources of data that provided information on the  compensation paid by similar organizations that included the duties of the  position.
The Veterans Corporation has made several recent changes in staffing that  should reduce its expenses for executive compensation. In our previous  report, we stated that the total compensation, including salary and bonus,  paid to The Veterans Corporation’s executive management in fiscal year  2002 was $694,500. In fiscal year 2003, this amount was reduced to  $446,488. In fiscal year 2004, The Veterans Corporation eliminated one  executive position by consolidating the CEO and chief financial officer  positions. As a result, The Veterans Corporation projects that executive  compensation will total $310,153 for fiscal year 2004, a reduction of  $136,335 from the previous year’s expenditures.
In fiscal year 2003, The Veterans Corporation spent about $652,000 for  professional services, of which $270,000 went to fund-raising consultants.  The primary fund-raising organization for The Veterans Corporation,  Changing Our World, received about $208,000. In fiscal year 2003, Changing  Our World, along with other fund-raising consultants, raised approximately  $258,000 in contributed cash and pledges, which fell significantly short of  the $1.3 million goal for fund-raising. At the time of our review, The  Veterans Corporation had not renewed its agreement with Changing Our  World for fiscal year 2004. The Veterans Corporation officials told us they  decided to change their fund-raising strategy from focusing on  corporations and foundations to wealthy individuals, ideally veterans  themselves. In May 2004, The Veterans Corporation also hired a new staff  member to conduct fund-raising.
Expenses for program activities related primarily to the VET and Veterans  Marketplace programs. Of the $1.4 million spent on program-related  activities, approximately $551,000 represented costs for the 506  participants in the VET program. Of the 506 participants, 300 graduated  from the program during fiscal year 2003 at a cost of about $1,382 per  graduate. Nonrecurring start-up expenses such as consulting, advertising,  and staff training accounted for about $114,000 of VET program costs. The  Veterans Corporation also provided each VET program graduate with a  voucher, good for the purchase of a computer or business tools, which  accounted for approximately $217,000 of the program costs. The officials  stated that The Veterans Corporation offered the vouchers to veterans in  order to be competitive in the market. They added that its per-participant  cost was lower than that of other small business courses being offered, yet  none of its competitors offered vouchers as a benefit. One official further  stated that because participant costs were low, The Veterans Corporation  could probably compete without offering the computer vouchers. At the  time of our review, The Veterans Corporation was performing a market  analysis to determine whether or not to raise the participant’s share of the  cost. According to one official, The Veterans Corporation contacted two of  its VET program facilitators to discuss increasing the participants’ share of  the cost or reducing the amount of the vouchers. As a result of this analysis,  management has proposed reducing the amount of the voucher in its fiscal  year 2005 budget. A corporation official stated that the board is not  expected to vote on the proposed fiscal year 2005 budget until November  2004.
The $250,000 expense charged to the Veterans Marketplace program  represented a negotiated annual licensing fee paid to Perfect Commerce,  its partner organization. A Veterans Corporation official pointed out that  this fee would be reduced to $100,000 in fiscal year 2004 and $50,000 in  fiscal year 2005, at which time The Veterans Corporation could renew its  contract with Perfect Commerce. While the Veterans Marketplace was  established as a way of generating revenue, the revenue it generated in  fiscal year 2003 was negligible. Veterans Corporation officials stated that  they were still in the process of building a directory of veteran-owned  businesses that could provide goods and services through this effort. (Later  in this report, we discuss the Veterans Marketplace as a component of the  self-sufficiency plan). As shown in table 1, The Veterans Corporation’s  expenses decreased in fiscal year 2003, primarily due to a reduction in the  Veterans Marketplace fee.
