Army charity hoards more cash than gives out

Despite needs, limit set on aid

Yolanda Davis (center), an Army community services worker, assisted Private Terrence Nicholas and his wife, Erika, last fall. (FILE/ASSOCIATED PRESS)

FORT BLISS, Texas - As soldiers stream home from Iraq and Afghanistan, the biggest charity in the US 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 added $117 million to its reserves while spending just $64 million on direct aid, according to an AP analysis of its tax records.

AER is funded predominantly by donations from troops. Tax-exempt and legally separate from the military, it projects a facade of independence but really operates under close Army control.

The nonprofit allows superiors to squeeze soldiers for contributions; forces struggling soldiers to repay loans, sometimes by delaying transfers and promotions; and 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.

Instead of giving money away, though, the Army charity lent 91 percent of its emergency aid from 2003 to 2007. For accounting purposes, the loans, which are 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 that they need to keep sizable reserves to be ready for future catastrophes.

"Look at the stock market," said retired Colonel 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 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 Army.

Eric Smith, a spokesman for the Internal Revenue Service, said his agency doesn't offer opinions on particular charities' activities. But Marcus Owens, former head of IRS charity oversight, said such charities as AER can legally work closely with government agencies.

However, Owens 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.

Charities linked to other services operate along more traditional nonprofit lines.

The Air Force Aid Society has board members from outside the military to foster broad views. The Navy-Marine Corps Relief Society pays 225 employees and deploys a corps of about 3,400 volunteers, including some from outside the military.

Most charity watchdogs view one to three years of reserves as prudent, with more than that considered hoarding. 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," he said, "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.