[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                     ASSESSING VETERANS' CHARITIES 

=======================================================================

                                HEARINGS

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                       FIRST AND SECOND SESSIONS

                               __________

                 DECEMBER 13, 2007 AND JANUARY 17, 2008

                               __________

                           Serial No. 110-68

                               __________

Printed for the use of the Committee on Oversight and Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform






















                     ASSESSING VETERANS' CHARITIES

























                     ASSESSING VETERANS' CHARITIES

=======================================================================

                                HEARINGS

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                       FIRST AND SECOND SESSIONS

                               __________

                 DECEMBER 13, 2007 AND JANUARY 17, 2008

                               __________

                           Serial No. 110-68

                               __________

Printed for the use of the Committee on Oversight and Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform

                               ----------
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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 HENRY A. WAXMAN, California, Chairman
TOM LANTOS, California               TOM DAVIS, Virginia
EDOLPHUS TOWNS, New York             DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania      CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York         JOHN M. McHUGH, New York
ELIJAH E. CUMMINGS, Maryland         JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio             MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois             TODD RUSSELL PLATTS, Pennsylvania
JOHN F. TIERNEY, Massachusetts       CHRIS CANNON, Utah
WM. LACY CLAY, Missouri              JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California          MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts      DARRELL E. ISSA, California
BRIAN HIGGINS, New York              KENNY MARCHANT, Texas
JOHN A. YARMUTH, Kentucky            LYNN A. WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa                PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of   VIRGINIA FOXX, North Carolina
    Columbia                         BRIAN P. BILBRAY, California
BETTY McCOLLUM, Minnesota            BILL SALI, Idaho
JIM COOPER, Tennessee                JIM JORDAN, Ohio
CHRIS VAN HOLLEN, Maryland
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont

                     Phil Schiliro, Chief of Staff
                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
                  David Marin, Minority Staff Director










































                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
December 13, 2007................................................     1
January 17, 2008.................................................   127
Statement of:
    Carroll, Bonnie, executive director, Tragedy Assistance 
      Program for Survivors; Pamela L. Seman, executive director, 
      Disabled Veterans Associations; Robert Friend, president, 
      American Veterans Coalition; Daniel Borochoff, president, 
      American Institute of Philanthropy; and Bennett Weiner, 
      chief operating officer, the Better Business Bureau's Wise 
      Giving Alliance............................................    67
        Borochoff, Daniel........................................    94
        Carroll, Bonnie..........................................    67
        Friend, Robert...........................................    92
        Seman, Pamela L..........................................    88
        Weiner, Bennett..........................................   105
    Chapin, Roger, president, Help Hospitalized Veterans, Inc. 
      and Coalition to Salute America's Heroes Foundation; 
      Richard A. Viguerie, chairman, American Target Advertising, 
      Inc.; Geoffrey W. Peters, chairman, Creative Direct 
      Response; and Belinda J. Johns, senior assistant attorney 
      general, Charitable Trusts Section, California Attorney 
      General's Office...........................................   155
        Chapin, Roger............................................   155
        Johns, Belinda J.........................................   202
        Peters, Geoffrey W.......................................   189
        Viguerie, Richard A......................................   172
    Edmundson, Edgar, father of Sergeant Eric Edmundson, a 
      wounded veteran; and Tracy L. McCurdy, director, Bureau of 
      Charitable Organizations for the Commonwealth of 
      Pennsylvania...............................................    33
        Edmundson, Edgar.........................................    33
        McCurdy, Tracy L.........................................    40
Letters, statements, etc., submitted for the record by:
    Borochoff, Daniel, president, American Institute of 
      Philanthropy, prepared statement of........................    97
    Cannon, Hon. Chris, a Representative in Congress from the 
      State of Utah, information concering Cal. Corp. Code Sec. 
      5236.......................................................   228
    Carroll, Bonnie, executive director, Tragedy Assistance 
      Program for Survivors:
        Prepared statement of....................................    82
        Prepared statement of Daniel R. Sudnick, chief financial 
          officer, Tragedy Assistance Program for Survivors......    68
    Chapin, Roger, president, Help Hospitalized Veterans, Inc. 
      and Coalition to Salute America's Heroes Foundation........   157
    Davis, Hon. Tom, a Representative in Congress from the State 
      of Virginia, prepared statements of.......................17, 146
    Edmundson, Edgar, father of Sergeant Eric Edmundson, a 
      wounded veteran, prepared statement of.....................    36
    Johns, Belinda J., senior assistant attorney general, 
      Charitable Trusts Section, California Attorney General's 
      Office, prepared statement of..............................   204
    McCurdy, Tracy L., director, Bureau of Charitable 
      Organizations for the Commonwealth of Pennsylvania, 
      prepared statement of......................................    43
    Peters, Geoffrey W., chairman, Creative Direct Response, 
      prepared statement of......................................   191
    Seman, Pamela L., executive director, Disabled Veterans 
      Associations, prepared statement of........................    90
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut:
        Letter dated January 17, 2008............................   270
        Letter dated May 2, 2006.................................    32
        Prepared statement of....................................    21
    Viguerie, Richard A., chairman, American Target Advertising, 
      Inc., prepared statement of................................   175
    Waxman, Chairman Henry A., a Representative in Congress from 
      the State of California:
        Letter dated December 13, 2007...........................     4
        Memo dated January 17, 2008..............................   129
        Prepared statements of..................................10, 139
    Weiner, Bennett, chief operating officer, the Better Business 
      Bureau's Wise Giving Alliance, prepared statement of.......   107