Figure 3 shows The Veterans Corporation’s expenses for both fiscal years  2002 and 2003 by function (program, fund-raising, and administrative).  Financial reporting under U.S. generally accepted accounting principles  requires reporting expenses by type and function. Most of The Veterans  Corporation’s federally funded functional expenses pertained to program  activities—64 and 72 percent for fiscal years 2002 and 2003, respectively.  Fund-raising costs represented 13 percent of total expenses in both fiscal  years. Administrative costs were 23 percent of the total for fiscal year 2002,  primarily for salaries and board expense, and 15 percent of total expenses  for fiscal year 2003, primarily for salaries and rent expenses. As mentioned  in our earlier report, the amount of program activity expenses relative to  total expenses increased, and the ratio of administrative expenses to total  expenses decreased.
section_title: Use of Federal Appropriations Increased As Other Sources of Income Declined
paragraphs: Beginning in fiscal year 2002, The Veterans Corporation recognized  revenue (income) from sources other than federal appropriations and  interest income; however, such revenues declined significantly in fiscal  year 2003. While contract and other revenue increased, total revenue  declined due to a reduction in revenue from donated pledges and  contributed services. Specifically, The Veterans Corporation generated  approximately $45,000 from SBA, $184,000 from the VET program, and  $4,000 in other funds. However, while cash contributions were higher in  fiscal year 2003 than in fiscal year 2002, pledges and contributed services  were significantly lower than in fiscal year 2002. The Veterans Corporation  recognized approximately $258,000 in cash contributions and pledges and  approximately $440,000 in contributed services and in-kind contributions  as revenue. Of the $258,000, $157,000 was cash, and $101,000 was pledges  for future payments of cash. As a result of the decline in revenue from  other sources, the $3.3 million of federal appropriations used in fiscal year  2003 made up approximately 78 percent of The Veterans Corporation’s $4.3  million in total revenues. Figure 4 shows The Veterans Corporation’s  revenue for fiscal year 2003, exclusive of federally appropriated funds and  interest earned on those funds.
section_title: Challenges to Achieving Financial Self-sufficiency Included Lack of Comprehensive Self- sufficiency Plan
paragraphs: The Veterans Corporation continues to face several challenges in achieving  financial self-sufficiency. To address some of these difficulties, The  Veterans Corporation has revised its plan to become financially self- sufficient. In its current plan, The Veterans Corporation has pushed back its  estimated date for becoming self-sufficient from fiscal year 2004 to 2009  and based its revenue assumptions on three major sources—an electronic  marketplace for veteran-owned goods and services; affinity programs  including a credit card, loans, and insurance offered to veteran-owned  businesses; and fund-raising. However, the self-sufficiency plan was not  comprehensive in that it did not contain meaningful information on the key  assumptions (such as the basis for each revenue component) underlying its  revenue projections. Moreover, The Veterans Corporation faces a number  of obstacles in meeting this goal including (1) identifying a sufficient  number of veteran-owned businesses, (2) successfully marketing its  services to this group, and (3) meeting overall fund-raising goals. For  example, although The Veterans Corporation raised about $1 million to  meet its mandated matching requirement in fiscal year 2003, it did so by  combining the $1 million with excess matching funds generated in the prior  fiscal year. Additionally, The Veterans Corporation officials indicated that  the recent Department of Justice opinion on the organization’s legal status  would likely affect its self-sufficiency goals.
subsections: section_title: The Veterans Corporation Has Revised Its Self- sufficiency Plan
paragraphs: The Act requires that The Veterans Corporation implement a plan to  generate private funds and become a self-sustaining corporation. Since our  last report, The Veterans Corporation has revised its self-sufficiency plan.  First, The Veterans Corporation pushed back the estimated date for  achieving financial self-sufficiency from fiscal year 2004 to fiscal year 2009,  based on lower-than-anticipated program revenues. Second, the revised  plan also assumed an additional $2 million in federal appropriations in  fiscal year 2005. Veterans Corporation officials explained that legislation,  which seeks to provide these additional funds, was under congressional  review. According to the plan, this additional revenue would allow The  Veterans Corporation to build a database of veteran-owned businesses to  which to market its services, the database being one of the key revenue  generators presented in the plan. Third, to help assure future sustainability,  The Veterans Corporation officials stated that they also were planning to  substantially reduce overall expenses by about $500,000 beginning in fiscal  year 2005. The officials added that the reduction would be accomplished  through eliminating or scaling back certain positions and reducing travel- related expenses.
Finally, The Veterans Corporation has changed the self-sufficiency plan to  focus on three major sources of revenue, from which it expected to  generate about $2.3 million in fiscal year 2009. Figure 5 shows The Veterans  Corporation’s projected revenue by sources for fiscal year 2009. The self- sufficiency plan indicated that The Veterans Corporation is expected to  have a positive cash flow of about $81,000 in fiscal year 2009.
