Watch Drew Griffin's latest reporting on the investigation and an interview with Sen. Max Baucus tonight on "AC360" at 8 ET.
Washington (CNN) -- The Senate Finance Committee is launching an investigation to determine whether a charity intended to help disabled veterans deserves its tax-exempt status after doling out millions of dollars to a direct-mail company.
Sen. Max Baucus, D-Montana, chairman of the committee, announced the investigation into the Disabled Veterans National Foundation on Wednesday. He said the committee will seek to determine whether the foundation, the subject of a two-year CNN investigation, should keep its status as a 501(c)3 charity under Internal Revenue Service guidelines.
"Our veterans should never be used as pawns in a scheme to exploit the taxpayers," Baucus said in a Wednesday news release announcing the investigation. "The tax exemption for charities exists to promote worthwhile causes like assistance to veterans, not to provide tax loopholes to abuse. DVNF has a responsibility to show it's genuinely helping veterans and playing by the rules."
CNN's investigation into the foundation, part of "AC360's" "Keeping Them Honest" series, played a major role in prompting the committee's investigation, according to a committee staff member who did not want to be identified.
CNN found that the charity's tax records and other documents showed that little of the nearly $56 million raised by the Disabled Veterans National Foundation over the past three years has gone to direct aid to veterans.
The group has paid nearly $61 million to Quadriga Art and its subsidiaries, one of the world's largest direct-mail providers to charities and nonprofits, and its subsidiaries over the past three years, according to publicly available IRS 990 tax forms. The Disabled Veterans National Foundation still has a business relationship with Quadriga Art through 2013, with Quadriga Art saying the foundation has acquired nearly 2 million donors through its direct-mail program.
CharityWatch, the nation's largest charity watchdog group, has given the Disabled Veterans National Foundation an "F" grade since 2010 because of the miniscule amount the charity actually spent on veterans -- which CharityWatch estimates to be 2%.
In addition to its questionable finances, the Disabled Veterans National Foundation has provided massive amounts of unnecessary items to veterans aid groups, including candy, hand sanitizer and dress shoes -- all surplus items that the charity receives at no cost.
In one instance, St. Benedict's, a small veterans shelter in Birmingham, Alabama, received an unsolicited shipment of goods that included 2,300 emergency blankets that were "heavily used" after last year's devastating tornado, according to the shelter's director. But the charity also sent St. Benedict's more than 11,000 bags of coconut M&M's candy and more than 700 pairs of surplus Navy dress shoes, which the shelter's president said he could not use.
The Disabled Veterans National Foundation also claimed in its tax filings more than $838,000 in fair market value donations to another charity, although the bill of lading obtained by CNN showed that the donations -- which included chefs' coats and aprons -- was valued at about $234,000.
CNN attempted to get a comment from the Disabled Veterans National Foundation for more than a year but received no replies to specific questions, even after submitting several questions in writing.
When approached by a CNN crew at the Veterans of Foreign Wars hall in Baton Rouge, Louisiana, Disabled Veterans National Foundation President Precilla Wilkewitz rebuffed questions. Later, after being approached at a public event, Vice President Valerie Conley responded that "not all the funds" raised by the Disabled Veterans National Foundation go to fundraising.
'"The cost of fundraising is high, as you know," she said. "And it has been for many veteran service organizations who use this kind of direct paying approach."
On Wednesday, Wilkewitz released a statement saying the foundation "will happily answer the questions posed by the United States Senate Finance Committee and provide it with information that others have sadly, chosen to ignore."
The Disabled Veterans National Foundation "has helped tens out thousands of veterans with direct financial aid and supplies that have made a difference in their lives. Media reports about our activities have been plain wrong and we welcome the opportunity to set the record straight," Wilkewitz said in the statement.
Two-thirds of the more than 30 veterans charities rated by CharityWatch were given a "D" or "F" grade based on the amount they spend on fundraising compared with actual donations, according to CharityWatch President Daniel Borochoff.
A small charity called the National Veterans Foundation, also connected to Quadriga Art, gets an "F" grade as well. Its officers say they have been trying to cancel a contract with Quadriga Art since August.
"It's as if you're looking at these ratios through a funhouse mirror," Borochoff said of the National Veterans Foundation.
"It really ought to be reversed. It ought to be flipped. They ought to be giving 80 or 90% to helping veterans, not 12%. It's pathetic."
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