Earlier this year, a Utah man named Travis Peterson was sentenced to more than three years in prison for soliciting money from people under the guise that he would give the money to veteran charities. Peterson raked in more than $500,000 from donors. Not a penny went to veterans. Instead, Peterson wasted it all on online dating services, ATVs, and his own personal expenses. Ultimately, it was Peterson’s use of illegal robocalling that caught law enforcement’s attention.
His conduct is shocking, repulsive, and criminal. But in many ways, it’s standard practice within veteran charities to aggressively target vulnerable donors only to pay for luxury offices, massive salaries, and other extravagant practices that do nothing for veterans. Most fall short of criminality, but it’s commonplace for inefficient charities to waste 40 cents of every dollar — or more — that’s meant for a veteran in need.
American generosity is being exploited, with nearly $1 billion donated annually to inefficient veteran charities that over-promise and under-deliver. Not only are veterans shorted, but vulnerable donors — many on fixed incomes — are having their precious few dollars wasted. How did we get to this point?
Criminal and Incompetent Charities
Peterson isn’t the first to face punitive measures for using patriotic donors for his own benefit. The founder of the Healing Heroes Network was ordered to pay a $95,000 fine after an 11-state investigation revealed that he had funneled money into his own pocket. But it’s often difficult to distinguish the incompetent from the criminal.
Help Heal Veterans — or Help Hospitalized Veterans, as it was previously known — entered into a $2.5 million settlement with the state of California after an investigation into its mismanagement. The state noted that it had spent $80,000 on golf memberships and the use of a condominium. The charity’s founder, Roger Chapin, claimed the golfing expenses were “entirely appropriate” because the board needed to golf before meetings. Help Hospitalized Veterans claimed to provide injured service members with “free therapeutic arts and crafts kits.” A CNN investigation in 2012 found that most of the kits consisted solely of instructions for making paper airplanes.
The Disabled Veterans National Foundation solicited donations so it could give “badly needed goods” to smaller local charities. In reality, Disabled Veterans National Foundation delivered 11,520 bags of coconut M&Ms, 2,600 bags of cough drops, 2,200 bottles of hand sanitizer, and 700 pairs of Navy dress shoes. The dress shoes couldn’t be used by one local charity and ended up being sold in a yard sale to make money for actual necessities. The Disabled Veterans National Foundation, along with its direct-mail vendor and an organization that provided fundraising strategy, settled for $25 million with the New York attorney general after being accused of fundraising abuses.
Most charities start with noble intentions, even though they sometimes fail to properly execute on those plans. The Wounded Warrior Project is one such charity. The Wounded Warrior Project revolutionized veteran charities in America. Older veteran charities, like a local Veterans of Foreign Wars post, acted more like fraternal organizations. Others did advocacy work in Washington, D.C., to call for improved veteran benefits. The Wounded Warrior Project saw that veteran charities could do a lot more — and collect a lot more money. What started as a grassroots organization operating out of a basement in Roanoke, Virginia, in 2003 quickly ballooned into one of the most well-known charities in the country.
Fundraising became the top mission. With the help of celebrity spokesmen, including Mark Wahlberg and Mario Lopez, the Wounded Warrior Project flooded television stations and mailboxes with advertisements urging Americans to give back to our military members. Instead of soliciting from wealthy foundations, the Wounded Warrior Project targeted everyday Americans. The TV ads were ubiquitous, urging Americans to cut checks “showing that you care.” The project collected hundreds of millions of dollars from small-dollar donors, many of them over the age of 65.
Americans believed they were making small contributions to make big differences. The reality was different.
The organization’s executives used donor dollars to fund unusual expenses. The CEO, Steven Nardizzi, earned a $473,000 salary in 2014. A work retreat held at the five-star Broadmoor resort in Colorado Springs, Colorado, cost somewhere between $1 to $3 million, depending on which report you read. In 2014, the organization spent $26 million on conferences and meetings. In that same year, roughly 40 percent of the organization’s money — $124 million — was spent on overhead expenses such as rent, travel, and salaries rather than projects to help veterans, according to Charity Navigator, a nonprofit watchdog organization. For comparison, many well-run veteran charities spend under 15 percent of their budgets on overhead.
Several media outlets wrote articles highlighting the spending. Nardizzi and his chief operating officer were fired by the board. But the momentum from heavy ad buys keeps hundreds of millions of dollars flowing into the organization’s coffers every year. In 2020, the Wounded Warrior Project brought in $287,368,677. And, based on its 2020 tax return, the Wounded Warrior Project is still spending 29 percent of its budget on overhead expenses.
The Wounded Warrior Project is far from the worst actor in this space, however. According to the Better Business Bureau, the Disabled Veterans National Foundation spent 70 percent of its $27 million in contributions on overhead in 2019.
