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Army charity hoards millions

FORT BLISS, Texas (AP) - As soldiers stream home from Iraq and Afghanistan, the biggest charity inside the U.S. military has been stockpiling tens of millions of dollars meant to help put returning fighters back on their feet, an Associated Press investigation shows.

Between 2003 and 2007 - as many military families dealt with long war deployments and increased numbers of home foreclosures - Army Emergency Relief grew into a $345 million behemoth. During those years, the charity packed away $117 million into its own reserves while spending just $64 million on direct aid, according to an AP analysis of its tax records.

Tax-exempt and legally separate from the military, AER projects a facade of independence but really operates under close Army control. The massive nonprofit - funded predominantly by troops - allows superiors to squeeze soldiers for contributions; forces struggling soldiers to repay loans - sometimes delaying transfers and promotions; and too often violates its own rules by rewarding donors, such as giving free passes from physical training, the AP found.

AER was founded in 1942 to soften the personal financial hardships on soldiers and their families as the country ramped up its fight in World War II.

Today, AER's mission is to ease cash emergencies of active-duty soldiers and retirees, and to provide college scholarships for their families. Its emergency aid covers mortgage payments and food, car repairs, medical bills, travel to family funerals, and the like.

Instead of giving money away, though, the Army charity lent out 91 percent of its emergency aid during the period 2003-2007. For accounting purposes, the loans, dispensed interest-free, are counted as expenses only when they are not paid back.

During that same five-year period, the smaller Navy and Air Force charities both put far more of their own resources into aid than reserves. The Air Force charity kept $24 million in reserves while dispensing $56 million in total aid, which includes grants, scholarships and loans not repaid. The Navy charity put $32 million into reserves and gave out $49 million in total aid.

AER executives defend their operation, insisting they need to keep sizable reserves to be ready for future catastrophes.

"Look at the stock market," said retired Col. Dennis Spiegel, AER's deputy director for administration. Without the large reserve, he added, "We'd be in very serious trouble."

Navy- and Air Force-sponsored charities also are deeply intertwined with their services, but they impose controls that help safeguard their independence.

Officers in those services are expected to keep their noses out of requests for aid. Sailors should "be comfortable coming to us without any fear that the command is going to be involved," says retired Rear Adm. Jan Gaudio, executive vice president of Navy-Marine Corps Relief Society.

Meanwhile, civilian charities for service members and veterans say they are swamped by the desperate needs of recent years, with requests far outstripping ability to respond.

According to 2007 U.S. Census Bureau figures, 1.3 million veterans - or 6 percent - lived in poverty, with 537,000 unemployed.

"I have so many people who are losing their homes, they're behind on their mortgage payments, they're losing their jobs because of PTSD (Post-Traumatic Stress Disorder) or the medication they're taking - and the Army Emergency Relief can't help them," says Outreach Director Sema Olson at U.S. Welcome Home Foundation, which finds aid for combat veterans.

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While independent on paper, Army Emergency Relief is housed, staffed and controlled by the U.S. Army.

That's not illegal per se. Eric Smith, a spokesman for the Internal Revenue Service, said the agency can't offer an opinion on a particular charity's activities. But Marcus Owens, former head of IRS charity oversight, said charities like AER can legally partner closely with a government agency.

However, he said, problems sometimes arise when their missions diverge. "There's a bit of a tension when a government organization is operating closely with a charity," he said.

Told of AP's findings, civilian charities and watchdog groups said AER isn't acting charitably enough under the Army's sway. They challenged how fairly it fundraises and how generously it gives back.

Some smaller charities said AER sometimes refers clients to them. Yet the American Institute of Philanthropy says AER holds enough reserves to last about 12 years at its current level of aid.

Most charity watchdogs view 1-to-3 years of reserves as prudent, with more than that considered hoarding.

Daniel Borochoff, president of the American Institute of Philanthropy, said that AER collects money "very efficiently. What the shame is, is they're not doing more with it."

