Truth in Giving?

A front-page article in today's Washington Post claims that some military charities are giving veterans the short shrift, spending relatively little money on the people they're supposed to help. Citing a report by the American Institute of Philanthropy (AIP), the Post reports that eight veterans charities, including some of the nation's largest, gave less than a third of the money raised to the causes they champion--far below the recommended standard.

Reviewing the AIP study and tax filings, the paper found one military charity passed along only one cent out of every dollar raised; another paid its founder and his wife over $500,000 in compensation and benefits. While the Post notes that there are no laws regulating the amount of money charities can spend on overhead, fundraising, or giving, the AIP survey suggested that many serving the troops are inefficient, at best:

"..20 of the 29 military charities studied were managing their resources poorly, paying high overhead costs and direct-mail fundraising fees and, in some cases, providing their leaders with six-figure salaries."

But is that an accurate picture? We don't pretend to speak for all of the charities cited in the report, but based on our knowledge of some of the organizations, it appears that their failing grades are based largely on differences in how they operate and how the AIP thinks they ought to operate (emphasis ours).

Consider the examples of the Air Force Aid Society (AFAS), the Navy-Marine Corps Relief Society (NMCRS) and Army Emergency Relief (AER). Each of those charities--sanctioned by the individual services and funded almost entirely with contributions from active duty personnel and retirees--received an "F" from AIP, largely because they didn't give away enough money. As Institute President Daniel Borochoff wrote in a 2006 article posted on his organization's website:

These three charities have combined fund balances of $638 million yet spent only $59 million, according to their most recently available financial reports. Army Emergency Relief (AER) tops AIP's list of large asset reserve charities in relation to expenses with 17.6 years of available asset reserves and a fund balance of $307 million as of 2005. Air Force Aid Society (AFAS) has 10.1 years of available asset reserves and as of 2005 holds fund balances of $172 million. Navy-Marine Corps Relief Society (NCRS) has fund balances of $158 million as of 2005. Its years of available assets is lower at 4.8, barely low enough to keep them from earning an automatic F grade for charities having over 5 years worth of available reserves.

And, in the next sentence, Borochoff offers his own idea as to how the reserves ought to be spent:

Why are these large stockpiles of reserves not going to aid the vast numbers of homeless veterans?

Yet, as Mr. Borochoff readily acknowledges, his pet cause doesn't meet the eligibility criteria for the three military charities:

AER states that it only helps active duty soldiers and reservists and their dependants, soldiers retired from active duty due to reaching age 60, or "longevity," usually defined as 20 or more years of service, or physical disability. AER also helps surviving spouses and children of soldiers who died while on active duty or after retirement from the military. Since poverty is the major cause of homelessness, the veterans eligible for AER assistance due to having obtained Army retirement status and the accompanying Army benefits are not likely to become homeless [author's note: AFAS and NMCRS operate under a similar philosophy]

So, what's AER supposed to do? Encourage more military personnel or retirees to become homeless? Borochoff freely admits that the Army charity, along with its Air Force and Navy counterparts, are effective fund-raisers and administratively efficient. Virtually all contributions come from individuals with military ties. Overhead is minimal; typically, the three military charities can raise $100 at a cost of only $2-$3, and they spend 93-94% on charitable programs. But, because their reserves are deemed "too large" by AIP, they receive a failing or near-failing grade.

Unfortunately, that assessment obscures much of the good work done by the military charities. The Air Force Aid Society, for example, distributed over $19 million in 2006, supporting community programs, and providing both education grants and emergency assistance to airmen and their families. The largest portion of the charity's giving (45%) was in that latter category, providing loans and grants during crisis situations.

"Emergencies" include everything from travel during an illness or death, money for car repairs, and grants for funeral expenses and basic living needs. According to the AFAS CEO (retired Lieutenant General John Hopper), the charity can deliver $3 in support for every dollar in donations it receives, thanks to its ample financial reserves. That has allowed AFAS to award over $100 million in educational grants since 1988, while awarding millions more in emergency assistance. At the end of 2006, AFAS actually increased the size of its educational grants (from $1500-$2000 a student), another reflection of the charity's wisdom in building a strong fiscal base.

Yet despite that strong record, AFAS's large endowment was enough to earn a failing grade from the AIP report. Such a narrow evaluation suggests that (a) the philanthropic watchdog needs to revise its assessment criteria, and (b) Mr. Borochoff has no real understanding of service-sanctioned charities and how they're supposed to operate.

In fairness, there are disturbing aspects to the AIP study. Some of the charities listed--many of the chartered by Congress--appear to be doing a poor job, spending too much on direct mail and other fund-raising activities, while delivering little to the men and women they're supposed to help. But lumping the three military-sanctioned charities into that same category is a grave disservice, both to the organizations and their donors. Army Emergency Relief, the Navy-Marine Corps Relief Society and the Air Force Aid Society are exceptional organizations, providing assistance and support to those who serve, the families and military retirees. They deserve better than the failing or near-failing grade arbitrarily awarded by the AIP.

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ADDENDUM: As you might have guessed, there is a political component to all of this. The Post article coincided with Mr. Borochoff's testimony before the Committee of California Congressman Henry Waxman, who (to borrow a phrase) would investigate a ham sandwich if it would make the Bush Administration and/or the U.S. military look bad. Someone needs to ask Mr. Waxman this question: if Congress is so concerned about veterans' charities, why did it take so long to hold a hearing? Borochoff's original article on military charities was posted on the AIP's website 16 months ago.

We've also got to wonder if partisan politics had any influence on some of the rankings. Among the charities receiving an "F" was the Freedom Alliance, founded by retired Lieutenant Colonel Oliver North, and prominently supported by talk show host Sean Hannity. Among its various activities, the alliance stages country music concerts that fund scholarships for the children of military members killed in the line of duty. The low score was supposedly based on several factors, including--you guessed it--the organization's large cash reserves.

Thankfully, Freedom Alliance is firing back. In a message posted on their website, organization president Thomas P. Kilgannon notes a number of inaccuracies in AIP's assessment of the Freedom Alliance. He also raises a very important point--in its evaluations, the so-called "charity watchdog" fails to use Generally Accepted Accounting Principles (GAAP), the standards used by accounting firms, state regulators and the federal government that provide consistency in rating non-profits.

AFAS has also responded, with a similar message from General Hopper.

And, for what it's worth, the highly respected evaluators at Charity Navigator gave Freedom Alliance four stars--it's highest rating. Army Emergency Relief and the Navy-Marine Corps Relief Society also earned four stars, while Air Force Aid Society received a three-star rating.

Far from being an honest evaluation of military charities, yesterday's Congressional hearing was little more than another political stunt, with the "opinion" of one self-styled watchdog masquerading as objective analysis. Before Congress tries to pass any laws regulating veterans' charities, they would be well-advised to consult the experts at Charity Navigator, and let the leaders of military-sanctioned charities explain how they do business.