A High-Profile Watchdog Report Draws Fire From Veterans Charities

Months after the release of a report on the financial practices of military and veterans’ charities

by a watchdog organization — and the flurry of news-media reports and Congressional scrutiny it triggered — nonprofit groups that seek to serve soldiers and their families say they are still working hard to overcome public skepticism.

The American Institute of Philanthropy, in Chicago, issued a report card on 26 military charities. The group awarded D or F grades to 18 of the 26 military and veterans charities it rated.

Three organizations in the study devoted less than 5 percent of their expenses to charitable programs, and only about half met the institute’s standard of 60 percent. Four groups spent more than 80 percent of their revenue on fund-raising costs.

In November, ABC News broadcast a segment on the report. The watchdog group had been pointing out such problems for 15 years, says its president, Daniel Borochoff. Yet ABC’s broadcast sparked outrage: More news coverage followed, and Congress held hearings, ending with pledges from lawmakers to pass new legislation to force charities to disclose more information on their financial status.

Some charities that serve military families say the scrutiny is good because it exposes the worst offenses and can spark reform. Others say they fear that well-meaning groups will be lumped in with unethical ones, hurting the reputation of all charities that serve veterans. And still others question the criteria used to judge their operations.

Congressional Scrutiny

The Congressional hearings and news-media reports focused in large part on Help Hospitalized Veterans, a Winchester, Calif., charity founded by Roger Chapin, an Army veteran. The group, which was rated an F in the watchdog report, distributes arts-and-crafts kits at hospitals and nursing homes that serve military veterans.

In 2006, the organization paid Mr. Chapin and his wife salaries that totaled more than $500,000 and spent $444,600 for a condominium in Northern Virginia that the couple uses, according to a memo prepared by the House Committee on Oversight and Government Reform. Mr. Chapin also leads a group called the Coalition to Salute America’s Heroes, in Ossining, N.Y.

Mr. Chapin testified that his salary was comparable to that of his peers, and that both charities handle their funds responsibly.

A spokeswoman for Help Hospitalized Veterans said in an e-mail statement to The Chronicle that it and other charities had been unfairly singled out and that “it is a disappointment that a self-anointed, and sadly uninformed, ‘charity expert’ has intentionally tried to discredit organizations that strive to better the lives of the men and women who are struggling to recuperate after serving their country.”

Last month, the Coalition to Salute America’s Heroes sued two former employees it said had provided information to the news media and the U.S. Army.

The lawsuit charges that Raymond Clifford, the charity’s former executive director, and John Clifford, his brother and a former case manager at the organization, stole files and other data and disclosed confidential information. Both men were fired by the organization last July, says the complaint.

The charity, which says the Cliffords’ actions hampered its fund raising, seeks unspecified damages and an injunction that would both order the return of the organization’s files and other property and prevent the dissemination of information about the group to third parties.

Raymond Clifford, who could not be reached by The Chronicle, told Forbes magazine that he and his brother took the files of requests for assistance by veterans to “safeguard the privacy of the individuals.”

Direct Mail’s Costs

Paul Rieckhoff, an Iraq War veteran and founder of Iraq and Afghanistan Veterans of America, in New York, is among those who welcome the scrutiny of the American Institute of Philanthropy report.

“I’m glad they started by analyzing those older veterans’ groups,” says Mr. Rieckhoff. “A lot of them have gotten stale.”

Most of the organizations that fared poorly in the report use expensive fund-raising techniques, he says, like telemarketing and direct mail, as opposed to cheaper online fund raising.

John Hanson, a spokesman for the USO, in Washington, which received a C+ in the report, says direct mail is the best fund-raising option for his group.

“If there were something that worked better and cheaper, believe me, we’d do it,” says Mr. Hanson, whose group provides recreation and entertainment to soldiers. “We really are trying to create a hybrid where direct mail drives people online,” he adds.

