Probe Finds Army Charity is Hoarding Millions

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The Associated Press

Probe Finds Army Charity is Hoarding Millions

Military's biggest charity is stockpiling cash, rather than using it for aid

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The rear gunner on a US Army Chinook helicopter keeps watch during a re-supply mission in eastern Afghanistan's Kunar province December 23, 2008.(Bob Strong/Reuters

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.

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.

Officers must recommend soldiers for aid

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." 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. Officers also are charged with making sure their troops repay
AER loans.

"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.

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.

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."

Many violations uncovered

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.

Others spoke of prizes like pizza parties and honorary flags given to top cooperating units.

Make
no mistake: AER, a normally uncontroversial fixture of Army life, has
helped millions of soldiers and families. Last year alone, AER handed
out about $5.5 million in emergency grants, $65 million in loans, and
$12 million in scholarships. Despite the extra demands for soldiers
busy fighting two wars, AER's management says it hasn't felt a need to
boost giving in recent years.

But the AP encountered considerable criticism about AER's hoarding of its treasure chest.

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.

"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.

Accumulates stocks and bonds with its wealth

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

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