Veterans Marketplace. In fiscal year 2009, The Veterans Corporation  expects that approximately 14 percent of its total revenue will come from  The Veterans Marketplace, or approximately $319,000. As described earlier  in this report, the Marketplace has expanded into two components in  which veteran-owned businesses would supply goods and services through  an electronic format to government entities and private businesses. The  Veterans Corporation plans to earn income from this effort through a  revenue-sharing agreement with Perfect Commerce that is partly based on  volume of transactions and online purchases.
Affinity programs. These are programs that provide business services to  veteran-owned businesses and from which The Veterans Corporation  receives a commission based on sales volume. The affinity programs  include:  The Veterans Corporation Platinum BusinessCard. About 9 percent of  fiscal year 2009 revenue or about $200,000, would come from the credit  card program. More specifically, the revenue would be generated from  each newly activated account, as well as a share (0.2 percent) of eligible  purchases made with the card.
The Veterans Small Business Finance program. The single largest  source of revenue—approximately 33 percent—which would total  about $750,000 for fiscal year 2009 is expected to come from loans made  to small businesses through a partner organization, Newtek Small  Business Finance, Inc. These SBA-guaranteed loans range from $50,000  to $2 million and are made to qualified businesses nationwide. The  Veterans Corporation receives 37 ½ basis points on all disbursed loans.
The Veterans Insurance program. Approximately 7 percent of revenue,  or $150,000 for fiscal year 2009, would come from sales of business  insurance and other products to veteran-owned businesses. The  Veterans Corporation would receive commissions or fees, which are  structured differently for each insurance product, as outlined in its  agreement with Aon Financial Institution Alliance.
Other efforts. Other services are expected to account for an additional  15 percent of total revenues, approximately $350,000, in fiscal year 2009.  These services include tax, accounting, and merchant services for small  businesses and subscription sales for a bid-and-response system for  veteran-owned business contracts.
Fund-raising. In fiscal year 2009, fund-raising is expected to account  for 23 percent of revenue, which totals about $532,000 and includes  interest income. However, the self-sufficiency plan did not incorporate  all of the funds The Veterans Corporation will raise. The self-sufficiency  plan included only the portion retained for overhead costs, 15 percent of  funds raised.
section_title: Revenue-Generating Assumptions Rest on Creating a Comprehensive Database of Veteran-Owned Businesses
paragraphs: The Veterans Corporation’s revenue-generating strategy relies to a great  extent on first identifying the veteran-owned business population and then  successfully marketing its services to this population. The Veterans  Corporation officials explained that its self-sufficiency strategy is modeled  on AARP, an organization that markets goods and services to a specific  population (affinity group) and receives commissions based on sales  volume. The Veterans Corporation’s goal to achieve financial self- sufficiency in fiscal year 2009 is based on identifying about 250,000-300,000  veteran-owned businesses. An official at The Veterans Corporation told us  that this number was based on industry guidance for an e-commerce  business and represents the minimum number needed to successfully  market its products. As of June 2004, The Veterans Corporation had  identified approximately 12,000 veteran-owned and potential veteran  businesses, which represented about 5 percent of its goal. As previously  reported, The Veterans Corporation has been unsuccessful in obtaining  names of veteran-owned businesses through government sources. Earlier  in this report, we discussed The Veterans Corporation’s difficulty in  identifying its affinity group, the population of veteran-owned businesses— an ongoing problem because of privacy concerns among federal agencies.  According to a Veterans Corporation official, the success of its marketing  programs (and thus the key to its financial self-sufficiency) was dependent  on its ability to identify and reach transitioning service members and  veteran-owned businesses to market their products. As a result, The  Veterans Corporation has developed another strategy in an effort to  identify this population.