Paralyzed Veterans of America, in Washington, which received an F grade from the American Institute of Philanthropy, is “absolutely trying to shift away from direct mail,” says Mark Dowis, the group’s associate executive director for development and marketing

Other watchdog groups have judged his organization — and the USO — more favorably: The Better Business Bureau Wise Giving Alliance ranks both as “accredited” charities, meaning they have met the group’s accountability standards.

Paralyzed Veterans is expanding its effort to attract corporate and other large gifts. But Mr. Dowis says that dropping direct mail entirely is not yet an option. Most donors in the group’s database are older people accustomed to getting premium mailings, which include small giveaways, like key chains and address labels, he says. The group plans to phase out such mailings.

Reliance on direct mail is not necessarily a problem, Mr. Borochoff says, noting that some A-rated organizations use the technique.

“Excessive, wasteful overdoing of it is a bad thing,” he says. “It needs to be kept within reason.”

Questions Raised

Many of the groups that received low marks — and even some that didn’t — have argued that Mr. Borochoff’s measures are flawed.

“The reality is that these rating schemes don’t measure the most important thing, which is outcome,” says Steven Nardizzi, deputy executive director of operations at the Wounded Warrior Project, in Jacksonville, Fla.

His group was rated with the United Spinal Association, its former parent organization. Mr. Nardizzi suspects Wounded Warriors may have lost some donors as a result.

Others point out that charity-watchdog groups have in some cases reached contradictory conclusions about organizations.

Charity Navigator, a watchdog group in Mahwah, N.J., has long been concerned about the high fund-raising costs among veterans’ charities, says Sandra Miniutti, vice president for marketing. She and Mr. Borochoff agree that the cause’s popularity has enabled some groups to get away with questionable practices.

But while the American Institute of Philanthropy lowered the grades of three organizations that would have otherwise received A+ ratings — Army Emergency Relief, the Air Force Aid Society, and the Navy-Marine Corps Relief Society — because they maintain very large asset reserves, Charity Navigator takes a different approach. “We think a charity is in a better position if it has those funds on hand,” Ms. Miniutti says.

Mr. Borochoff agrees, but says that given the needs that so many veterans have today, keeping asset reserves larger than three to five years’ worth of operating expenses is excessive.

His group found, for example, that Army Emergency Relief, in Alexandria, Va., had 17.6 years’ worth of expenses set aside, which earned it an F in the study. “They’re sitting on these giant piles of money that they could be using to help veterans,” Mr. Borochoff says.

The institute’s analysis “appears to reflect a basic misunderstanding of what military-aid societies do and how they operate,” says Andrew Cohen, Army Emergency Relief’s chief financial officer. The group provides no-interest loans and grants to active-duty soldiers and retirees, but not to veterans who served only a few years and did not retire for medical reasons.

His group is able to meet the demand from those it serves, Mr. Cohen says, and is actively working to inform those who are eligible that help is available.

In addition, military-relief societies rely on income from their invested reserves, says Sidney Heetland, chief financial officer at the Air Force Aid Society, in Arlington, Va.

“We only bring in about $6-million a year in charitable giving, but we’re spending closer to $20-million,” he says. “If we draw down the reserve, within a few short years we would have to cut our programs by two-thirds.”

Donors React

In the wake of the watchdog report, Paralyzed Veterans of America received a barrage of letters, phone calls, and e-mail messages from donors.

The tide has slowed down to a trickle. “But you have to wonder, how many people are not calling?” says David Uchic, a spokesman for the charity.

The group lost a donation of approximately $500,000 from a company that was upset about the news-media coverage of the report; other donations fell by $1.3-million from October 1, 2007, to February 1, compared with the same period a year ago.

By contrast, some groups that fared well in the watchdog group’s ratings said their donations rose during the time the report was receiving attention.

“I got tons of e-mails and tons of phone calls,” says Bill White, president of the Intrepid Fallen Heroes Fund, in New York, which was one of two organizations that received an A+. He says the organization’s online contributions, normally $13,000 to $14,000 per month, jumped to between $50,000 and $60,000.

“When we present our need and it’s pure and the message is clear,” Mr. White says, “then we raise money.”