Review of National Veterans Foundation Financial Documents

by Janet, Editor

We have now received and reviewed the requested financial information from National Veterans Foundation. They provided their IRS Form 990 for 2008 (fiscal year ended 6/30/2009), and audited financial report for the same period.

This provides a perfect illustration of why it is so critical to review the actual financial documents of a veterans charity (or any other charitable organization) prior to deciding whether to donate to a particular charity.

This review is lengthy and complicated, and we apologize for that. But to understand what the documents say, you will need to read through the whole thing. Charity expense reporting is a complicated task.

Read our original comments regarding National Veterans Foundation.



National Veterans Foundation Financials for 2007

The numbers given above, provided by GuideStar from NVF's 990, are for 2007 (their fiscal year ended June 30, 2008). You can review these documents for yourself at GuideStar, but you will be required to create an account and register (free) before being able to access them.
It merely repeats the aggregate numbers.

Looking at the details provides a far different picture.

In that year, NVF reports no professional fundraising fees. However, in Part II-A for the Form 990, where the organization is required to report the compensation paid to the five highest-paid independent contractors for professional services (and each contractor paid more then $50,000), NVF lists:

Fullmix Marketing, Beverly Hills: $203,748
Bold New World, West Hills, CA: $96,881

What type of service did they provide? Education/Promotion -- in other words, marketing.

What is the purpose of such education/promotion? Are they educating veterans that their services are available, or are they educating the public that they exist so they can generate donations? Probably some combination of the two, but we'd bet the lion's share of it goes to educate the public that they exist (so you'll make a donation).

According to the allocation made by NVF, they had a total of $404,248 in expenses for "Education/Promotion." Of that total, $363,823 was allocated to Program Services, and only $40,425 (magically, a very convenient 10%) was allocated to Fundraising.

Using the figures from GuideStar's report, it would seem that of total expenses of $1,217,419, a total of $1,045,920 (seemingly 86%) went to provide program services to veterans.

However, the reality is not what most donors would expect. Out of the total of $1,045,920 allocated to Program Service Expenses, we see from the Form 990 that amount includes:

Education/Promotion: $363,823
Insurance: $12,454
Office Expense: $89,150
Storage/Moving: $20,610

Totaling those amounts, that means at least $486,037 (46%) of the amount that NVF called program services did NOT go to providing services to veterans, as donors would expect the amount for "program services" to do. With those numbers backed out, that leaves just $589,883 (56%) for program services. And there's no way to know how much of other amounts allocated to program services would fall into categories most donors would consider to be overhead or administrative expenses. So rather than the 86% it appears was used for program services in 2007, we think that number was in actuality less than 56%.

Those number do not address salaries, employee benefits and payroll taxes, most of which are allocated to program expenses. We have an idea that most of those expenses DO go to workers involved in providing services, so we're not taking exception to that allocation.

But it gets FAR WORSE for 2008 (the fiscal year ending June 30, 2009).



National Veterans Foundation Financials for 2008

When we reviewed NVF's Form 990 for 2008 (fiscal year ended June 30, 2009), we were outraged.

For that year, NVF reports total functional expenses of $5,043,167, with total program expenses of $3,577,170. Those numbers, at first glance, aren't the best, but don't seem too bad. That's exactly why they need additional scrutiny. Follow along, and prepare to be as outraged as we were.

The list of highest-compensated independent contractors shows:

Quadriga Art, Inc, NY, for direct mail and consulting: $2,128, 213
Bold New World, CA, for education/awareness/promo: $140,248
Brickmill Marketing Services, NH, for direct mail and consulting: $236,689

That total is $2,505,150 for fundraising and marketing. (And remember, the contractors on this list are only those paid more than $100,000.)

BUT, for "Professional Fundraising Services," reported on line 11e of the Statement of Functional Expenses, NVF reports $1,323,050.

Then, under "Other Expenses," it lists $2,821,623 for "Education/Awareness/Promotion." Guess how that amount is allocated? You guessed it: $2,804,075 for "program services," and just $17,548 (just ONE PERCENT) for "fundraising expenses."