If outright fraud is not to blame, then we are witnessing gross mismanagement of funds. Some people running these charities would fail in running a small retail store. Yet they continue to collect huge donations with slick emotional appeals. Their donors deserve better. Our veterans deserve better. So how did this become the norm?
Fundraising as a Business
Up until the past few decades, philanthropy was largely limited to the most-wealthy Americans. Charitable marketing for various causes targeted large-dollar donors.
That changed in the early 2000s. Small-dollar donations became king. Dinners and galas for big-dollar donors were replaced by cable television commercials, telemarketing calls, and direct mail. When charities moved on from convincing sophisticated well-off donors, they targeted the emotions of the masses without ever having to explain how the money was spent.
Few Americans can hear Sarah McLachlan’s “Angel” without thinking of the American Society for the Prevention of Cruelty to Animals’ sad, neglected puppies. But many Americans don’t realize that while McLachlan’s sad song brought the ASPCA hundreds of millions of dollars, much of it did not fund pet shelters. An investigation by CBS News last year revealed that, in 2019, less than half of the money donated was spent on programming for animals. The rest was spent on fundraising and salaries. ASPCA CEO Matthew Bershadker was paid $843,539 in 2019. Donors didn’t see Bershadker’s big salary. They saw commercials or mail featuring needy animals.
Other animal rights groups joined the party. The Humane Society of the United States began raking in millions using similar ads. In 2012, a report found that the organization was spending 1 percent of its budget on local pet shelters. From sick children and neglected animals to veterans in need, these “charities” show no shame in pulling heartstrings and exploiting emotions to fund their empires.
But they can’t do it alone. For-profit third-party fundraisers play a major role. Many fundraising companies operate on commission. The more they bring in, the more they get paid — and percentages matter. In the world of charitable giving, the commission model can lead to some terrible outcomes.
In 2010, the St. Louis Post-Dispatch analyzed 500 agreements between nonprofits and professional fundraising companies. It found that fundraisers in roughly half of these agreements were making commissions of 70 percent or higher. The 30 percent that charities actually received was then reduced by other overhead expenses, leaving just a tiny fraction of each dollar for the charities’ various purposes.
It’s difficult to imagine why a charity would agree to that 70/30 split, but having to front fundraising costs can be intimidating for inexperienced nonprofit managers. They don’t need to spend a penny to contract with a third party who makes a business off of the often-exaggerated imagery of the “victim” in need. The 30 percent the charity collects feels like free money to the organization — even if the donor is unaware that 70 percent is going to expenses and a for-profit fundraiser.
In some states, attorneys general have cracked down through consumer-protection investigations. But on the national level, little has been done. This is due in large part to a 1988 Supreme Court ruling that held that many restrictions on solicitation companies violated the First Amendment.
The Internal Revenue Service shares some of the blame. Nonprofits must apply with the IRS to receive tax-exempt status. Americans likely think it should be somewhat difficult to obtain such approval, but the IRS rubber-stamps almost every application. A New York Times report recently revealed that 76 phony charities — all of which shared the same New York P.O. Box — received IRS approval. The scam wasn’t elaborate in any way. The man allegedly behind all 76 charities simply ripped off the names of respected charities and worked to trick donors out of their money. The real American Cancer Society even warned the IRS that the “American Cancer Society of Michigan” was scamming donors prior to when the IRS granted tax-exempt status — yet the IRS approved the phony fundraising operations anyway.
There are more than 1.8 million registered nonprofit organizations in the United States. According to the Urban Institute, nearly 13 percent of those charities purport to serve veterans. If the IRS can’t spot a fundraising scam, how are donors supposed to protect themselves and their money? Donors need clear guidance, and our current system is ineffective.
Current Rating Flaws
Today, Americans can read reviews of almost any popular product. You can get more reliable information when shopping for a lawnmower than on some high-profile charities.
One key problem with the current rating options is consistency. In 2021, CharityWatch gave “F” grades to the Air Force Aid Society, Army Emergency Relief, and the Special Operations Warrior Foundation — three veteran charities of varying sizes and missions. Charity Navigator, a competing rating system, gave those same three organizations “excellent” ratings. How can this be? Each group uses very different criteria to make its final rating. And many of these criteria are far from what the average American cares about when making a donation. For example, CharityWatch stated that these three charities used their donations efficiently but already had significant amounts of money to fund their current programs.
Consider Candid, which was created in a merger of GuideStar and Foundation Center. This prominent review organization gives its seal of transparency to charitable organizations that upload certain information, including program descriptions, financials, and an impact statement. Given its focus on transparency, it may give its seal of approval to a charity that wastes money on ineffective fundraising campaigns. For example, Paralyzed Veterans of America, which received an “F” grade from CharityWatch for what CharityWatch claims is “low program spending and high fundraising costs,” has received Candid’s highest (Platinum) seal for transparency.
