Cleveland Plain Dealer...
Lack of oversight, increased number of nonprofit groups complicate giving to veterans’ charities  
March  5, 2012 

CLEVELAND, Ohio -- Our troops have been fighting for more than a decade in far-off lands. Many come back wounded and maimed. 

You want to help -- more than just hoisting the flag or slapping on a patriotic bumper sticker. A charitable donation may come to mind. 

But be advised that “trying to find a good veterans group is like walking through a minefield,” according to Daniel Borochoff, president of CharityWatch, a group that has monitored and rated nonprofits for the past 20 years. 

He and other experts in the field say several factors have created a “wild West” atmosphere in this category of charitable giving. These factors include an increasing number of nonprofit groups that say they aid veterans, insufficient oversight of these nonprofits, and use of emotional appeals that can blind donors to potential waste and fraud. 

Much the same issues were raised in 2007 when Borochoff testified before a U.S. House committee investigating charities for veterans. 

The results? “Unfortunately nothing, other than people being more aware of the issues,” Borochoff said. “It didn’t really create any important changes to reform the veterans’ charities field.” 

According to the National Center for Charitable Statistics, there are more than 35,000 “posts or organizations of war veterans,” representing about 2 percent of all nonprofit groups in the United States, with revenues exceeding $1.2 billion in 2010. 

Oversight of organizations borders on nonexistent 

Rob Reich, faculty director of the Stanford (University) Center on Philanthropy and Civil Society, said there are at least 64,000 organizations with “veterans” in their name. 

He said one possible reason for the proliferation is that there are few hurdles to clear in creating a nonprofit group. 

Three years ago, Reich co-authored a study titled “Anything Goes,” which showed that 98 percent of the 50,000-plus applications for tax-exempt status filed with the IRS by new charities each year are approved. 

IRS figures show that more than 100 “war veterans’ organizations” have filed for tax-exempt status each year since 2000. In 2010, 135 of 164 applications by veterans’ groups were approved by the IRS. 

“Oversight of the creation of nonprofit organizations, and the conferral of tax privileges that accompany nonprofit status is weak, bordering on nonexistent,” the study said. 

Reich recently said the situation hasn’t changed, and given the potential for redundancy and waste, “the need for greater scrutiny [of charities] is as high as ever.” 

He suggested adoption of industry standards by charities or ratings groups might diminish duplication of effort, potential fraud and donor uncertainty. 

Sandra Miniutti, vice president of marketing for Charity Navigator, which includes 53 veterans charities in its latest ratings, said many donors might think that if a group is a nonprofit, “it must be good, that there’s some kind of vetting involved.” 

But she said, “There isn’t,” and added, “I don’t think that’s going to change anytime soon.” 

Additionally, “when you have an issue like supporting the troops, it’s very hard for people to say no,” she noted. “They’re definitely giving with their heart, and not always giving with their head. The vast majority [of charities] are efficient and effective, but donors have to do their homework.” 

Donor emotion trumps careful giving 

Think before you act, advises one of Charity Navigator’s “10 Best Practices of Savvy Donors.” The group recommends that donors “never give out their personal information -- like credit card accounts and Social Security numbers -- over the phone. 

“If people like what they hear in a pitch, they should hang up, investigate the charity online and send their contribution directly to the charity, thereby cutting out the middleman and ensuring 100 percent of their donation reaches the charity.” 

Borochoff of CharityWatch said half the 43 veterans charities it rates get poor grades, partly due to the amount of money these nonprofits spend to gather donations versus what goes to funding programs that aid veterans. 

He also believes donor emotion often trumps careful giving. 

“People feel that with firefighters and veterans, they’re protecting us, putting their lives on the line, and we need to give back to them,” he said. “They may not take the extra step of seeing whether a group is worthy of their support.” 

Opportunity to make money 

And then there are the outright scams. “With the bad economy and unemployment, some people view charities as an opportunity to make money,” Borochoff said. 

For example, you may have figured the U.S. Navy Veterans Association was a safe harbor for your donation, but you would have watched it sail into the Bermuda Triangle of charitable giving in 2010. 

That’s when founder Bobby Thompson (a stolen identity) disappeared, presumably with some of the $100 million he’d collected since 2002 (including more than $1 million from Ohio donors).

An investigation by state and federal authorities, including the Ohio Attorney General, found the Tampa-based charity listed false addresses, used fake testimonials and maintained a network of rented mailboxes and bank accounts. 

