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Tax records show charities spent millions on direct mail

By David Fitzpatrick and Drew Griffin, CNN Special Investigations Unit
updated 9:21 AM EDT, Fri May 18, 2012
STORY HIGHLIGHTS
  • Tax records show two veterans charities spent more than $78 million on direct mail marketing
  • One of the charities is trying to end its relationship with the marketing company
  • CharityWatch gave both charities an "F" for spending only 12% on helping veterans
  • "Who's benefiting here other than the fund-raising company?" asks CharityWatch

Los Angeles (CNN) -- If you've ever wondered how much money charities spend mailing you those glossy brochures and free address labels along with their request for a donation, the answer might surprise you.

CNN has found that this type of direct-mail marketing cost two veterans charities tens of millions of dollars.

Los Angeles-based National Veterans Foundation raised more than $22 million in donations over the past three years to help veterans, yet spent approximately $18.2 million paying its direct mail fund-raisers, according to IRS 990 forms.

For nearly a year, the charity has been trying -- without success -- to get out of its contract with Brickmill Marketing and its parent company, Quadriga Art, according to NVF's Rich Rudnick.

"We were told for two years it would be very expensive, then we'd be going into the black," Rudnick told CNN. "That never happened."

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Quadriga Art is one of the world's largest direct-mail providers to charities and non-profits. Quadriga Art is the same fund-raiser hired by the Washington, D.C.-based Disabled Veterans National Foundation, which collected nearly $56 million in donations over the past three years, yet paid Quadriga Art more than $60 million in fees, according to a CNN investigation into the charity's tax records.

Quadriga Art confirmed that its relationship with NVF is ending because "fund-raising efforts did not prove as financially viable as the client had hoped," a spokesman wrote in an e-mail to CNN. Quadriga Art says although it increased the charity's donor base by more than 700,000 people, the direct-mail provider recommended phasing out the program last August based on its performance. And despite Brickmill and Quadriga Art being paid more than $18 million by NVF, Quadriga Art says it actually lost money.

Meanwhile, DVNF still has a business relationship with Quadriga through 2013.

The independent group CharityWatch gave both charities an "F" grade because of the miniscule amount of money they spend on actually helping veterans.

"It's as if you're looking at these ratios through a fun house mirror," Daniel Borochoff, CharityWatch president, told CNN. "It really ought to be reversed, it ought to be flipped, they ought to be giving 80 or 90 percent to helping veterans, not only 12 percent. It's really pathetic."

Beyond its finances, the other services that the National Veterans Foundation offers to veterans are also questionable. On its website, it says one of its principal benefits to veterans is a toll-free hotline, but the U.S. Department of Veterans Affairs in Washington operates several similar toll-free hotlines for veterans seeking a variety of services.

In a statement, the charity said that it has been in business 27 years and that it serves thousands of veterans each year through its toll-free hotline.

They ought to be giving 80 or 90 percent to helping veterans, not only 12 percent. It's really pathetic.
Daniel Borochoff, CharityWatch president

CNN attempted to visit the National Veterans Foundation office near the Los Angeles International Airport, but staffers said that they would not speak on camera, refused to allow CNN inside, and declined CNN's request to photograph the call center that the charity says it operates there.

CNN's recent investigation into the Disabled Veterans National Foundation found that the charity was doling out massive amounts of candy, hand sanitizer bottles and many other unnecessary items to veteran aid groups, surplus items it had obtained for free. It also claimed in its tax filings more than $838,000 in fair market value donations to one charity, although the bill of lading obtained by CNN showed that the donations -- which included chef's coats and aprons -- was valued at around $234,000.

DVNF vice president Valerie Conley stressed that "not all the funds" raised by the foundation go to fund-raising.

"The cost of fund-raising is high, as you know, and it has been for many veteran service organizations who use this kind of direct paying approach," she said.

But CharityWatch's Borochoff says these charities are wasting public donations, and the only ones benefiting are the marketing firms.

"We really have to ask why is this going on, what's the point?" he said in an interview with CNN. "This really should be called the 'National Enrich Fund-raising Foundation' rather than the National Veterans Foundation because ... the amount of help that the veterans receive is so small."

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