Bank is Biggest Beneficiary of Army Charity

Army Emergency Relief, recently subject of an AP investigative report, pays a bank over a million dollars a year to churn investment funds, while army officers continue to shake down the troops for more donations. 

A few weeks ago the Associated Press published an investigative report (still available on the MSNBC website) that uncovered the huge investment reserves of Army Emergency Relief (EIN 53-0196552 Form 990).  AER is structured as a private charity, but its operations are closely integrated into the US Army command.  As the AP story explains, only 20 staffers are paid directly by AER.  The rest of the staff about 300 are civilian employees of the Army, who work in 90 Army facilities worldwide. 

The primary programs of AER are interest-free loans (and some grants) made to Army personnel in need, direct grants to widows and orphans of deceased soldiers, and scholarships for spouses and dependents of military personnel.  There are also write offs of some loans that become uncollectible. 

There's no question that AER does a lot of good, but the AP report questions the charity's accumulation of hundreds of millions in reserve funds which are invested rather than paid out in grants.  The Form 990 of the organization shows that in 2007 the organization paid Northern Trust of Connecticut compensation of $1,269,217 for investment counsel and custodian services.  And of course that didn't keep the portfolio from tanking.  The treasurer estimated that the investments dropped $82 million in 2008, greater than the total expenses of the past three years. 

The AP also questioned the fundraising and granting practices of AER, both of which are closely tied to the Army chain of command.  Fundraising is conducted by Army personnel and is primarly targeted to active troops and veterans.  The AP found the usual hard-sell practices of workplace giving, plus some violations of Army policy where fundraising officers granted various incentives like base passes and exemption from guard duty and calisthenics in exchange for contributions. 

On the grant side, Army officers are responsible for recommending personnel for grants, which means that a soldier has to go to his or her boss with details of financial difficulties.  This seems like a pretty fundamental flaw that keeps the money flowing to the banks rather than to the beneficiaries.  If the Army is going to run a charity, the determination of need has to be taken out of the direct control of Army officers.

But wait.  There is an even larger issue here that involves the accountability of the growing number of ad hoc charities that claim to provide benefits for active soldiers and veterans, perhaps due to the inability of the Army and the VA to adequately provide the needed help.  The AP article includes a quote from the head of one of these charities, the American Freedom Foundation (EIN 05-0605633 Form 990).  This charity, which received its IRS charity ruling in 2004, reported income of $457,675 in 2007—and fundraising expenses of $456,175. 

My take on this is that big charities may have their problems, but the answer isn't small charities—they tend to be even less accountable and less transparent.  The answer is closer oversight of large charities and structural reforms when needed. 

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