The Ohio Attorney General shut down the group’s fundraising and froze its bank accounts in this state, and last year brought theft charges against a Tampa woman who claimed to represent the charity in Ohio. (She got a five-year prison term.) 

Some of the Navy Veterans Association donations did go to worthy causes after the Ohio attorney general recovered $76,000 of the group’s funds and divided that into nine grants to veterans charities around the state. The case is not closed, and won’t be until “Bobby Thompson” is found, according to Brad Tammaro, assistant attorney general. 

The Ohio attorney general has contacted the U.S. Marshals Service about searching for Thompson in New Mexico. 

Limited resources make oversight difficult 

Tammaro said phony charities can take advantage of states with limited resources to check the veracity of information provided by nonprofits. 

Eight account clerks handle the 28,410 charities registered with the Ohio attorney general. Registrants must provide a statement of purpose, the names of persons responsible for distributing contributions, a schedule of intended charitable activities, and an annual financial report. (Charitable religious and educational groups are not required to register with the state.) 

Last year that office created a means for donors to check online to see if a charity is registered with the state and is in good standing. 

Daniel Tierney, of the attorney general’s office, said good standing means a charity is not prohibited by any current or past legal action from soliciting in Ohio. 

Additionally, Tierney said that starting this year the online registration listing will include financial reports from nonprofit groups, detailing how much money goes to charitable work. 

The attorney general also maintains a list of professional solicitors who raise donations for charities in the state, and a breakdown of how much of that money the solicitors get and how much is retained by the charity. 

The latest report for 2009-2010 lists charities getting anywhere from a low of 4 percent of donations that went to the National Veterans Foundation, to a high of 93 percent of donations going to the (USS) Arizona Memorial Foundation. 

‘Ratings can be misleading’ 

Some charities argue that simply comparing fundraising costs to program expenses -- a factor often used by charity-rating groups -- can be misleading. 

“One thing they don’t really take into account is the various costs that charities have,” said David Autry of Disabled American Veterans (DAV), which gets a grade of C-minus from CharityWatch and three stars (out of four) from Charity Navigator. “We rely on direct mail for the bulk of our fundraising, which by its nature is expensive.” 

Ratings also “don’t take into account the sheer number of people the charity serves,” he said. “That could be a better indicator of how well an organization does. You could have a terrific cost-to-donation ratio and not spend the money.” 

Kathleen Burke of the National Military Family Association also cautions against solely using ratings to determine a charity’s worth, even though her group gets top marks from rating services. 

“There’s a lot of room for disregarding great work, and for lauding work that really isn’t that great,” she said. “You can’t bash anything until you pore over all the paperwork.” 

She said people can check the website of a watchdog group or charity and look for a nonprofit’s annual reports, impact statements (showing how donations were spent and the results of those efforts), audits and strategic plans. 

Burke has noticed an increasing number of military/veterans charities since the start of the war in Afghanistan in 2001. 

Some of that growth, she said, represents “a lot more potential for wrongdoing” and a redundancy of effort. 

“A lot of groups are doing a lot of the same stuff, perhaps inadvertently, and every year there are groups appearing and disappearing because of the economy,” Burke said. 

And what happens after the shooting stops? 

“Since the start of the wars in Iraq and Afghanistan, the number of charitable organizations specifically aimed at that demographic of veterans has mushroomed,” said Autry. “How long are those organizations going to be able to sustain themselves once the war is over? 

“After every war, everybody wants to do everything they can for the veteran. But after awhile that drops off. They don’t realize that these people can still have a lifetime of disability ahead of them,” he added. 

Mike Tolbert, an official of the 9-year-old Wounded Warrior Project, said revenues were up 71 percent last year over 2010. But he, too, cited a future concern regarding the thousands of veterans coping with traumatic brain injuries or post-traumatic stress disorder. 

“One of the biggest challenges will be in maintaining the awareness of these struggles long after the warrior has left the battlefield,” he said. 

The problems of fraud or inefficiency that can be associated with donating to nonprofit veterans groups also will persist after the war, according to Miniutti of Charity Navigator. 

She said charitable giving could become more “donor-driven” as contributors increasingly rely on user ratings, much like those used to judge consumer products such as cars and refrigerators. 

Borochoff of CharityWatch said that a charity’s tax-exemption should be linked to attaining a certain level of efficiency. “If you’re raising money for veterans, there ought to be a standard of reasonableness upheld, otherwise you don’t get the tax benefits,” he said. 

Ultimately, he noted, “everybody needs to play a role in bringing some order to the field; the charities, donors asking smarter questions, the regulators and the media. 

“It’s not an easy situation to deal with.” 

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