Economic Woes of Patriotic Charities - Under Scrutiny!

By The Mustang Major - Jul 10th, 2008 at 4:33 pm EDT

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I received this article from a fellow Veterans/Military Affairs Activist in California. Once again, although the story focuses on California, IT APPLIES nationally.

Several of the Philanthropy organizations mentioned here were selected by Congress to be watchdogs over the growing number of Veteran and Patriotic related charities.

I personally worked with the American Philanthropy Institute (API) that gave testimony before Congress on the shameful inefficiency of many well known Veterans Service Organizations and the ever increasing number of Patriotic causes from Yellow Ribbons to Recruitment mass mailings, up to an including fraudulent claims that in order to get one's Veterans Benefits, one had to join the American Legion.

I brought these complaints to the attention of both the U.S. Postal Inspectors Service and Senator Sherrod Brown of Ohio. I even asked then Ohio Attorney General Mark Dann to review the accounts on file with the Charity Office of the Ohio Attorney General to see for himself that several Veterans Organizations such as the American Legion and VFW were mismanaging fund raising efforts focused more so on recruitment outreach, administrative overhead, and paying off commercial ad agencies.

Both the federal Postal Service and Senator Brown's office tried to discourage pursuit of these findings or any investigation FEARING the political clout of the American Legion and VFW.

I frankly gave up by deciding myself and extended military family, plus anyone else who would listen to me TO NOT DONATE TO ANY PATRIOTIC OR VETERANS CHARITY UNTIL THEIR LEADERSHIP CLEANED UP ITS ACT AND MORE SO UNTIL AT LEAST HERE IN OHIO such mismanagement and inefficiency in fund raising is EXPOSED and FIXED.

Folks, we are heading into hard economic times that impact ALL CHARITABLE organizations even as these Flag Waving and Support Out Troops groups proliferate. Ohio politicians of both parties are looking the other way, so it is up to you THE DONOR to check with the Ohio Attorney Generals Office and ask for a review of all charitable organizations to confirm $$$ they are raising is going toward the purpose YOU expected.

Anyway, this is my way of A CAUTIONARY NOTE to those Veterans', Military Family, and passionate Patriotic Organizations that have set up POLITICAL ACTION COMMITTEES. When it comes time for a white glove audit of the fund raising accounts of charitable patriots, those with a PAC are going to receive the most attention, and better have your fund raising accounts balanced in favor of your membership and mission.

Bobby Hanafin
Major, U.S. Air Force-Retired

PS: Those of you who believe I'm being too harsh on Patriotic War Profiteers, and Veterans Organizations (regardless how much political clout they do or do not have), take my word for it (or goe to any base and request a community tour or visit).

You will note that the Army and Air Force Exchange Service and DOD Commissary Agency provides more support for our troops, even those stationed in war zones like Iraq and Afghanistan more so than anytime America has been at war. OUR TROOPS ARE ALWAYS PROVIDED SUPPORT BY CONGRESS AND THEIR COMMANDER-IN-CHIEF, that is their job and our tax payer dollars in action. There frankly is no need to give donations to any active duty troops or families (National Guard units could use as much moral support as possible given proximity to active duty base support is questionable).

EXAMPLE: In order to make an in their face POINT to Flag Wavers and We Support Our Troops more than thou nuts, I wear a T-Shirt that has the Military Star Card emblazed on the front and back. War profiteers HATE to see someone who knows how our troops are really supplied PROVE IT!

Put another way, our troops received better shopping and entertainment support than they did war fighting equipment going into the occupation. IN SUM, OUR TROOPS ARE NOT CHARITY CASES, SO WHY SHOULD THEY BE CONSIDERED AS SUCH WHEN THEY GET OUT????

(A table accompanying this story about California charities gave the #2 least effective rating to charities for VETERANS.
Paralyzed Veterans of America was #8 on the list of most effective charities. --Hc)

With that note from a fellow Veterans Activist in California, I must say that for the record, that rating is for the state of California alone NOT THE NATION. When the American Philanthropic Institute gave testimony before Congress, the Paralyzed Veterans of America was among those Veterans Organizations given a failing grade on record keeping and fund raising distributions not going to VETERANS.

POINT: I believe the leadership of most VSO are not intentionally mismanaging fund raising accounts, some Veterans' leaders turn fund raising responsiblity over to commercial companies who do so for very expensive fees. Frankly, I do not understand how this Vet organization or that Vet organization, which touts being able to bring over a million members to the polls to bring down any politician that does not see the world as they do. How come they cannot manage and administer their fund raising efforts with in-house resources?

