Veterans Charities Ratings Explained

Daniel Borochoff, president of the American Institute of Philanthropy, explained some of the ratings his group recently assigned to various veterans charities.

"In our hunt for highly rated veteran or military charities we ran across three emergency relief groups that are holding massive asset reserves. They are the official armed forces charities for the U.S. Army, Air Force, Navy and Marines, which provide financial, educational and other assistance to current and past members of the armed services and their families. 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 years, barely low enough to keep them from earning an automatic F grade for charities having over 5 years worth of available reserves.

[So, when AIP's "automatic F" is applied for charities with more than 5 years' cash reserves, Air Force Aid Society's rating drops to "F" as does Army Emergency Relief's. Navy-Marine Corps Relief drops to a "C" under that system.

We know these groups do good work on behalf of our military service members and their families, using 93-94% of their budgets on program services, and spending only $2-3 to raise $100.

The ideal solution would be to convince the governing boards of these charities to release more of their available reserve funds to be used by military families in need. Unfortunately, we don't know how to accomplish that!

Perhaps unit commanders could appeal up their chains of command, asking that senior military members support their request that the charities release more funds to help families in urgent need. Or perhaps Congress could urge these charities to release more of their available cash to be used to help service members and veterans in need.]

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

Because most of the homeless vets do not meet the armed forces charities' eligibility requirements. For instance, AER states that it only helps active duty soldiers and reservists and their dependents, 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.

While these armed forces charities do accept contributions from the general public, most of their contributions come from armed services personnel through payroll deduction plans. Little to no funds come from the U.S. Government. They are very efficient fundraisers; each has a cost to raise $100 of only $2 to $3 in 2005. Also, each of these charities spends a very high percentage (93% to 94%) of its budget on charitable programs.

The armed forces charities operate more like private foundations than emergency relief charities. Private foundations typically spend only a small portion of asset reserves, usually 5% of their investment portfolio, whereas emergency relief charities generally spend most of their donations in the year received. For example, AFAS reports on its web site, www.afas.org, that throughout its 64-years of operations some donations were put into an investment fund for contingencies and future programs. AFAS' 2005 audit says its current policy is to spend annually about 6% of its investments.

I asked Col. George Mason, Treasurer of AER, why it was not spending more of its available asset reserves to assist needy veterans. He said, "the key reason and probably the only reason" is "the unknown contingencies faced on a daily basis." He said that the largest outflow of funds from AER was 15% during a 1.5-year period in the early 90's as a result of Operation Desert Storm and Desert Shield.

I replied that based on AER's reasoning for holding its high level of asset reserves, the American Red Cross could claim that it needed to hold a few billion dollars in reserve in the event of another Katrina scale hurricane. Many other charities could also claim that they need to hold large reserves for unknown contingencies. The problem with this reasoning is that there are not enough charitable dollars to go around for groups to stockpile massive reserves for events that may never happen.

Annual giving is a fixed pie that has equaled 2% of GDP (gross domestic product) for decades. Groups that hold over five times their budget in reserve are limiting the supply of money for other charities that need it to meet their annual budgets so that they don't have to turn away those in immediate need. Certainly, it is reasonable for some charities to maintain reserves worth a year or two, but to hold available reserves for over five years worth their budget is, in AIP's opinion, excessive.

I asked why AER wouldn't undertake a special public fundraising campaign in the event of a large, protracted war, rather than holding 17.6 years of asset reserves that could be used to assist veterans now. He said that traditionally AER has refrained from actively soliciting the public. AER's audit reports that 35% of its total contributions were "unsolicited." Its web site, www.aerhq.org welcomes contributions from "Army or civilian individuals or organizations."

I also asked Col. Mason if AER was doing enough to inform soldiers and veterans of the availability of charitable aid. He said that $100,000 had been spent to publicize AER over the last 6 months and cited some new outreach efforts, including 45-minute classes for brigade commanders and spouses, and briefings to Army Reserve and National Guard. He said that traditionally 8% of the Army utilizes AER and that they would like to increase that to 10%-12%.

Many veterans charities, much like police or firefighter groups, know that they can solicit practically anyone because their cause is so highly popular. The problem with soliciting so widely, rather than to a smaller group of people more likely to make a donation, is that it is very inefficient and results in large fundraising expenses eating up the bulk of contributions.

Many veterans groups include address stickers, greeting cards or other inexpensive gift items with their solicitations. The problem with this fundraising method is not necessarily the cost of the gifts but rather the size of the individual contributions that are given in response to these items. Many people who receive the gift do not want to make a donation, but feel obligated to send the charity a few dollars to pay for it. (Note: under U.S. law recipients are under no obligation to pay for any gift that they did not order.)

Fundraising efficiency is usually a function of the average size of the contributions a charity receives. In other words, charities that receive mostly very small contributions tend to have high fundraising costs.

A number of AIP F rated veterans charities return most of the money raised to their professional fundraiser. It's a shame that groups such as American Veterans Relief Foundation, American Ex-Prisoners of War Service Foundation and Vietnow National Headquarters dishonor America's brave veterans by using over 80% of the money raised on their behalf to pay fundraising expenses. More charities need to adopt a policy to not enter into costly arrangements with for-profit operations.

Many of the major veterans groups are chartered by acts of the U.S. Congress, including American Ex-Prisoners of War, AMVETS, Disabled American Veterans, Jewish War Veterans of the USA, Paralyzed Veterans of America and Veterans of Foreign Wars of the U.S.

Does congressional charter status mean that the U.S. government approves these groups' activities and provides oversight? No, according to a 2004 report by the Congressional Research Service, which also stated that Congress has never yanked a charity's charter status. Congressman Barney Frank called charters "... 'a nuisance,' a meaningless act. Granting charters implied that Congress was exercising some sort of supervision over the groups and it wasn't..." as cited in a 1992 article from the Washington Post.

Another slap in the face to our veterans comes from a couple who during this past Memorial Day weekend were allegedly posing as military reservists to sell raffle tickets at stores in DuPage County, Illinois to raise money for Navy/Marine Relief Fundraiser — a nonexistent charity! As announced in a press release by the County Sheriff, the couple was charged with "felony Theft by Deception and False Impersonation of Charitable Organization."

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