Spending practices of veterans charities vary, analysis shows

WASHINGTON—The pitches from AMVETS are practiced and smooth: Help America's veterans get treatment for their disabilities or monthly checks to compensate for their injuries. Give them the means to avoid homelessness.

AMVETS tells potential donors that it's chartered by Congress, which creates the misleading impression that the U.S. government vouches for the organization and is overseeing it.

AMVETS spent $8.5 million in 2004, but according to its tax record only 22 percent of it went for programs that helped veterans, much less than the 60 to 65 percent that experts on philanthropy consider the minimum.

Far from watching over AMVETS and the dozens of other veterans groups it's chartered, Congress doesn't even examine the annual reports they're required to file, other than to make sure that they've been filled out properly.

"The fact that they're a congressionally chartered group should no more incline people to give to that group than the fact that it's National Pickle Month should make them eat more pickles," said Rep. Barney Frank, D-Mass., who in 1992 banned new charters when he led the subcommittee that was responsible for them. Since then, however, Congress has made exceptions and granted charters to at least three additional veterans groups.

Congressionally chartered veterans groups do plenty of good work: lobbying for veterans rights, funding medical research, providing training and counseling, and helping disabled veterans and their widows battle the U.S. Department of Veterans Affairs for benefits.

But just as they should with any charity, donors who want their money to be used efficiently need to look closely at each veterans group before giving, experts said.

"They have one of the most popular causes ... particularly when we've got a war going on," said Daniel Borochoff, the president of the American Institute of Philanthropy. "It's unconscionable that they're so inefficient."

AMVETS and other congressionally chartered veterans groups defend their spending practices as legitimate and say the high cost of fundraising leaves them with less money for programs.

A Knight Ridder analysis of the charitable tax returns filed by the 15 largest congressionally chartered veterans groups and their 32 foundations, scholarship funds, auxiliaries and other related organizations, however, found wide variations in how much of their money is spent to help veterans.

Among the 15 largest chartered groups, six spent less than 60 percent of their money on programs that helped veterans and weren't also used to pay for fundraising. They include such well-known groups as Disabled American Veterans, Paralyzed Veterans of America and Veterans of Foreign Wars of the United States of America.

Five of the 15 groups reported that they spend at least 60 to 65 percent of their money on programs, the minimum that watchdogs at the American Institute of Philanthropy and the Better Business Bureau recommend.

The remaining four groups didn't disclose on their tax returns how much they spent on programs.

Some of the chartered groups' related foundations, auxiliaries and other affiliates spent very little on programs. Only 29 cents of every dollar spent by the Military Order of the Purple Heart Service Foundation went for programs; at the American Ex-Prisoners of War Service Foundation, it was 2 cents.

In the past year, the 15 largest congressionally chartered veterans groups and their related organizations have generated more than $480 million in revenue, $330 million of it from public donations, according to Knight Ridder's analysis of their financial records. (For more information online about the 47 groups and their finances, go to

Veterans group officials said their fundraising costs were high because their contributors tended to be elderly, gave small donations of $5, $10 or $20 and were drawn to solicitations that included expensive stickers, address labels, calendars and other giveaway items. Some of these fundraising costs are really educational programs, the officials said, because they give safety tips and facts about the groups' services at the same time that they ask for money.

Tax returns can never fully capture the good work that veterans groups do, these officials said.

"One of the frustrations or difficulties for us is a lot of what we do is intangible and goes back to our founding premise of blinded veterans assisting blinded veterans," said Tom Miller, the executive director of the Blinded Veterans Association, which provides counseling, advocacy and other services.

Last year, the association spent $3.8 million. Of that, 43 percent paid for programs that were unrelated to donation requests and the rest went for solicitations and administrative costs. The group lets donors know it's chartered by Congress in its fundraising pitches.

"A lot of folks receive solicitations and wonder, `Are these folks legitimate?'" Miller said. "I think a congressional charter gives that assurance."

But the title is largely honorific, and Congress provides no meaningful oversight of these groups, despite concerns that have been raised for decades.

In some states, such as Michigan and South Carolina, a congressional charter exempts veterans groups from some or all scrutiny by state charity regulators. State officials in both states said the assumption was that Congress watched over them.

Chartered veterans groups noted that they send financial reports to the House Judiciary Committee each year. The committee, which has primary responsibility over chartered organizations, hasn't raised concerns about how they spend their money, they said.

Neither Rep. James Sensenbrenner Jr., R- Wis., the chairman of the House Judiciary Committee, nor Rep. John Hostettler, R-Ind., the chairman of the subcommittee that oversees chartered groups, agreed to be interviewed for this story or responded to written questions. A Judiciary Committee staffer, who can't be named because only the chairman is allowed to speak for publication, said the groups' financial reports got cursory looks for completeness and to ensure that they met accounting standards, but that that was all.

The Congressional Research Service highlighted the "mixed signals" that federal charters send to the public in a 2004 report. There "is an understandable assumption on the part of the public that somehow the charter signifies U.S. government approval of the corporation's activities and that the corporation is being supervised. Neither assumption is merited," it concluded.