The only Veterans Organizations that I'm aware use VOLUNTEERS or even paid administrators from in-house are Vietnam Veterans of America, Veterans for America (I'm a member of Bobby Muller's VFA, and even we need to do a better job at accounting, but at least we use all volunteers), and Veterans for Common Sense.

I know for a fact that the American Legion and VFW use commercial foundations that may be labeled as Veterans foundations, but in reality are private contractors.

From the Los Angeles Times A TIMES INVESTIGATION

For-profit fundraisers collect loads, but nonprofits see a sliver

The problem affects charities large and small, and causes including [patriotic support our troop efforts, veterans organizations], child and animal welfare, health research and opposition to drunk driving.
By Charles Piller and Doug Smith Los Angeles Times Staff Writers
July 6, 2008

For 24 years, Citizens Against Government Waste has exposed pork-barrel spenders and rallied tax critics. [THIS IS A GOOD THING, AND THE TAX PAYER ACTIVIST GROUP HAS DONE GOOD DEEDS, HOWEVER] when it comes to policing its own fundraising practices, America 's self-proclaimed "#1 taxpayer watchdog" seems to have lost its bite.

Records filed with the California attorney general's office show that over the last decade, for-profit fund raisers for the nonprofit kept more than 94 cents of every donated dollar. Yet donors could write off the full contribution on their tax returns.
NOTE: In fact, the last audit of charitable organizations completed by the Office of the Ohio Attorney General was Democrat Mark Dann's Republican predecessor. There was an attempt to point Attorney General Dan, Governor Strickland, and Senator Brown to these findings that can be found on line [open for public scrutiny] at the Ohio Attorney General's Website. What you will find regarding how much real $$$ donations goes from the American Legion to Veterans causes will amaze and disturb you. I guarantee that if you have been giving donations to the Legion, you will STOP once you see that less than a third of what the Legion takes in goes to support its membership or Veterans in general. Remember that next time the Legion or any other VSO requests the Ohio Legislature grant them an exemption from public smoking bans in their clubs and halls. Remember that the next time the Legion or any other VSO takes a political campaign photo-op with any politician regardless of party. Major Hanafin

"It's a rip-off of the taxpayer," said Pablo Eisenberg, senior fellow at Georgetown Public Policy Institute and a philanthropy scholar.

A Times investigation found hundreds of other examples of charities that pocketed just a sliver of what commercial fund raisers charge and collected in their names. Some didn't get a dime or even lost money.

According to a comprehensive review of state records filed over a decade, the problem of paltry returns extends well beyond what has been reported in recent years among benevolent societies for police, firefighters and veterans.

It affects charities large and small, well-known [like the American Legion and VFW, who also have vague political action committees that donate to politicians on both sides of the isle to get them to look the other way] and obscure.

It spans a range of causes, including child and animal welfare, health research, [patriotism], and opposition to drunk driving. In more than 5,800 campaigns on behalf of charities that were registered with the California state attorney general from 1997 to 2006, the [commercial] fund raisers reported taking in $2.6 billion. They kept nearly $1.4 billion -- about 54 cents of every dollar raised. '

Note: Frankly, the Veterans organizations that are registered with the Ohio Attorney General's office manage to pull in less than the same organizations in California. The bulk of fund raising goes to private contractors. To the credit of the Ohio Attorney General's office, when a reader goes to the Charitable Organization Oversight Website, the Attorney General provides a caveat WARNING potential donors that IF a charity (Patriotic, Veteran or otherwise) hires and uses private contractors to do administration and fund raising, such charities are the most inefficient.

In California, as in Ohio, these numbers reflect only part of the problem. Though commercial fund raisers are required to file detailed fund raising reports with the state, many do not, and the law is not aggressively enforced because of limited staffing.