When challenged, some AER administrators acknowledged being overly prudent with charitable funds in the past. Janice Gamel, a civilian who runs AER at Fort Bliss, says some military staffers "have the philosophy 'this is my money' and hold on too tight." National administrators say they've tried to loosen the purse strings. The most recent yearly figures show a tilt by AER toward increased giving.

Still, Borochoff's organization, which grades charities, gives the Army charity an "F" because of the hoarding. "It's as if the group is more concerned about its own stability and longevity than the people it purports to serve," says Borochoff.

The AP findings include:

- Superior officers come calling when AER loans aren't repaid on time. Soldiers can be fined or demoted for missing loan payments. They must clear their loans before transferring or leaving the service.

- Promotions can be delayed or cancelled if loans are not repaid.

- Despite strict rules against coercion, the Army uses pushy tactics to extract supposedly voluntary contributions, with superiors using language like: "How much can we count on from you?"

- The Army sometimes offers rewards for contributions, though incentives are banned by program rules. It sometimes excuses contributors from physical training - another clear violation.

- AER screens every request for aid, peering into the personal finances of its troops, essentially making the Army a soldier's boss and loan officer.

"If I ask a private for something ... chances are everyone's going to do it. Why? Because I'm a lieutenant," says Iraq war veteran Tom Tarantino, otherwise an AER backer. "It can almost be construed as mandatory."

It's "offensive" to raise funds this way, says Rich Cowles, executive director of the independent Charities Review Council of Minnesota.

Neither the Army nor Sgt. Major of the Army Kenneth Preston, an AER board member, responded to repeated requests for comment on the military's relationship with AER.

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When fresh personnel arrive at Fort Bliss, on the edge of El Paso, they soon march over to AER for a mandatory briefing.

The program, they learn, is about "helping the Army take care of its own," as the charity's leaflets say.

"You can do better when you know your soldiers," says Col. Ed Manning, commander at the base of about 17,000 soldiers. He refers to AER in the first person as "we."

"This is a commander's program," Gamel tells an AP reporter during a tour. "If a soldier is in financial distress, it could affect his work."

AER pays just 21 staffers, all working at its headquarters at Army Human Resources Command in Alexandria, Va. AER's other 300 or so employees at 90 Army sites worldwide - such as Gamel - are civilians paid by the Army. Also, the Army gives AER office space for free. For example, Gamel operates out of the Fort Bliss Army Community Service Center.

AER's treasurer, Ret. Col. Andrew Cohen, acknowledged in an interview that "the Army runs the program in the field." Army officers dominate its corporate board too.

Charities linked to other services operate along more traditional nonprofit lines. The Air Force Aid Society sprinkles its board with members from outside the military to foster broad views. The Navy-Marine Corps Relief Society pays 225 employees and, instead of relying on Navy personnel for other chores, deploys a corps of about 3,400 volunteers, including some from outside the military.

Army regulations say AER "is, in effect, the U.S. Army's own emergency financial assistance organization." When a soldier gets into financial trouble, the path to AER starts with a visit to his or her supervising Army officer. Under Army regulations, officers must recommend whether their soldiers deserve aid. Company commanders and first sergeants can approve up to $1,000 in loans on their own say-so.

Army officers also are charged with making sure their troops repay AER loans. That means when an active-duty soldier misses loan payments, he's in trouble with his employer: the Army.

"If you have an outstanding bill, you're warned about paying that off just to finish your tour of duty ... because it will be brought to your leadership and it will be dealt with," says Jon Nakaishi, of Tracy, Calif., an Army National Guard veteran of the Iraq war who took out a $900 AER loan to help feed his wife and children between paychecks.

In his case, he was sent home with an injury and never fully repaid his loan.

Nakaishi tells of another guardsman with an unpaid AER loan. "He was not overpressured in a bad way - just reminded he wasn't going to be able to get a promotion," says Nakaishi, who spoke up to defend AER's practices.

The Army also exercises its leverage in raising contributions from soldiers. It reaches out only to troops and veterans in annual campaigns organized by Army personnel.