subsections: section_title: Veterans Corporation Tests New Strategy to Identify Veteran Businesses
paragraphs: To assist in identifying veteran business owners, in June 2004 The Veterans  Corporation began testing a new marketing strategy with the help of Mal  Dunn Associates, a direct marketing firm. Using Mal Dunn Associates’  database, The Veterans Corporation is soliciting about 15,000 veterans  through e-mail, telemarketing, and direct mail. According to an official at  The Veterans Corporation, the testing of the marketing strategy indicated  that the direct mail approach was the most effective way of gaining new  members and they plan to meet with Mal Dunn Associates in September  2004 to discuss the possibility of performing some additional market  analysis. An official at The Veterans Corporation further explained that the  goal of at least 250,000 names was based on developing an affinity  relationship through The Veterans Corporation’s Web site membership.  This would require identifying a larger population since not all veteran- owned businesses identified would choose to sign up for membership  through the Web site. The Veterans Corporation’s self-sufficiency plan  estimated that developing the veteran-owned business database would take  a minimum of 24 months; however, the plan did not show the relationships  between the growth of its membership and its revenue projections for any  given year. Further, because this marketing effort was still in its testing  stages, it would be difficult to predict the rate at which The Veterans  Corporation could increase membership or overall success of the effort.  Veterans Corporation officials explained that the development speed also  depended on the level of financial commitment made to the marketing  efforts that would identify this population.
section_title: Revenue–Generating Programs Have Not Been Widely Marketed
paragraphs: The Veterans Corporation recognized that in addition to building a  database of veteran-owned businesses, the organization must also  successfully market its services to this group. An official at The Veterans  Corporation told us that before developing services, they would first  consult with both public and private veteran service organizations to  identify needs. However, the extent to which veteran-owned businesses  would utilize The Veterans Corporation’s products and services is not fully  known because of its limited marketing efforts to this population to date.  As mentioned previously, The Veterans Corporation has identified and  marketed its products to about 12,000 veteran-owned and potential veteran  businesses, which represents about 5 percent of its targeted goal. For  instance, the Veterans Marketplace, an electronic exchange of veteran- owned goods and services, has yet to produce any meaningful revenue.  Although two pilots are currently under way, The Veterans Corporation  officials explained that they were reluctant to aggressively market this  effort until they had a sufficient variety of veteran-owned suppliers to meet  the production needs of potential buyers. The officials also pointed out that  the Veterans Insurance program had not realized much revenue to date and  attributed this to an inability to offer a wider range of products such as a  pool for businesses to self insure their worker’s compensation or health  insurance plans.
section_title: Fund-raising Has Not Met Expectations
paragraphs: The Veterans Corporation’s enabling legislation requires it to match on a  dollar-for-dollar basis the $2 million it received in federal appropriations for  fiscal years 2003 and 2004. In fiscal year 2003, The Veterans Corporation  generated about $1 million in matching funds, of which about $698,000 was  in the form of cash contributions and in-kind contributions. The Act  however, does not specify how or when the funds are to be generated.  Thus, to meet the matching requirement for 2003, The Veterans  Corporation applied funds generated in the prior fiscal year, about $1  million, which represented the excess of its fiscal year 2002 match.
Additionally, The Veterans Corporation officials told us that they have had  difficulty in meeting their overall fund-raising goals, which amounts are  intended to cover the expenses of the VET program, CBO activities, and  overhead costs identified in the self-sufficiency plan. Initially, Veterans  Corporation officials attributed this difficulty to economic downturns  during the first years of the organization’s existence, which resulted in an  overall reduction in financial donations to charitable organizations. The  officials also cited difficulties convincing private corporations to donate to  veteran causes because of a widely held belief that the federal government  was taking care of veterans financially.
However, since our last report, The Veterans Corporation has formed a  fund-raising advisory board of 23 individuals. The Veterans Corporation’s  current strategy is to focus more on wealthy veteran entrepreneurs who  can identify with other veterans, and less on corporations and foundations.  In May 2004, The Veterans Corporation refocused its fund-raising effort,  releasing its outside consultant and hiring an in-house fund-raising staff.
Veterans Corporation officials acknowledged that the recent change to an  in-house fund-raiser has had an impact on its overall fund-raising goals for  fiscal year 2004. The Veterans Corporation has a fund-raising goal of $2.5  million in cash and pledges, with at least $1.4 million in cash for fiscal year  2004. As of June 30, 2004, it did not appear that The Veterans Corporation  was going to be able to raise funds sufficient to match the $2 million made  available under the matching fund certification provision. As of that date,  The Veterans Corporation had generated nearly $296,000 in nonfederal  dollars, which included $172,000 in cash and in-kind donations. The  corporation’s inability to raise the certification amount is something that  Congress could take into consideration in any future appropriation.