For-profit campaigns, which often employ telemarketing, mass mailings [a favored approach of most Veterans Service Organizations] or one-time events, account for a small fraction of $223 billion in charitable giving each year in the United States. But they collect significant sums and help shape public perceptions of charities. Pairing computer-controlled dialing systems with low-wage workers, such firms can reach a large number of people in a short time. [How many readers have seen or received those WORK FROM HOME telemarketing scheme, and do any of you know anyone who took the deal get rich from it?] "If I could forget about what percentage was going where," said Dan Halfeldt, former sales manager at one Phoenix-based telemarketer for nonprofits, "I could really say, 'Wow, I'm raising money for something good.' " The firm, Midwest Publishing Inc., consistently offered among the lowest returns by large fund raisers. It did not respond to written questions about its operations. [As some Veterans Service Organizations should have learned the worse things we can do is to one ignore the media regardless what our views are about media bias, and two go on the defensive in organizational propaganda rags that most members do not read anyway, or on the DEFENSIVE on-line. That only serves to reinforce, WE HAVE SOMETHING TO HIDE. The best course of action is to STOP using commercial contracts and contractors UNLESS the cut is in OUR FAVOR (VETERANS).

The fund raising business is growing. More than 300 fund raisers have registered in California. [Readers can find the total number of those registered in Ohio, OR YOUR STATE, by going to the Ohio Attorney General's Charity Watchdog website or the sub-office within your state's attorney general's office.]

Since 2000, the number of campaigns and amounts raised by for-profit firms has risen by about two-thirds.

Among The Times' findings: * More than 100 charities raised $1 million or more from commercial appeals but netted less than 25 cents per dollar. Fund raisers got the rest. * In 430 campaigns, charities got nothing: All $44 million donated went to fund raisers. In 337 of those cases, charities actually lost money, paying fees to fund raisers that exceeded the amount raised. That is why it is essential, especially given the hard economic times ahead that such closer scrutiny be paid in Ohio. Given that a Republican Attorney General exposed poor fund raising practices and made them public on his website, while a Democrat Attorney General was too busy doing other things. That alone makes it essential that a non-partisan, independent audit be done of all patriotic, veteran, and troop support organizations in order to not shut them down - I'M NOT SAYING THAT!!!

The objective is to get them to clean up their act, come up with more efficient in-house volunteers managing fund raising and stop hiring private contractors that could be open to alleged kick backs for VSO leaders at worse, and simple mismanagement of funds at least.

For-profit and charitable organizations are quick to GO ON THE DEFENSIVE instead of clean up their act.

In general, charities argue that it takes money to make money and that the benefits of commercially run campaigns may not show in state filings. However, the problem is that "many nonprofits rely heavily on set-rate contracts and aim their campaigns toward a mass audience, which is less efficient than targeting a defined set of donors."

For instance, Citizens Against Government Waste said that its telemarketing was meant to find donors who would give regularly, not necessarily to raise a large sum in a single campaign.

To critics, that argument often excuses wastefulness or profiteering -- and every charity pays for that. Meaning a few bad apples make the entire patriotic, veteran, and support our troop effort look bad at best or hit a significant drop in donations at worse. As I've said, not all patriotic organizations are mismanaging fund raising, and even a few support our troops efforts seriously mean well and the bulk of what they collect does go to our troops and families in some fashion need it or not.

Question is why do politicians LOOK THE OTHER WAY?

Some charities "take advantage of American generosity," said Bennett Weiner, an executive with the Better Business Bureau research program Wise Giving Alliance. They "accomplish very little, siphon off good money from the community and tarnish the well for more legitimate nonprofits."

By donating to inefficient charities, said Daniel Borochoff, president of the American Institute of Philanthropy, [who gave testimony before Congress on the inefficiency within troop support, veteran, and patriotic fund raisers] "you are taking money out of the mouth of a hungry kid."

Another DEFENSIVE position by tax exempt patriotic groups is blaming accounting requirements for distorting its results: "In some instances, accounting rules require that we combine volunteer recruitment, calls to action and public education making them appear as a 'fund raising' expense."

The truth is that neither of the nation's two major accounting standards bodies has ruled that such costs must be combined.

Based on tax returns and other sources, the American Institute of Philanthropy ferrets out hidden costs of fund raising by charities -- including but not limited to commercial [AND POLITICAL] campaigns. It estimated that one charity for Missing Children spent 84 cents to raise each dollar in its 2006 budget of $2.1 million, a worse record than all but 18 of more than 500 rated charities.

The philanthropy institute normally considers up to 35 cents to raise a dollar as a reasonable cost. Meaning each VSO should be getting 65 cents on the dollar. Is yours? [Closer scrutiny of those patriotic organizations in Ohio regardless of their so-called non-partisan political stand will confirm that NONE, with a precious few exceptions, meet that 35 cent to the dollar standard in fund raising]

The Times analysis of commercial campaigns in California found inefficiency to be typical among missing-child groups: On average more than 85 cents per dollar went to the fund raiser.