There's another $57,560 for "outside services," of which $34,536 is allocated to program services and $23,024 to fundraising expenses.

And $49,473 in "other expenses," allocated $44,498 to program services, $1173 to administrative expenses, and $3,802 to fundraising. There's no way to tell what those expenses were for.

So, taking the aggregate numbers from NVF's Form 990, they reported:

Total functional expenses of $5,043,167, allocated thusly:
Program Services: $3,577,170 (71%)
Administrative Expenses: $69,726 (1%)
Fundraising Expenses: $1,396,271 (28%)

Not too bad, you say? Keep reading!

Line 25 provides a place to list joint costs from a combined educational campaign and fundraising solicitation.

That line shows a total of $3,969,190, allocated $2,646,140 (a neat 67%, or 2/3) to program services, and $1,323,050 ("just" 33% or 1/3) to fundraising expenses. The amount allocated to program services is almost exactly twice (plus $40) the amount allocated to fundraising.

Those numbers look bad enough, but here's that part that will blow your mind:

Schedule G, which is required for organizations that report more than $15,000 in professional fundraising expenses, contains supplemental information regarding fundraising activities.

National Veterans Foundation reports fundraising activity conducted by Quadriga Art, Inc. (New York). Through direct mail (the only form of solicitation reported), Quadriga generated $3,969,191 in donations.

Of that amount, Quadriga retained $3,915,644 and forwarded to National Veterans Foundation a paltry $53,547 (ONE percent)!

These documents can be reviewed on the GuideStar web site after you register, or you may request a copy directly from NVF.

This is by far the most egregious instance we have uncovered in our review of veterans charities thus far.

We don't care how it's allocated, that's almost $4 million donated by Americans to help our nation's veterans, and of that amount, a shockingly small $53,547 actually went to the organization. Of that amount, who knows how much actually went to assist veterans?

And how does that figure relate to the $2,128, 213 that NVF says it paid to Quadriga on its list of most highly-compensated independent contractors for professional services?

Hoping for answers, we looked to the audited financial statement. It provided us with very discouraging information.

Note 4 states: "In July 2008, the Foundation contracted with an outside vendor to conduct and manage direct mail campaigns for the next five years in order to increase awareness among the general public of the needs of veterans and resources provided by the Foundation that assist veterans and their families. The campaign also included fundraising.

"In accordance with AICPA's (American Institute of Certified Public Accountants) Statement of Position 98-2, Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fund-Raising, the costs of the direct mail campaign for the year ending June 20, 2009, have been allocated to program service expenses and fundraising expenses as follows:

Program services: $2,646,140
Fundraising: $1,323,050
Total joint costs: $3,969,190

"Under terms of the contract with the direct mail vendor, the costs of the direct mail campaign will be paid from donations received from the campaigns. The Foundation will received revenue from the direct mail campaigns once the costs of the campaigns is recovered by the outside vendor. The Foundation is not responsible to pay expenses of the campaigns if donations are not sufficient to cover the vendor's costs. . . . "

This is Outrageous

National Veterans Foundation has sold out our veterans, to the tune of almost $4 million, in order to net a measly $53,547 in revenue.

And with a five-year contract, it's not likely to get any better in the next four years.

National Veterans Foundation received an endowment of $4.9 million from an individual donor's estate in 2005. NVF is permitted to withdraw all income and up to 5% of the endowment principal each year. That means they will have sufficient resources to stay around for a long time.

Too bad they've chosen to funnel donations intended to help veterans into the pockets of a greedy third-party fundraiser. Imagine how much assistance they could provide to veterans with that money.

Our vote: Send your donations to another veterans charity. However beneficial the services provided by NVF, we just can't justify the diversion of almost $4 million intended for veterans into the pockets of a for-profit direct mail fundraising organization.

And if you're as outraged as we were, send NVF a letter telling them how you feel. We did.