section_title: Veterans Corporation Officials Asserted That the Corporation’s Legal Status Likely Would Affect Self-sufficiency Goals
paragraphs: The Veterans Corporation’s corporate management indicated that they did  not know the full impact of the Department of Justice’s recent legal opinion  (that is, that The Corporation is a “government corporation” and an  “agency”)—specifically the cost and burden of complying with federal  administrative laws applicable to the corporation because of its status as  an agency. However, the officials believed that the corporation’s self- sufficiency efforts likely would be significantly slowed or even stopped if  the corporation were subject to such requirements. As mentioned  previously, OMB has notified The Veterans Corporation that it was required  to comply with laws, regulations, and guidance applicable to all executive  branch agencies (unless specifically exempt), including OPM requirements  on reporting government employees, laws pertaining to federal employees  and budget and accounting requirements. This, according to The Veterans  Corporation, likely would result in a significant increase in workload and  expenses. Further, the officials stated that the corporation’s status as an  agency could raise uncertainties about its ability to raise private funds as a  source of revenues because of restrictions on federal agency collection and  use of nonappropriated funds. At the time of our review, The Veterans  Corporation was seeking legislative relief to address this issue.
section_title: Nonprofit Experts Also Acknowledged The Veterans Corporation’s Difficulties in Achieving Self-sufficiency
paragraphs: We spoke to representatives of the Urban Institute’s Center on Nonprofits  and Philanthropy to gain insight on how The Veterans Corporation  compares with similar nonprofits. Based on information we provided on  The Veterans Corporation’s mission, business model, and self-sufficiency  projections, the representatives provided some of their perspectives. First,  they pointed out that a private business model such as that of The Veterans  Corporation is riskier than organizational models based on receiving a  government subsidy. Second, in terms of The Veterans Corporation’s self- sufficiency projections, including revisions, they questioned its ability to  generate $2 million annually without federal appropriations and stated that  it was a daunting, if not unlikely task, given its mission to create and  implement a new business model. However, they suggested that programs  that provide veteran entrepreneurial services could be considered a public  good and that, even if they did not become self-supporting, their purpose  and public benefits might justify both public and private financial  contributions. We believe these observations are pertinent and important  considerations that might provide Congress with some additional insight as  The Veterans Corporation strives to serve veteran entrepreneurs and  achieve financial self-sufficiency.
section_title: Limitations in the Annual Report to Congress May Hinder Congressional Oversight
paragraphs: While we discussed The Veterans Corporation’s strategic planning and  reporting efforts earlier in this report, self-sufficiency was also one of the  corporate goals identified in its strategic plan. However, in reviewing The  Veterans Corporation’s annual report to Congress for fiscal year 2003, we  found that The Veterans Corporation did not incorporate its plans for and  progress toward self-sufficiency in this report. According to The Veterans  Corporation’s board, the March 2004 revision of the self-sufficiency plan  was the first version that contained written information about programs  and other activities and plans for generating revenue to achieve self- sufficiency. Prior to this, the plan only provided revenue projections.
The Veterans Corporation's current self-sufficiency plan has been revised  but did not contain meaningful information on key assumptions addressing  program outcomes, participation, and revenues. For example, the current  self-sufficiency plan did not provide information on the basis for expected  revenue growth for its affinity programs—credit cards, loans, insurance,  and other efforts involving private-sector partners—which is expected to  go from $33,000 in fiscal year 2004 to $1,450,000 in fiscal year 2009. The  current self-sufficiency plan also did not discuss how The Veterans  Corporation would build a database of sufficient size to market its services.  As we previously discussed, The Veterans Corporation has faced continued  challenges in building its database and is testing an approach that may or  may not be successful. However, the self-sufficiency plan did not contain  alternative scenarios that would allow a more comprehensive  understanding of the reasonableness of its projections. As one result, an  annual report to Congress derived from the current plan would still lack  information that could assist Congress in its oversight of The Veterans  Corporation and help it to obtain a clearer picture of the organization’s  progress toward achieving its self-sufficiency mandate.
section_title: Conclusions
paragraphs: In creating The Veterans Corporation, Congress created broad mandates  for the organization to address. The Veterans Corporation is working to  fulfill its business training and assistance mandates by starting new  programs and expanding and refocusing others to serve veteran  entrepreneurs. However, The Veterans Corporation continues to face  challenges—such as making the PCAB operational, identifying the veteran  population through government sources, and addressing concerns related  to its legal status—that have hindered its initial progress in marketing  services to veteran businesses and working with public and private entities.
