Two charities blasted by Congress for letting down the military veterans they ostensibly serve are themselves receiving help from what might be considered an unlikely source — the federal government.
Highlighting a systematic disconnect between nonprofit watchdogs and the government’s workplace giving drive, the groups — Help Hospitalized Veterans of Winchester, Calif., and the Coalition to Salute America’s Heroes of Ossining, N.Y. — are among the charities benefiting from the generosity of federal employees through the Combined Federal Campaign (CFC).
Continuing a tradition dating back to the late 1940s, the CFC aims to funnel charitable donations from federal employees to worthwhile causes. But the Office of Personnel Management, which administers the largest workplace giving campaign in the world, makes no pretense that it investigates the roughly 25,000 local, national and international groups that receive the money. That function falls to the Internal Revenue Service, which is responsible for verifying that charities fulfill their reporting requirements as 501(c)(3) corporations but doesn’t report on whether they are using their money wisely. As a result, charities have been able to join the CFC in spite of charges of mismanagement or fraud by Congress, state regulators or nonprofit watchdog groups.
In a hearing two years ago before the House Committee on Oversight and Government Reform, Help Hospitalized Veterans and the Coalition to Salute America’s Heroes were castigated for spending only a quarter of the donations they received on veterans. The committee’s then-chairman, Rep. Henry Waxman, D-Calif., singled out the two groups as being among a handful of charities that he said engaged in “intolerable fraud” by misrepresenting their missions and wasting contributions on “bloated overhead costs and self-enrichment.”
From 2004 through 2006, 75 percent of the $168 million in donations the two groups collected was spent on telemarketers, direct mail and overhead costs, including $1.5 million in salaries for the groups’ founder, Roger Chapin, and his wife, Elizabeth, committee investigators found. Charity watchdog groups recommend that donors look for charities that spend no more than 25 percent to 35 percent of income on overhead, including fundraising.
In spite of their poor record,both charities remain as beneficiaries of the federal charity drive. Last year, both groups participated in the campaign, which collected an estimated $282.6 million.
Waxman calls for an investigation
Waxman expressed surprise that the groups are still in the CFC.
“Our 2008 hearing showed Mr. Chapin’s charities spend most of the dollars they received on overhead and salaries. Only a small fraction went to help veterans. OPM needs to investigate how these dubious organizations ended up in the Combined Federal Campaign and what can be done to warn potential contributors,” he said in a statement.
The Office of Personnel Management, which manages the federal drive, said in response that it tries to admit as many charities as possible to the campaign so donors have more choice in selecting the organizations they want to help. The participating groups are required to be legally recognized as charities and file charitable tax returns. “If, however, OPM is made aware that a charity fails to meet its standards, it will remove that organization and prohibit its participation in the program,” the agency said in a statement. “OPM takes very seriously its responsibility to oversee the CFC and give federal employees the opportunity to improve lives everywhere.”
Officials with Help Hospitalized Veterans declined to be interviewed, but said in a statement: "Federal workers know first-hand the benefits HHV brings to VA medical facilities and specifically to hospitalized veterans.” The group meets all requirements to participate in the CFC, they said.
Roger Chapin, who retired as executive director of Help Hospitalized Veterans but remains president of the Coalition to Salute America’s Heroes, said he sees no reason his organization should be removed from the CFC campaign. His charities have been unfairly hammered for high fundraising costs when some other charities spend just as much, he said.
“I’m not making any apologies for asking (federal workers) to contribute,” he said. “Why shouldn’t they contribute? There are a lot of fine veterans groups in the campaign and we’re just as meritorious as the others.”
Although the two charities aren’t the only CFC participants with less-than-shining credentials, their participation is remarkable since they were criticized by another branch of the federal government only a few miles from OPM’s office building in downtown Washington.
How the CFC works
The Combined Federal Campaign is composed of 320 separate campaigns divided by geographic area, run by volunteers from each region. Federal workers hold auctions, bake sales and shows, among other efforts, to spur their colleagues to give, and partner with charities to collect and process donations. Federal employees may donate to the CFC by cash, check or payroll deduction.
Even though OPM doesn’t vouch for the CFC charities, many trumpet the fact that they participate in the federal campaign. Help Hospitalized Veterans says on its Web site that the CFC applies “strict criteria designed to ensure that donated money truly reaches those in need.”
The use of CFC participation as a badge of honor by participating charities creates a problem for all donors, not just federal workers, since donors may think the government has investigated the groups, says Laurie Styron, an analyst for the American Institute of Philanthropy, another watchdog group.
That’s no big deal if you’re wealthy enough to hire an investigator, “but if you’re a little old lady giving $100 a year, you think this group has a governmental seal of approval and you think these groups have really been checked out,” Styron said.
Even federal workers can be misled by the CFC designation.
“Soldiers assume that a charity is a good one, simply by virtue of its being on the CFC list,” said Starlett Henderson, who co-founded a radio show and website or military spouses. Two years ago, she grew concerned about the large number of new veterans’ charities popping up, and invited watchdog group Charity Navigator to come on the show. Sandra Miniutti, Charity Navigator’s vice president of marketing, told her that the watchdog gave a third of the CFC charities it evaluated low rankings.
