Probe finds Army charity is hoarding millions

updated 6:18 p.m. ET Feb. 22, 2009

FORT BLISS, Texas - 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.

Founded in 1942, AER eases cash emergencies of active-duty soldiers and retirees and provides college scholarships for their families. Its emergency aid covers mortgage payments and food, car repairs, medical bills, travel to family funerals, and the like.

Army charity lent out emergency aid
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."

But smaller 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.

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.

Some reserves are prudent
Most charity watchdogs view 1-to-3 years of reserves as prudent, with more than that considered hoarding. Yet the American Institute of Philanthropy says AER holds enough reserves to last about 12 years at its current level of aid.

Victor Calzada / AP A pamphlet presented to soldiers during a briefing for soldiers arriving on post at Fort Bliss, Texas.

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."

National administrators say they've tried to loosen the purse strings. The most recent yearly figures do 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.

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 canceled 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."

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.

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 are civilians paid by the Army. Also, the Army gives AER office space for free.

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.

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