However, some charities of this kind AVOID the use of commercial fund raisers, including the National Center for Missing and Exploited Children. Ernie Allen, its chief executive, said groups that rely on minuscule returns taint the entire field. [On the Support Our Troops side is Fisher House that has among the Highest efficiency ratings of any veteran or troop related non-profit effort with the vast majority of funds raised going toward supporting troops, veterans, and military families. ]

Organizations spring up out of crisis, fad, or opportunity to make a buck off the suffering of others. Commercial Fund raisers exploit these devastating situations. The answer is simple, only the most flagrant violators need be prosecuted, for the most part others just need to stop hiring commercial contractors to do non-profit fund raising. If they have no recourse but to hire private ad agencies [some being the same that will produce political ads for them] groups shouldn't allow themselves to be overcharged by fund raisers over and over,

They "need to learn." 6% for the charity Vickie Bouska, a retiree in Hiawatha , Iowa , became a donor to Citizens Against Government Waste after she heard leaders' arguments on television and received a fundraising letter. The group addressed her fears about the future. "I'm scared to death of what we're leaving our children," she said. "The Chinese or the Canadians are going to own us, because no one in Washington can close the pocketbooks." But she was stunned to learn from a reporter how much money the group ceded to its commercial fund raisers. Of $879,000 raised in the decade examined, $49,000 -- 6% -- reached the charity. "They aren't really getting the money," Bouska said, "so why am I sending it?"

Thomas Schatz, president of the Washington, D.C.-based group founded by industrialist J. Peter Grace and muckraking journalist Jack Anderson, defended its fundraising. "The purpose of telemarketing is not always to 'come out ahead,' though that's always the goal, but to reinforce [donors] for the future," he said. The Los Angeles-based fund raiser Facter Direct, which conducted the group's telemarketing campaigns, declined to comment on its work for Citizens Against Government Waste.

On average, state data show, it returns 39% of what it raises to its clients, slightly less than the industry norm. "The numbers on the surface don't always tell the whole story, said the firm's president, Tom Siegel. "Organizations are not stupid. They recognize the cost of telemarketing and the annoyance of it. But . . . they recognize that it's one of the most effective ways to raise money" over the long run. Schatz noted that the telemarketing campaigns reported to the state reflect a small portion of his organization's overall fundraising.

Direct mail by commercial solicitors -- an approach used by the group for two decades -- provides most of its approximately $5.4 million in annual revenue and is more efficient, he said.

It proved impossible to verify that claim, because only one direct-mail campaign of behalf of Citizens Against Government Waste was registered with the state, as required, in the 10-year period. That one showed no revenue.

Citizens Against Government Waste suggested that its overall fundraising was highly efficient -- costing just 19 cents per dollar raised, according to its 2006 tax return.

But the group came up with that figure by designating most direct-mail and telemarketing costs as quot;services."

The practice is legal if information, such as criticism of pork-barrel projects, is included in fundraising pitches.

The American Institute of Philanthropy estimated the actual cost of the group's overall fundraising at 69 cents per dollar.

Some other economic-policy nonprofits steer clear of commercial fund raisers, emphasizing foundation grants and direct contact with donors. Telemarketing and mass mailings can raise awareness, [just look at how political campaigns regardless of party use them] but "there's always something about it that rubs me the wrong way," said Ryan Alexander, president of Taxpayers for Common Sense in Washington , D.C. [No relation to Veterans for Common Sense].
It's important that people know that their dollars are going to the mission." Joseph Bast, president of the Heartland Institute, a Chicago nonprofit that promotes free-market approaches to environmental and social problems and accepts corporate donations, said he didn't trust telemarketers to safeguard his group's image, especially when returns can be low. "It's not a very good risk," he said.

Costs and credibility American generosity has its limits.[and WE are quick approaching those limits] The charitable pie in the U.S. has accounted for about 2% of the gross domestic product since 1970. [However, has not kept pace with growth in non-profits, and that was during a relatively stable economy].

Meanwhile, the number of charities has risen dramatically, especially with the War on Terror. More than 1.9 million nonprofits -- one for every 150 U.S. citizens -- fill gaps in government services, give voice to diverse views and compete fiercely for this limited share of donor dollars.

