A Veterans Charity Cries Foul

By Deborah Howell
Sunday, February 24, 2008

A Page 1 story and accompanying inside chart on Dec. 13 detailed an American Institute of Philanthropy report that criticized several veterans charities as spending too much on fundraising and too little on programs. That brought a complaint from one charity that received a grade of F in the chart, the Paralyzed Veterans of America.

The PVA was listed, without its comment, in the chart, which said: "Letter grades were based largely on the charities' fundraising costs and the percentages of money raised that was spent on charitable activities." The Post's publication of those grades "without an explanation of how they were derived is a disservice to readers and the affected charities," Homer S. Townsend Jr., the PVA's acting executive director, wrote in his initial complaint letter Jan. 28.

Townsend said the organization lost $500,000 from a donor who didn't like the "bad publicity." Townsend said that by running the story on Page 1, The Post "gave those ratings unquestioned legitimacy. Your readers deserve explanations of this complex subject." And complex it is. My reporting found that charity watchdogs compete with one another and don't agree on standards.

The story by reporter Philip Rucker was published the day the House Oversight and Government Reform Committee began hearings on the topic.

The American Institute of Philanthropy said the PVA uses "excessive" direct mail. Its solicitations include address labels and greeting cards. The institute's president, Daniel Borochoff, said he is not saying that the PVA committed fraud or engaged in self-dealing, but that the organization "fully deserved" an F because its fundraising is "wasteful and inefficient."

The hearing centered on some of the worst problems of veterans charities, including one charity that gave 1 percent of its proceeds to veterans and another that paid its director and his wife more than $500,000 a year. Understandably, Paralyzed Veterans of America didn't like being "lumped together with the very sort of organizations we shun," Townsend said.

Townsend said the PVA meets all 20 criteria that the Better Business Bureau Wise Giving Alliance establishes for charities, including that a charity's fundraising costs not exceed 35 percent of contributions, a common standard.

The American Institute of Philanthropy and the Better Business Bureau look at expenditures differently. Borochoff, the institute's aggressive and outspoken founder, looks deep into charities' financial documents. The BBB doesn't frown on counting some fundraising expenses as educational as long as proper accounting rules are followed, according to Bennett Weiner, chief operating officer of the Wise Giving Alliance. Borochoff said those accounting rules "do not reflect donors' intentions on how the money is spent. They want to give money to veterans, not educational expenses."

Neither the institute nor the Better Business Bureau evaluates the charities' programs. Some of the charities that got an A from the institute don't meet all the BBB criteria, Weiner said.

The BBB standards cover a charity's governance, how money is spent, the charity's truthfulness and its willingness to disclose basic information publicly. The alliance's Web site says: "The overarching principle of the BBB Wise Giving Alliance Standards for Charity Accountability is full disclosure to donors and potential donors at the time of solicitation and thereafter." The bureau also charges charities, on a sliding scale, from $1,000 to $15,000 a year to use its accreditation seal after the charities have met its standards.

The institute and the Better Business Bureau both use annual IRS financial filings and audited financial statements to evaluate charities' finances. Weiner and Borochoff agree that many veterans organizations have problems. Weiner said that in general the BBB finds a higher volume of problems with veterans groups than with any other charities.

John D. Ring, the PVA's chief financial officer, said that when education expenses are taken out of fundraising costs, his organization spends about a third of the money it raises on programs. The PVA also believes it serves an important function in educating the public about spinal cord injuries and diseases as well as working with veterans.

Borochoff also criticized the PVA for selling two direct-mail and marketing companies and making a commitment to continue doing business with the companies. Ring said the company is committed to spend $122 million with the firms through 2011. Ring said the PVA would have to spend that money anyway and preferred to do business with the companies it knew. PVA counsel William Mailander said the group decided to get out of the direct-mail business but "had to commit" to the expenditures as part of the sales agreement.

The PVA has two valid points on Post coverage. While the story didn't mention the organization, it was unfair to name it in the chart with only vague detail on how the grades were determined. PVA officials complained that while Rucker talked to them about the report, their comments were not included in the story. The comments were taken out in the editing process, which turned out to be a problem because the chart still mentioned the PVA.

What is needed is a much broader look at veterans' charities and their fundraising and programs -- as well as the rivalry between charity watchdogs. Maryland editor Phyllis Jordan, who supervises Rucker, said, "This is not the last story we'll write about the veterans charities. We plan to continue covering this topic fully, as well as other important stories in philanthropy." Rucker, who was covering that sector, is on temporary duty at the Maryland General Assembly, but Jordan said he is continuing to monitor the beat.

That's good, because nonprofit organizations deserve more coverage. They play a huge role in this country and the region in helping (and sometimes not) people and influencing public policy.

Deborah Howell can be reached at 202-334-7582 or atombudsman@washpost.com.

© 2008 The Washington Post Company