By Suzanne Perry

Washington

Members of a House committee today blasted veterans charities that funnel tiny portions of the money they raise to veterans and their families and vowed to seek legislation to rein them in.

Using words like “immoral,” “fraud,” and “sickening betrayal,” members of the House Oversight and Government Reform Committee said at a hearing today that they were frustrated that no laws exist to prevent charities from spending the vast majority of the donations they get on fund-raising activities — or at least to require them to reveal that fact to donors.

“At the federal level, we should examine whether the Internal Revenue Service or the Federal Trade Commission should do more and what laws should be changed to stop this outrage,” said Rep. Christopher Shays, Republican of Connecticut.

The hearing focused on groups that have been seeking donations to help veterans of the Afghanistan and Iraq wars, using for-profit professional fund-raising companies that swallow as much as 90 percent of the money raised. Representatives of two charity watchdog groups told the committee that veterans charities have a much worse record than charities overall in complying with basic accountability standards and on the percentage of money they spend on fund raising.

“We owe a lot more to these veterans than too many of these nonprofit groups are providing,” said Daniel Borochoff, president of the American Institute of Philanthropy, in Chicago, which grades charities on their financial performance. He said 75 percent of the veterans groups earn D’s or F’s, compared with about 22 percent of all charities.

Bennett Weiner, chief operating officer of the BBB Wise Giving Alliance, in Arlington, Va., said about half of all veterans charities fail to provide any of the information needed to evaluate their ethical practices. Of those that provide information, less than 40 percent meet the alliance’s standards, compared with about 65 percent of all charities, he said.

Committee members quizzed Robert Friend, president of the American Veterans Coalition, in Gig Harbor, Wash., and Pamela Seman, executive director of the Disabled Veterans Associations, of Parma Heights, Ohio — about the high percentage of donations they spend on fund-raising activities.

The committee prepared a chart showing that the American Veterans Coalition spends more than 78 percent and the Disabled Veterans Associations more than 90 percent on such activities — including fund-raising materials that were reported to the Internal Revenue Service as “program activities” because they contained educational messages.

Rep. Tom Davis of Virginia, the senior Republican on the committee, said tax forms showed the American Veterans Coalition spent nothing at all on veterans in 2003 and only 1.4 percent in 2004.

Neither charity official contested the figures but said they headed small organizations that depend on professional fund raisers that charge high fees to solicit donations for them.

“These fund raisers ask for very long contracts with exclusive and non-compete clauses,” Ms. Seman said, adding that her group in future was going to do its own fund raising.

Mr. Friend also blamed the costs involved in getting a small charity started.

Tracy L. McCurdy, director of the Pennsylvania Bureau of Charitable Organizations, told the committee that state investigators can investigate charity fraud but that spending most or even all of donations on fund raising is not illegal. She noted that the U.S. Supreme Court has restricted the ability of states to require charities to divulge fund-raising costs to donors on First Amendment grounds, adding that educating donors to ask about such costs was critical.

Several committee members said Congress should investigate ways the federal government could regulate charities. Mr. Davis said that while he was generally reluctant to set up new federal agencies, “seeing some of the outrageous actions that are brought to our attention today, I think it may be merited.”

Rep. Henry Waxman, the California Democrat who chairs the committee, also announced that the committee was attempting to locate Roger Chapin, president of Help Hospitalized Veterans, in Winchester, Calif., to testify at a second hearing on veterans charities the committee will hold in January. He said Mr. Chapin, who had evaded federal marshals who tried to deliver a subpoena for today’s hearing, has been accused of paying exorbitant salaries to himself and his wife, using donations to pay for questionable expenses, and concealing millions of dollars in payments to for-profit fund raising corporations.

Mr. Chapin could not be reached through Help Hospitalized Veterans, but the group’s 2005 informational tax form, the most recent available, said he earned $300,000 in salary and $126,434 in other compensation.

A spokeswoman for the group, Maury Donahue, did not respond directly to the charges against Mr. Chapin, but provided nine exhibits to the committee, including letters of thanks, information about the group’s achievements, and details about how it decided on Mr. Chapin’s salary.

“HHV has provided homebound and hospitalized veterans with over 21.3 million craft kits, 6,700 computers and Internet systems, and numerous other products and services with a total retail or cash value of over $348-million,” one statement said.

Paulette V. Maehara, president of the Association of Fundraising Professionals, said Congress could help redress the problems discussed at the hearing by banning fund-raising companies from negotiating contracts that give them a percentage of the donations they take in — sometimes as much as 90 percent. “Contracts need to be reasonable and they should be based on time and materials as opposed to a percentage of overall dollars raised,” she said.

Her association advocates such a ban, but “it hasn’t gotten legs yet,” Ms. Maehara said. “Maybe this issue will give it legs.”

But Jack Siegel, a Chicago lawyer and accountant, said he worries about the emphasis on “fund-raising metrics” at the hearing. “It would be easy to tie tax exemption to some sort of ratio — no more than one-third of expenses can go to fund raising — but where is the firewall that prevents legislators from applying the same metric to other charities?” he wrote on his blog, Charity Governance. “There are plenty of legitimate reasons why fund-raising expenses might be high.”

He said “buyer beware” is the best solution, but if Congress wants to act, it should consider giving more money to the Internal Revenue Service’s Exempt Organizations division or expanding to charities a ban on telemarketing to people who have signed up for the federal “do not call” registry.

“Congress would not only make it more difficult for the veterans charities to fund raise,” he wrote, “but honor the wishes of those Americans who have asked that they not be called at home.”