Tax laws, designed to encourage giving, don't take into account how much money reaches the charitable cause.

Donors to commercially run drives can write off the entire donation, even if most of it goes to the fund raiser, so the incentive to determine how efficent the non-profit really is well just is not there. Combine that with the political clout of any organizaton before Congress, and the problem ranks up there with pork barrell spending.

Lawmakers [in Congress] periodically have considered reining in the fundraising industry. But the U.S. Supreme Court has limited their options by upholding the free-speech rights of fund raisers and charities.

Recently, public confidence has been shaken by news of inefficient for-profit fund raisers used by police and firefighter charities. And congressional hearings depicted some veterans' charities as little more than shells that enrich fund raisers and executives.

In a national survey conducted in March, 70% of those polled said charities waste "a great deal" or "a fair amount" of their funds. Charities "may be losing their most prized possession: their reputation for caring," said Paul C. Light, a professor of public service at New York University who wrote the survey and has studied nonprofit governance for more than two decades.

Many charities hire for-profit fund raisers precisely because they need help selling themselves to a skeptical public. They can be "a godsend and a lifesaver," particularly for charities without staff fund raisers, said Diana Aviv, chief executive of Independent Sector, a trade group for nonprofits.

Limited information is available about such firms; most are privately held and many shun the media. The biggest hurtle besides the Constitutional one is that while Patriotic and Veterans organizations have a Constitutional right to free speech, the private commercial firms they hire do not have constitutional protections from scrutiny and should be government regulated. The first place to start is at the state level by prodding each state's attorney general to prosecute those charitible organizatons that are chronically inefficient, or at least denying them authority to raise funds or have a tax exempt status in Ohio.

Those that specialize in nonprofits with long-standing patron networks tend to offer better returns. New York-based telemarketer DCM Inc. works exclusively for arts groups, including the Los Angeles Philharmonic, targeting ticket buyers and former donors.

Thus, we do not need to throw the baby out with the bath water. It enjoys one of the best records in the business, returning, on average, 72 cents per dollar raised. "I don't think that telemarketing is a great contribution to Western civilization, but art is," said Phil Miller, DCM's president. "We provide a good service for great organizations."

How Veterans Organizations get taken:

Even so, many charities get stuck with unfavorable terms. A contract between Michigan-based TeleService USA and the veterans charity VietNow makes donor lists "the exclusive property" of the fund raiser. If the charity switches fund raisers, it would lose access to past supporters -- the most likely future donors. TeleService USA , which delivered to its clients, [VietNow] on average, 11 cents per dollar raised, did not respond to requests for an interview.

Hundreds of charities use inefficient accounting and fund raising practices, many accepting set-rate contracts that deliver a sliver of gross donations.

For small charities, the bulk of patriotic endeavors, the contracts seem to minimize risk: Fund raisers pay upfront costs, and charities get guaranteed -- if often small -- returns. [It's almost like an unfair Mutual Fund for Charities where Merrill Lynch or Dean Witter always get the best of the deal.]

But major charities are the dominant users of for-profit fundraising, whether to raise money for basic costs or to expand a donor base [or for recruitment into the organization or cause]

Among 1,614 charities with commercial campaigns registered in California , 100 accounted for 73% of gross donations.

Just two, Paralyzed Veterans of America and the American Diabetes Assn., together took almost 14%. In theory, large charities use for-profit firms more efficiently because they can tap long-standing donor networks.

In practice, they do little better than small ones. Fund raisers for these major groups, meanwhile, reaped a windfall. Those for the 100 top-grossing charities received nearly $977 million, and firms for just the top two pocketed $171 million combined.

"Often the most popular causes . . . solicit everyone under the sun to get a few dollars from almost everyone," said Borochoff, of the American Institute of Philanthropy. "That's a really expensive way to raise money."

Donors often have no idea where their money goes. Disillusioned donor Pamela Kay Weeks lost both breasts to cancer. After she recovered, she received letters and calls from the American Breast Cancer Foundation, a Baltimore charity that listed research as a priority. Hoping to spare others what she suffered, Weeks wrote a check -- the first of many. "I'm not a wealthy person," said Weeks, 51, an executive secretary who lives in Sneads, Fla. "I've given what I can." Weeks thought her donations were headed for a philanthropic powerhouse.

But the foundation is one of the nation's least efficient charities, according to the American Institute of Philanthropy and Charity N