With $127 million in revenues in 2004, Disabled American Veterans is the largest congressionally chartered veterans group.

Of the $118 million it spent last year, 50 percent went for programs that didn't include requests for money; the rest went for administration overhead and fundraising. The group's many programs include a national corps of service officers who help veterans obtain VA benefits.

Officials at Disabled American Veterans headquarters in Cold Spring, Ky., declined to grant interviews. In a written statement, the group said: "We wish we could raise our needed funds with extremely simple, inexpensive mailings or the use of volunteers, but like other national charities with annual budgets of $100 to $150 million, we have found that people don't respond as well."

When the group sends fundraising letters, it tucks information inside asking potential donors to identify veterans who need its services. By taking advantage of an accounting rule that allows fundraising to be combined with other activities, Disabled American Veterans counts more than $21 million of its $47 million in joint fundraising-related costs as an educational-outreach program.

By including joint fundraising-education costs, the group says it spends 68 percent of its money on programs, rather than just 50 percent.

Among the groups in Knight Ridder's analysis, four chartered groups and two of their related groups use this legal accounting maneuver, which boosts the amount they can report spending on programs.

The Blinded Veterans Association is one of them. It includes tips such as "What to do when you see a blind person" in its fundraising letters. Such joint fundraising-education expenses allow it to say that it spends 82 percent on programs, rather than 43 percent.

AMVETS' financial performance looks so bad because it doesn't use this accounting maneuver. It declares all of the $5 million it pays annually to a professional fundraiser as a fundraising expense.

Velma Hart, AMVETS' chief financial officer, said the group's auditors hadn't felt that they could justify counting some fundraising expenses as education. But Hart said she was going to revisit the issue because donors and the news media increasingly were asking to see how all the tax-exempt entities in the AMVETS family of charities performed, not just AMVETS.

Like other chartered veterans groups, AMVETS has given rise to several subsidiaries and affiliated nonprofit organizations: AMVETS Charities, AMVETS Ladies National Auxiliary, National Sons of AMVETS and the AMVETS National Service Foundation. They also have numerous local posts across the country.

By far the largest of these related entities is the AMVETS National Service Foundation, which has annual revenues of about $16 million, nearly double that of its namesake. Only about $500,000 a year is passed on to AMVETS, the chartered group, Hart said.

Many chartered veterans groups have set up "service foundations," which sometimes serve as separate tax-exempt fundraising arms in addition to doing varying amounts of charitable work.

In some cases, donors may think they're giving to the parent organization, when in fact the donation request is coming from a separate service foundation.

Consider this telemarketing pitch by the service foundation of the congressionally chartered Military Order of the Purple Heart of the USA, based in Springfield, Va.

Solicitors first say they're calling on behalf of the Military Order of the Purple Heart Service Foundation. But they go on to say: "The Purple Heart is a special organization chartered by Congress and is made up entirely of combat-wounded veterans," according to a script filed with Virginia regulators.

In addition to citing the credibility of the parent group's congressional charter, the service foundation uses the Purple Heart Medal on its mailings.

Purple Heart's service foundation, based in Annandale, Va., raised more than $32 million in 2004, but tax records show that only 29 percent of its expenses went for programs.

The parent organization gets about $4 million annually from the service foundation, nearly all the funding it has to help veterans file VA claims and to finance other charitable programs.

It's difficult to know how efficiently Military Order of the Purple Heart of the USA spends its money because the group doesn't separate program, fundraising and administrative costs on its tax returns. The IRS makes such reporting voluntary for veterans groups with a certain kind of tax-exempt status, called 501(c)(19).

Officials with both Purple Heart organizations declined to be interviewed. Richard Gallant, the service foundation's executive director, said his group's program spending would be higher if it counted some of its fundraising costs as education. "The foundation believes that this type of approach is disingenuous," he said.

The small amount of money that the chartered American Ex-Prisoners of War receives from its service foundation has the two groups suing each other in federal court in Dallas.

The chartered organization wants its service foundation to stop using its name and mailing list when seeking donations from the public.

"We didn't feel like the foundation was spending their money properly," said Clydie Morgan, the national adjutant of American Ex-Prisoners of War, based in Arlington, Texas.

Morgan said her group created the American Ex-Prisoners of War Service Foundation about seven years ago. Because the membership of the chartered group includes family members, not just veterans, donations to it generally aren't tax-deductible. The idea was to raise more money through a service foundation that could accept tax-deductible donations.

Norm Bussel, the president of the Watauga, Tenn.-based service foundation, declined to answer questions, citing the pending litigation.

In 2004, the American Ex-Prisoners of War Service Foundation raised nearly $1.7 million, but its tax return shows that only $26,589 went for programs to help veterans. Almost $1.5 million was spent on fundraising, and $50,000 went to administrative overhead.

Its congressionally chartered parent group reported $450,000 in revenue. It reported that 88 percent of the money it spent went to programs that help veterans.

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