Moreover, the Veterans Corporation was not effectively utilizing  operational controls—that is, those policies and procedures that would  allow it to obtain the reliable and timely information necessary to achieve  intended results and goals. For instance, measurable, outcome-oriented  goals and objectives in the strategic plan and annual report could help staff  to track the performance of their programs, make improvements from year  to year, and ensure that their programs succeed and remain aligned with  their corporate mission. Furthermore, outcome-oriented goals would  improve The Veterans Corporation’s reports to Congress and the public by  providing clear evidence that the mission of the organization was being  accomplished.
As a nonprofit organization with limited sources of income, finding  opportunities to reduce expenses also would benefit The Veterans  Corporation as a whole. We recognize that The Veterans Corporation has  not yet realized significant revenue from its programs; however, we note  that it could reduce expenses in some programs. A key program, the VET  program, is an expense-related activity rather than a revenue-generating  activity. In fiscal year 2003, The Veterans Corporation spent approximately  $1,382 for each veteran who graduated from the program; more than half of  this amount went for vouchers, provided to each course graduate, to  purchase a computer or business tools. Providing each course graduate  with such a voucher increases the cost to the organization of operating the  program and could deny The Veterans Corporation added funds to enhance  course offerings or marketing.
While The Veterans Corporation’s revised financial self-sufficiency plan  indicated it should reach its goal of self-sufficiency by fiscal year 2009, it is  only a predictor of what could occur based on several key assumptions.  Those assumptions were difficult to assess because the plan was not  comprehensive in that it did not contain meaningful information on the key  assumptions underlying revenue projections. Moreover, the plan is  fundamentally dependent on the ability to build a database of veteran- owned businesses and then successfully market The Veterans  Corporation’s products and services to that population—goals that will not  be easy to achieve, given the challenges we have described in this and our  previous report. Finally, including information about self-sufficiency in its  annual reports to Congress would help Congress better assess the progress  of the organization and make informed decisions about the future of The  Veterans Corporation.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Chairman of the Board of Directors for The  Veterans Corporation and its staff take the following three actions:  To help guide programs and measure their effectiveness, develop  measurable, outcome-oriented goals and objectives that take into  account the increasing availability of outcome data over time.
To potentially reduce overall expenses and aid in efforts to achieve self- sufficiency, analyze the extent to which The Veterans Corporation could  reduce or eliminate the amount of the voucher given to graduates of its  VET program without undermining demand for the program.
To improve congressional oversight, include in its annual report to  Congress comprehensive information and data relating to progress in  achieving financial self-sufficiency, and key assumptions underlying  self-sufficiency revenue projections.
section_title: Agency Comments and Our Evaluation
paragraphs: We requested and obtained comments on a draft of this report from the  President and Chief Executive Officer of The Veterans Corporation that are  reprinted in appendix IV. We also provided a draft of this report to DOD,  SBA, and VA. We received technical comments from The Veterans  Corporation and SBA that we incorporated where appropriate. While The  Veterans Corporation had no objections to our recommendations, it offered  information that it believed would explain, clarify, or correct points made  in the draft report.
First, on the extent of duplication between The Veterans Corporation’s  Business Directory and VA’s VetBiz Vendor Information Pages, The  Veterans Corporation stated that, although we accurately portrayed many  of the differences between the two sources, we understated the importance  of its directory to its operations and self-sufficiency efforts. The Veterans  Corporation also stated that it believed that, as the two databases grew,  they would continue to differ in their composition, customers, and  beneficiaries. In our report, we acknowledged that both The Veterans  Corporation and VA had different motivations for creating their directories.  We also stated that the directories were of similar size, were developed  from similar information sources, and employed similar methods to  identify and register veteran-owned businesses on their sites.