For those on active duty, AER organizes appeals along the chain of command. Low-ranking personnel are typically solicited by a superior who knows them personally. While banning coercion, an Army handbook coaches campaign solicitors to aggressively push for donations: "How much will you donate to help your fellow soldiers?"

Spiegel, the AER administrator, said he's unaware of specific violations but added: "I spent 29 years in the Army, I know how ... first sergeants operate. Some of them do strong-arm."

In interviews with the AP, several soldiers said that when they were asked for an AER donation, they believed that AER was a branch of the Army.

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Army regulations ban base passes, training holidays, relief from guard duty, award plaques and "all other incentives or rewards" for contributions to AER. But the AP uncovered evidence of many violations.

Before leaving active duty in 2006, Philip Aubart, who then went to Reserve Officer Training Corps at Dartmouth College, admits he gave to AER partly to be excused from push-ups, sit-ups and running the next day. For those who didn't contribute the minimum monthly allotment, the calisthenics became, in effect, a punishment.

"That enticed lots and lots of guys to give," he noted. He says he gave in two annual campaigns and was allowed to skip physical training the following days.

USA Cares charity founder Roger Stradley, a command sergeant major who helped run AER campaigns before retiring in 2000, says whole units were sometimes excused from a long run to reward high participation.

Others spoke of prizes like pizza parties and honorary flags given to top cooperating units. Army rules ban those too, saying awards will not be given to units or commanders "for goal accomplishment or percent of participation."

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Make no mistake: AER, a normally uncontroversial fixture of Army life, has helped millions of soldiers and families cope with emergencies, as well as college costs. Last year alone, AER handed out about $5.5 million in emergency grants, $65 million in loans, and $12 million in scholarships.

But the AP encountered considerable criticism about AER's hoarding of its treasure chest. Prolonged and repeated war deployments to Iraq and Afghanistan have put many military families on the financial edge.

Many strain to stay on track while a parent is away. Others grapple with emergency medical or travel costs when their soldier comes home broken. Also, the nation's mortgage troubles have challenged some military families who live off base.

However, AER's management says it hasn't felt a need to boost giving in recent years. "I don't necessarily think the need is any different than it was four or five years ago," says Spiegel.

Jack Tilley, a retired sergeant major of the Army on AER's board from 2000 to 2004, said he was surprised by AP's findings, especially during wartime. He was particularly disturbed by the relatively low number of grants, as opposed to loans.

"I think they could give more. In fact, that's why that's there," said Tilley, who co-founded another charity that helps families of Mideast war veterans, the American Freedom Foundation.

By contrast, the Navy-Marine Corps Relief Society says it has augmented relief to satisfy needs heightened by frequent combat deployments of Marines.

Reservist John Shea, of New York, an Iraq veteran who has contributed to AER, said he thought it gave more in grants, given its mission of helping desperate soldiers with personal emergencies. "Certainly, a lot of people think that's what they're donating to," he added.

Many say they need AER's help today. "I think the situation is pretty catastrophic right now," says Cheryl Lynch, of Pace, Fla., who also believes AER should give more grants.

Lynch's son fell from a building during an Army training exercise in France eight years ago. At the time, she went to AER for help covering her expenses while she tended to her brain-injured son at Walter Reed Army Medical Center. "They actually kind of blew me off to the Red Cross," Lynch says.

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What does AER do with its retained wealth? Mostly, it accumulates stocks and bonds.

AER ended 2007 with a $296 million portfolio; last year's tanking market cut that to $214 million, by the estimate of its treasurer.

Sylvia Kidd, an AER board member in the 1990s, says she feels that the charity does much good work but guards its relief funds too jealously. "You hear things, and you think, "'They got all this money, and they should certainly be able to take care of this,"' she said. She now works for a smaller independent charity, the Association of the United States Army, providing emergency aid to some military families that AER won't help.

Though AER keeps a $25 million line of bank credit to respond to a world economic crisis, it has decided to trim back relief in the face of the recession.

Its board has decided to lop off a third of its scholarship money this year. "We're not happy about it," Spiegel says.