INSPECTORS FROM the District’s small-business office couldn’t have been more skeptical of the newly formed company seeking certification as a local business enterprise. Their site visit on Aug. 26, 2009, to Veterans Services Corp. (VSC) revealed a bare-bones operation of two computers, two desks, a printer and two chairs run out of one end of a family room in Southeast. Even more questionable was the admission from the firm’s chief executive that he worked primarily from his home in Burtonsville, Md. “The firm does not meet the local definition,” the report concluded. No matter — days later, Veterans Services Corp. was approved as a certified business enterprise and, within months, would end up with a major stake in the District’s multimillion-dollar lottery business.

New details about the early days of VSC, which formed a joint venture with Greek gaming giant Intralot to operate the D.C. Lottery, are further evidence of the questionable circumstances that surrounded the award of that contract, which also includes a questionable venture into online gambling. They also underscore weaknesses in the city’s small, local and disadvantaged business program. Instead of creating a healthy environment for local businesses to grow, the program is, says Council member David A. Catania (I-At Large), “a complete joke . . . a contrivance meant to privilege the few.”

The 2009 site report of VSC, obtained by civic activist Marie Drissel and posted on her Web site, made clear that the company was not ready for prime time. A check sheet showed no business cards, no letterhead, no promotional items, no bookkeeping or other recordkeeping. “It [is] recommended that this firm take additional time to structure and organize an acceptable office location for all employees,” it concludes. Nonetheless, VSC’s chief executive, Emmanuel Bailey, received a letter on Aug. 31, 2009, from the D.C. Department of Small and Local Business Development, telling him that the firm had been certified. Our query to the department as to its rationale has gone unanswered.

Equally puzzling is how this little-known company would get a 51 percent equity stake in the enterprise running the city’s $38 million lottery contract. It was not part of any competitive bidding process but rather was brought on by Intralot to win approval from the D.C. Council. For his part, Mr. Bailey points out that a lot of small businesses get their beginnings in inauspicious surroundings and that the current joint venture, DC09, is doing well, including being recognized for hiring city residents.

Those assurances can’t paper over concerns about the possible role of politics in awarding the city’s lucrative lottery business. Eric W. Payne, the former procurement director for the District’s chief financial officer, makes credible allegations of attempts to pressure him to change his recommendation in the first lottery go-round; he recently won a ruling in his wrongful termination suit to compel testimony from Mayor Vincent C. Gray (D) and other city officials. In addition, the city’s inspector general is said to be looking into events surrounding the lottery.