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Report Shows Some Veterans Charities Misusing Funds

September 11, 2013 1:44 p.m.


Andrew Knochel, Reporter, Carnegie-Knight News21 Investigative Reporting Program

Sheryl Bilbrey, President, CEO, Better Business Bureau San Diego

Related Story: Report Shows Some Veterans Charities Misusing Funds


This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.


CAVANAUGH: San Diegans are known for being big supporters of the military and of causes that help veterans. We have great organizations that support military families, find work for vets and their families after service, and even help the homeless. But not all charities do what they say they'll do. A recent report published by voice of San Diego found that some charities, many started since the attack of 9/11, have misused tens of millions of dollars donated to help veterans across the country. My guests, reporter Andrew Knochel is a fellow at the Carnegie news 21 In-depth Journalism program. He coauthored the report "scandals, thieves, and rip-off artists prey on veterans." Welcome to the show.

KNOCHEL: Thank you. Glad to be here.

CAVANAUGH: And Cheryl Reichard, president and CEO of the Better Business Bureau in San Diego. Welcome.

REICHARD: Thanks, Maureen.

CAVANAUGH: How did you get started on this investigation?

KNOCHEL: Well, it really began with a look at the advertising. All of these groups, many of these groups seem to advertise and reach out to people and tell them you support your veterans, and those sorts of things. So we asked what do they actually do for veterans?

CAVANAUGH: Tell us about the title of your piece. Who said that, and what kinds of charities was the quote referring to?

KNOCHEL: Ken Berger said that. He is the president and CEO of charity Navigator. They're a website that sort of evaluates all sorts of charities around the country focussing on larger charities. And he found through the research that his company has done that there are a significant number of large charities that don't seem to be using their money well. He used the phrase scoundrels, thieves, and rip-off artist, which I thought might be a little bit harsh. We found there are a lot of shades of gray, as it were. Not all charities are either scoundrels, thieve, and rip-off artists, and not all of them are doing the very best they could be doing.

CAVANAUGH: That's interesting. And I'll talk to you more about the shades of gray later. In reading your article, a lot of the fraudulent charities, the charities that don't seem to be on the up and up, they often seem geared toward helping veterans or police officers or firefighters. Why is that?

KNOCHEL: That's something that we found in our research. That's a conclusion that Ken Berger mentioned to us. He said there is a desire on the behalf of people to help veterans and police officers and firefighters, but there's not a clear path how to help them. So there seems to be an important there for these scoundrels and thieves to work in that space and claim to help veterans without people having a clear idea of what that means.

CAVANAUGH: Tell us about the charity, Help Hospitalized Veterans. It features in your story, operated out of Winchester in Riverside County here in California.

KNOCHEL: It's a pretty good sized charity, one of the larger ones that we looked at that work in this space. And it sends these craft kits to veterans in VA hospitals just to keep them occupied and help them pass time. But that's a very small portion, about a quarter of the amount of money that it spends. And a big chunk of the money that it spends goes to general civilians like myself in mailers that it claims are helping raise awareness of veterans' issues. But for someone like me to get something like this in the mail, it looks to me like a request for money primarily.

CAVANAUGH: I see. And California, the State of California sued the charity, and they just settled that case. Apparently just yesterday or earlier this week. The lawsuit has been settled, and it's unclear whether the charity is actually out of business. Have you been keeping up on that?

KNOCHEL: I was not aware of the settlement. I know we spoke with the attorney general's office, and they couldn't comment on the ongoing suit. But as far as I know, they are still in operation in a much smaller capacity than what they were a few years ago.

CAVANAUGH: Now, Cheryl, what is injure reaction when you hear about veterans' charities that seem to be duping their donors? Is that a surprising thing to you?

REICHARD: We are very aware of the issue. And personally, I was one of those victims after 9/11. I gave to the retired firefighters' association, and later when I knot employed with the BBB, I learned about you're not receiving a product or service when you're giving money to a charity. So you're not going to get something that's broken and know that it's bad. You're not following through on what's happening with the money going to the chair. You're just assuming it's being used for a good cause. And I didn't dawn on me that there are bad people out there that set up phony charities using post office boxes out of their garage. I've got a sticker I can put in the car saying I donated to this association, and it didn't exist. So my mother's decided veterans are her cause. This is a passion for a lot of Americans. And so it's easy to set up a website and e-mail or promote online and collect money and claim you're going to give it to a charity. I'm delighted that Andrew is helping to educate consumers on this.

CAVANAUGH: A lot of people feel they wouldn't be able to advertise if they weren't legitimate, they wouldn't be able to collect money. The IRS audits all of these charities. Are there guidelines in place that are stringent enough to keep the bad apples out of the charity business?

REICHARD: Unfortunately, over the last ten year, we have had over a billion dollars go to veterans charity, yet it's a very unregulated space. There's not a lot of oversight and not a lot of enforcement. So going to that third party, and the BBB has the giving alliance, which evaluates charities on a number of criteria. And there are a lot of bad ones out there. From the guy operating completely illegally who's not getting tracked down and caught, to those who are legitimate, but the majority of the money is not going to the cause you believe you're giving to. It ranges from 5% of your dollar going to the cause or activity versus 75% of your dollar going to the cause. And where would you want to be donating your money? Well-intentioned people not running their charity well enough to get the money to where you intend it to go is one of the big concerns that we have.