The second and third points were directed toward strategic planning. In the  second point on developing outcome-oriented metrics that could be used in  reporting to Congress, The Veterans Corporation indicated that it had not  been in existence long enough to determine whether its programs and  services were helping businesses owned by veterans and service-disabled  veterans. It also indicated it had begun the process of developing metrics in  some areas that, over time, would help it build outcome-oriented  performance measures into its reporting. Although many of its programs  are still getting under way, we believe it is useful to identify and articulate  specific metrics as an operational control and as a means to evaluate the  benefits being provided by The Veterans Corporation to veterans. This  information would also help The Veterans Corporation ensure that the  correct data will be collected in the future. In the third point, The Veterans  Corporation indicated that it believes that the strategic goals set by the  board should not be outcome-specific, as they were meant to provide a  general framework for the corporation. The staff, however, are required to  develop specific objectives, initiatives, and performance metrics in support  of the strategic goals. We do not intend to imply that these goals are  necessarily the responsibility of the board, but we do believe they need to  exist somewhere in the strategic plan and that they should form the basis  for the annual report, both to provide Congress with better accountability  and The Veterans Corporation with a better mechanism for demonstrating  organizational effectiveness and outcomes for veterans.
Finally, in its fourth point, The Veterans Corporation indicated that,  although its long-term survival was not guaranteed, it believed that its  strategy was sound and that sound execution of its plan would result in  achieving its self-sufficiency goal. We focused our analysis on the current  state of federal funding, The Veterans Corporation’s self-sufficiency  projections, and the likelihood that the funding would no longer remain  needed based on our belief that Congress would want to consider different  perspectives on The Veterans Corporation’s ability to become self- sufficient, particularly in the event that The Veterans Corporation’s self- sufficiency projections were revised again. With this focus, we have  concluded that there is a reasonable amount of uncertainty regarding The  Veterans Corporation’s attainment of self-sufficiency. The uncertainty  about self-sufficiency is reflected in The Veterans Corporation’s revision in  its target date for achieving financial self-sufficiency from fiscal year 2004,  as we reported in April 2003, to fiscal year 2009—with the addition of $2  million of federal appropriations in fiscal year 2005. As noted in this report,  The Veterans Corporation faces several challenges in its efforts to  becoming a self-sustaining organization. Notably, its self-sufficiency plan,  which did not contain meaningful information on the key assumptions  underlying revenue projections, is dependent on building an extensive  database of veteran-owned businesses and marketing its services  effectively to this population. Based on our analysis of these challenges, it  is not certain whether The Veterans Corporation’s current estimate for  achieving self-sufficiency will be met as planned.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the Ranking  Minority Members of the Senate Committee on Small Business and  Entrepreneurship, the House Committee on Small Business, the Senate and  House Committees on Veterans’ Affairs, and other appropriate  congressional committees. We also will send copies to the President and  CEO of The Veterans Corporation; the Administrator of SBA; and the  Secretaries of the Departments of Veterans Affairs, Defense, and Labor. We  also will make copies available to others upon request. In addition, the  report will be available at no charge on the GAO Web site at  http://www.gao.gov.
section_title: Scope and Methodology
paragraphs: To evaluate The Veterans Corporation’s efforts in providing small business  assistance to veterans, we collected and analyzed program information  such as planning documents, contracts, legal opinions, program literature,  and activity reports. Additionally, we interviewed staff and board officials  from The Veterans Corporation, as well as partnering organizations  including officials from Perfect Commerce and Aon Financial Institution  Alliance. We also interviewed officials from federal agencies including the  Small Business Administration, Department of Defense, Department of  Veterans Affairs, and Department of Labor, and officials from two veteran  service organizations—the Vietnam Veterans of America and the American  Legion. We also reviewed program information and Web sites of these  organizations.