“One of three groups being poorly rated charities is a bad lot if you ask me,” Henderson said. Last year, the CFC-listed charities fared slightly better with Charity Navigator: 212 of the 854 organizations — or just over 25 percent —ranked by the watchdog received low ratings. Charity Navigator, which rates about 5,000 of an estimated 400,000 active U.S. charities, didn’t have records for the rest of the 2,352 national and international groups in the CFC last year, including the Coalition to Salute America’s Heroes. It gave Help Hospitalized Veterans its lowest rating, “exceptionally poor.”
“We look at the financial health of charities, including how the charity spends its money and the sustainability of the organization,” Miniutti said. Help Hospitalized Veterans received a low rating on both counts, she said.
Pentagon's list includes a rating
Henderson recommends that military donors check charities againstthe “America Supports You” list created by the Department of Defense. Although DOD does not investigate charities, it requires charities on the list to be rated by at least one watchdog group, and posts links to the ratings on its site. The system may deter groups that tend to receive low ratings from applying. Neither Help Hospitalized Veterans nor the Coalition to Salute America’s Heroes is on the military’s list.
Questions have been raised about other charities on the government’s list. Planet Aid has been linked by news organizations and watchdogs to the international Humana People to People movement, which has been the subject of numerous criminal investigations in Europe and is alleged by some watchdog groups to be a cult. During a Danish court’s criminal investigation of Humana, its founder, Amdi Petersen, vanished and is still being sought. Planet Aid has denied being part of Humana.
Also on the list is the Children’s Wish Foundation, which receives low ratings from watchdog groups and was fined $41,000 by the state of Pennsylvania in 2002 for not providing charities with donations it claimed it made. Another charity on the list, Freedom Alliance, made the news last month when the Citizens for Responsibility and Ethics in Washington asked the IRS to investigate, claiming that the group engages in prohibited political activities. Both Children’s Wish and Freedom Alliance have denied any wrongdoing.
OPM officials declined to discuss specific organizations, but one charity observer said it would be hard to take groups like Planet Aid or the Freedom Alliance out of the CFC.
“Because CFC is associated with the government, they need to be extremely fair and cautious in whom they might choose to include or exclude from their lists,” said Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy, which supports greater accountability for nonprofit groups. “If a charity has not been proven to be violating the law, even if it might not pass the smell test, it’s difficult for the CFC to kick them off the list without then being subject to lawsuits.”
Charity sues after being delisted
Charities have sued the government and won the right to participate in the CFC, including advocacy and legal defense groups in the 1970s. In 2006, a judge ruled in favor of the national Make-A-Wish Foundation, after OPM had told the organization it didn’t qualify for the campaign because it spent too much money on overhead.
After the Make-A-Wish ruling, the government dropped its requirement that CFC charities spend no more than 25 percent of their income on overhead. Instead it reports administrative expenses as a percentage of income for each CFC charity. Now, the main criteria for participating are a charitable tax return and an auditor’s report, charities say. Last year, 5.4 percent of the groups that applied to join the campaign were denied because they didn’t meet such basic eligibility requirements.
“I just wish there had been more thought as to how to fight some of those legal challenges rather than acquiesce,” said Thomas G. Bognanno, president of Community Health Charities, a nonprofit federation whose members also participate in the CFC. “If you take a campaign that was once the pride of the giving world, and continue to degrade it, over time people will give less.”
Indeed, although the total amount given to the CFC has increased over the years, the number of donors has declined. Just 30 percent of federal workers gave last year, compared to 40 percent a decade ago.
Federal workers are increasingly cynical about the campaign, said Kalman Stein, head of EarthShare, a federation of environmental groups that participate in the CFC.
Some of that cynicism may spring from a 2006 investigation of CFC charities by the Government Accountability Office, which found that more than 1,280 groups owed payroll or other taxes, and that groups could get into the CFC without actually being charities. Using a made-up name and fictitious tax documents, the GAO was able to join three of the biggest regional CFC campaigns.
OPM now compares all applications against the IRS’s own list of approved charities, ensuring that no phony groups can join. However, privacy laws bar OPM from examining other IRS tax records, such as reports of unpaid taxes. In addition, as part of an effort to make sure that OPM admits many different types of organizations, Congress has barred the agency from imposing new rules on CFC charities.
Jack Siegel, a Chicago lawyer who follows nonprofit issues, said it’s up to the IRS to oversee charities, not the Office of Personnel Management. “The right answer is that these shouldn’t be tax-exempt entities,” he said.
The IRS is barred by law from commenting on individual taxpayers or investigations, said spokesman Dean Patterson.
Watchdog groups said OPM could do more to track charities’ finances. “They absolutely could,” said Charity Navigator’s Miniutti. “Hopefully they’d have an even easier way to access (information) than we do.”
Bennett Weiner, chief operating officer of the BBB Wise Giving Alliance, said OPM also could include ratings by watchdog groups such as his, the way the Department of Defense does with military charities. But donors will always have to do some checking of their own, he says.
“I don’t think there’s any quick fix,” he said. “No matter what additional measures you take, there will always be a need for donors to educate themselves and give thoughtfully.”
Elizabeth Schwinn is a staff writer for The Chronicle for Philanthropy.