CAVANAUGH: Andrew, one of the worst performing charities that you investigated in this report was called Disabled Veterans Service, run out of a 1-room office in Florida. And it demonstrates the problem with in-kind donations. What are they? &%F0

KNOCHEL: In-kind donations refers to any kind of material good that's given to a charity. So if I give some used clothing, or if a corporation gives expired medicine or something like that, T-shirts that were the wrong color, something like that. That's an in-kind donation. So they can range very much in value.

CAVANAUGH: When it came to the disabled veterans' service, one of the things you found in your report was that the amount of in-kind donations and cash donations that they were saying they were sending to veterans groups and the amount that could be verified was vastly different. Tell us about that.

KNOCHEL: We spoke with one of the recipients of their in-kind donations. They brought in received donations and sent them out to another charity. So we spoke with that recipient charity, and they couldn't find record of all of the donations that DVS said they had sent. So for us, it's hard to know exactly what that value is. The dollar value.

CAVANAUGH: I think DVS said something like it was sending a couple million dollars worth of in-kind donations, and they could only verify about $200,000.


CAVANAUGH: And again, with this person operating out of a 1-room office in Florida, a lot of these charities you found the people behind them were just a little bit sketchy and a little bit dicey, and had some brushes with the law in the past. &%F0

KNOCHEL: That's correct. The president, the named president of DVS did not have a criminal record. But one of his associates who calls himself the management consultant did have a criminal record, was a convicted felon, in fact.

CAVANAUGH: Now, the BBB rates charities like it rates businesses; is that right?

REICHARD: We do. We use a different scale because of course the criteria for charities are very different. So we look at governance, we look at their finances, we look at their fundraising efforts. And we look at their effectiveness. You talked about in-kind donations. We saw socks and coats delivered to Haiti after the hurricanes completely unusable, completely misused. That misuse of resources to put them to a jet plane and send them over there, and they're not really helping the effort. So we do evaluate the charities and list the criteria on the website.

KNOCHEL: Cheryl mentioned the wise giving alliance, there are several other member agencies on that alliance. Charity navigator is a great resource. They have a great website., another great resource that you can go and look at what a charity does. And there's a lot of public documents that they're required to file with the IRS that are available online.

CAVANAUGH: Certainly some of the money that a charity spends has to any to overhead, fundraising. How much is too much?

REICHARD: We want 70% of your dollar to go to help the actual effort. So we don't want to see more than 30% spent on fundraising efforts and overhead and administrative costs.

CAVANAUGH: And can you give me a percentage of how much charities might go beyond that amount that they're allowed, so to speak, in fundraising and overhead?

REICHARD: You have charities that are run completely inappropriately, and don't track their donations. Then you have a charity for a type of cause that really is putting -- needs a lot more money to manage the admin cost, and that's why I think it's valuable to look at like charities and compare the amount of money going to the like charity.

CAVANAUGH: That brings us to that gray area we were talking about before, and that is characterized by your analysis of the paralyzed veterans of America charity. It shows it shows that assessing charities on how much they spend on fundraising could miss a bigger picture.

FOX: One of the things that paralyzed veterans of America does that is a group program is helping veterans to file their claims with the VA and to receive their VA benefits. And they said they've helped veterans get billions of dollars from the VA over the course of many years. But that's something that's difficult to account for in that they don't have a lot of cost associated with that, but it is time-consuming. So it's hard to show on paper where some of those expenses are and where and how they relate to the programs that PVA does.

CAVANAUGH: And a big chunk of their individual dollars does go to outreach and fundraising.

FOX: That's correct.

CAVANAUGH: And yet they're saying to you, well, look at all of these billions that we've gotten for paralyzed veterans. But it's hard to show it on a balance sheet.

FOX: Right.

CAVANAUGH: Now, Cheryl, does the BBB get many inquiries from people concerned about the legitimacy of charities?

REICHARD: Absolutely. And fortunately we look at in inquiry as someone looking at the charity report to try to decide whether or not they're going to donate money to the charity. And we see a ton of activity on our website. And I'm hoping that people are looking at all four areas am we've talked about fundraising and finances. And the effectiveness. But the governance of an organization is so important. With some of these organizations that are a little sketchy, we find that they don't have a Board of Directors or the board is very small. And that the president and CEO are voting members of the board, which they haven't be. &%F0

CAVANAUGH: What are some of the guidelines that you just tell people when it comes to donating to charities?

REICHARD: Certainly that we don't want more than 70% of the dollar to go to the charity. But us to look at each of the criteria, and of course the BBB site, that's where we encourage people to go. But check in with a third party like charity navigator to see what the track record is of the charity. One of my complaints is giving the extra money at the grocery store or throwing money in a box as you're leaving a business. You don't know where that dollar is going. You don't know how much of -- you don't know how much of that dollar is staying with the grocery store. And you don't know how many sticky fingers there are. Choose your charity yourself. Don't give into the high-pressure tactics on the phone, the street corner. Pick a cause you're really passionate about, and make sure that most of the money is really going to help their research efforts.

CAVANAUGH: And what kind of reaction have you gotten from your report, Andrew?

FOX: We've seen some outrage, people saying oh, I gave money this this charity or that charity, and I'm not happy with what was done with it. But it has been a little bit more muted than I was expecting.

CAVANAUGH: Okay. Well, I'm glad we were able to get the word out on our program today. Thank you both very much.

REICHARD: Thank you so much.

FOX: Thank you, Maureen.