To evaluate The Veterans Corporation’s internal controls including  strategic planning and its use of federal funds, we   obtained and analyzed The Veterans Corporation’s fiscal year 2003  financial statements, audit reports, and management letter for 2003; we  did not evaluate the quality of the external auditor’s work on the  financial statement or conduct our own tests of the financial statement  balances;   analyzed 10 functional expenses to determine the nature of the expense  and a description of how the expense benefited The Veterans  Corporation;  obtained and reviewed The Veterans Corporation’s check registers for   reviewed The Veterans Corporation’s contract with the external auditor  responsible for the 2003 financial statement audit to understand the  nature of the audit services to be provided and what work the auditor  proposed to assess internal controls;  communicated with The Veterans Corporation’s external auditor to  determine the audit procedures performed to assess internal controls  during its audit of The Veterans Corporation;  obtained and reviewed minutes of meetings of the board of directors  and the board’s executive committee to determine the board’s policies  as they related to the disbursement and use of federal funds;  interviewed The Veterans Corporation’s Chief Executive Officer/Chief  Financial Officer, Senior Vice President, and staff to obtain an  understanding of internal controls related to cash disbursements;   tested relevant internal controls over cash disbursements to determine  if the controls were operating effectively;  interviewed members of the board of directors to determine the board’s  oversight roles and responsibilities;  reviewed The Veterans Corporation’s planning and reporting   consulted with government and nonprofit strategic planning experts;  reviewed strategic planning literature;   gathered and analyzed salary surveys and literature about nonprofit   interviewed representatives from the Urban Institute’s Center on  Nonprofits and Philanthropy to discuss executive compensation in the  nonprofit sector.
To evaluate The Veterans Corporation efforts to become financially self- sufficient, we reviewed its self-sufficiency plan and discussed it with the  Veterans Corporation’s Chief Executive Officer/Chief Financial Officer,  Senior Vice President and members of its board of directors. We also spoke  to representatives of the Urban Institute’s Center on Nonprofits and  Philanthropy to gain insight on how The Veterans Corporation compares  with similar nonprofits. We did not independently assess the financial  assumptions presented in the self-sufficiency plan.
We conducted our work between December 2003 and July 2004 in  accordance with generally accepted government auditing standards in  Washington, D.C.; San Francisco, California; and Alexandria, Virginia.
section_title: Programs and Initiatives The Veterans Corporation Undertook in Response to Statutory Requirements
subsections: section_title: Expand provision of and improve access to technical assistance regarding entrepreneurship for veterans.
paragraphs: Assist veterans, including service-disabled veterans, with the  formation and expansion of small businesses.
Organize public and private resources, including those of federal  agencies.
Establish and maintain a network of information and assistance  centers for use by veterans and the public.
Establish Professional Certification Advisory Board.
Assume duties, responsibility, and authority of the Advisory  Committee on Veterans Affairs on October 1, 2004.
Institute and implement a fund-raising and self-sufficiency plan.
Raise matching funds to fulfill conditions for receipt of federal  funds.
Transmit an annual report to the President and to Congress.
Have board of directors conduct oversight of corporation’s  obligations and expenses.
section_title: Veterans Corporation’s Revenue and Expenses for Fiscal Years 2002 and 2003
paragraphs: As noted in table 2, the Veterans Corporation received federal  appropriations of $4 million in fiscal year 2002 and $2 million in fiscal year  2003; it also had unexpended appropriations available.  The Veterans  Corporation used approximately $3.7 million and $3.3 million in fiscal years  2002 and 2003, respectively, thus leaving it with a balance of approximately  $3.3 million and $1.9 million in unexpended appropriations at the end of  fiscal years 2002 and 2003, respectively.
As shown in table 3, federal appropriations were the major source of  revenue for The Veterans Corporation in fiscal years 2002 and 2003.  In  fiscal year 2003, The Veterans Corporation did not realize much revenue  from cash contributions and pledges and contributed services and in-kind  contributions.
The Veterans Corporation reported approximately $258,000 in cash  contributions and pledges in 2003 as revenue.  More than half of the  revenue, $157,000 was cash contributions.  The remaining $101,000 was  recorded as pledges that The Veterans Corporation expected to receive in  future years as contributions receivable at their present value in  accordance with U.S. generally accepted accounting principles for not-for- profit organizations.  See table 4 for a schedule of The Veterans  Corporation’s contributions receivable as of September 30, 2003.
Table 5 presents The Veterans Corporation’s federally funded expenses by  functional area for fiscal years 2002 and 2003.  Expenses related to program  activities represent the majority of The Veterans Corporation’s expenses.   The percentage of total expenses accounted for by program activities  increased, fund-raising expenses remained the same, and administrative  expenses decreased.
section_title: Comments from The Veterans Corporation
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the persons named above, Elizabeth H. Curda, Janet Fong,  Yola Lewis, Brittni Milam, Marc W. Molino, Julie T. Phillips, Barbara M.  Roesmann, and Paul G. Thompson made key contributions to this report.
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