Additionally, rating platforms don’t have to disclose potential conflicts of interest. The Better Business Bureau’s Wise Giving Alliance will charge charities up to $30,000 to display its seal of approval on their websites. If the public knew that Michelin was selling licensing fees to restaurants, its stars wouldn’t shine so brightly. The BBB maintains that its endorsements are kept separate from the consideration of these payments. But consumers should know that the organization has a possible incentive to let weak charities skate when it has thousands riding on every approval.
Paywalls are another issue. Many charity-reviewing platforms require donors to purchase a subscription to see the full report. When a 65-year-old on a fixed income wants to contribute $10 to veterans in need, a $75 charity review subscription is a nonstarter.
And then there is the question of rating agencies grading loosely on excessive overhead expenses and reserves. Donors are not interested in funding unjustified bank reserves or unnecessary expenses, from lavish offices to golf tournaments. Yet, some of these rating agencies defend high overhead costs, suggesting that rating with strict overhead measures starves charities of the spending they need to run quality organizations.
Trying to justify huge overhead expenses doesn’t pass muster with donors when many well-run vet groups thrive while spending less than 15 percent of their budgets on overhead costs. The same high-overhead argument is seen in government when politicians maintain that failed projects just need more funding to function properly. It’s an easy argument to make when it involves spending other people’s money.
RAM: Addressing the Need and Filling the Gap
To optimize efficiency, excellent veteran charities focus on only one thing: helping veterans. When it comes to choosing between a high-dollar PR campaign to highlight their work or using that money to help one more veteran, these charities choose the veteran every time.
Good veteran charities do need greater public awareness, but glitzy advertisements and media campaigns are not their focus — nor should they be. Consequently, inefficient charities flood the airways and mailboxes, absorbing donations that should be sent to a well-managed charity.
There is a clear need for a supplemental organization that can shine a light on the great work being done by the best veteran charities. So we built one. In 2022, with the help of several sharp veterans and business minds, I formed the RAM Veterans Foundation to fill this need. It is named after Robert Alexander Mercer, my great-uncle who died in 1944 during the battle to liberate France from the Nazis.
At CharitiesForVets.com, the RAM Veterans Foundation has reviewed dozens of the nation’s largest veteran charities using a formula that ensures that every recommended organization is worthy of a donation. It’s a high standard. Unlike other evaluators that average various metrics, we use a strict pass-fail system. If a charity doesn’t meet a single standard, we don’t recommend it. Under the RAM grading system, we ensure that each recommended organization keeps its overhead below 25 percent. We confirm that charities don’t use questionable accounting practices to blur the lines on overhead expenses between projects that help veterans and fundraising events.
We also grade based on whether donations are being stockpiled when they should be spent helping veterans. Some charities have enough money in their rainy day fund to operate for more than a decade. But for vets in need, every day is a rainy day. And most importantly, the charity index is a free online service. A transparent grading methodology is posted on the site.
Many superb charities meet our high standards (over 30 have qualified). The RAM Foundation has separated them into seven categories based on the types of service they provide. If a donor realizes the veteran mental-health charity that they support was using their money inefficiently, they can find a recommended charity in the same category. The same goes for donors who want to help fund housing, scholarships, service dogs, or any of the other specialty issues that veterans rely upon — making it a one-stop shop for donors looking to do the most with their dollar.
While small-dollar donors will surely benefit from our rating system, the RAM Veterans Foundation is also working to make sure that corporate donors know when they are donating to an inefficient charity. Not only do corporate partnerships give significant amounts of money to charities, but they also promote the charity’s brand to a larger audience. In turn, corporations should do all they can to promote the very best charities — but that often isn’t the case. By advertising through traditional media, billboards, and internet campaigns, we expect to direct and redirect all donors to get the best return on their giving.
Changing the Game
Our goal is not only to help efficient charities expand their operations but also to encourage boards of poorly managed ones to demand internal reforms. It’s not easy to hold well-advertised charities accountable.
Veteran charities are a billion-dollar industry stacked with enough glossy mailers and compelling commercials to tug at the heartstrings of any American. And, admittedly, even poorly managed operations can show that they do some good. But inside the more than a billion dollars being gifted each year to veteran groups, there is a lot of waste that needs to be redeployed.
In the world of business, mismanaged multimillion-dollar organizations are forced to fold when they waste money. At the RAM Veterans Foundation, we believe veteran charities that fail to reform should risk a similar fate.
Rebekah Mercer is President of RAM Veterans Foundation and on the Board of Directors for the American Spectator Foundation.