                     ASSESSING VETERANS' CHARITIES

                              ----------                              


                      THURSDAY, DECEMBER 13, 2007

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2154, Rayburn House Office Building, Hon. Henry A. Waxman 
(chairman of the committee) presiding.
    Present: Representatives Waxman, Cummings, Kucinich, 
Tierney, Watson, Higgins, Yarmuth, Braley, Norton, Van Hollen, 
Hodes, Sarbanes, Welch, Davis of Virginia, Burton, Shays, 
Platts, Cannon, Turner, Issa, Foxx, and Sali.
    Staff present: Phil Schiliro, chief of staff; Phil Barnett, 
staff director and general counsel; Karen Lightfoot, 
communications director and senior policy advisor; David 
Rapallo, chief investigative counsel; John Williams, deputy 
chief investigative counsel; Suzanne Renaud and Susanne 
Sachsman, counsels; Daniel Davis, professional staff member; 
Earley Green, chief clerk; Teresa Coufal, deputy clerk; Ella 
Hoffman, press assistant; Leneal Scott, information systems 
manager; David Marin, minority staff director; Larry Halloran, 
minority deputy staff director; Keith Ausbrook, minority 
general counsel; Grace Washbourne, minority senior professional 
staff member; Todd Greenwood, minority legislative assistant; 
Nick Palarino, minority senior investigator and policy advisor; 
Patrick Lyden, minority parliamentarian and member services 
coordinator; Brian McNicoll, minority communications director; 
Ali Ahmad, minority deputy press secretary; and John Ohly, 
minority staff assistant.
    Chairman Waxman. The committee will please come to order.
    This morning's hearing is about deceit and a sickening 
betrayal of our most fundamental values, and I hope it is the 
first step in fixing an intolerable fraud.
    I think many Americans are beginning to understand the 
incredible sacrifice our troops are making in Iraq and 
Afghanistan. Over 4,000 American soldiers have been killed. 
Thousands more are coming home with terrible physical and 
psychological injuries.
    But few of us understand that these deaths and injuries 
often leave families with crippling financial burdens. We 
assume that Government will provide the services, the benefits 
and support that our soldiers earn through their selfless 
sacrifice. Too often, that is an illusion, not a reality.
    Many charities are trying to provide the missing support, 
and this is the time of year when families receive all kinds of 
charitable solicitations in the mail, over the phone and from 
people knocking on our doors, and nothing is more compelling 
than a charity dedicated to helping our troops and our 
veterans.
    Many of these groups do heroic work. We are fortunate that 
one of these groups, TAPS, is with us today, and I want to 
encourage the American people to be generous in supporting 
these charities.
    But our committee has learned that a disturbing number of 
groups are raising millions of dollars in the name of helping 
veterans but keeping most of the donations for themselves. 
Instead of using the money to provide financial assistance or 
help veterans obtain care, these groups and the professional 
fundraisers they employ blatantly line their own pockets. They 
betray their donors and the troops who desperately need help.
    In some cases, these organizations spend as much as 90 
percent of the donations they receive on fundraising activities 
rather than helping veterans. In some cases, the executives pay 
themselves over half a million, $500,000, a year.
    In some cases, they jump from State to State, trying to 
stay one step ahead of State regulators. If Pennsylvania 
catches them using deceptive fundraising tactics, they close up 
shop and start again in Iowa, and all the while they are 
deceiving well intentioned donors and denying veterans the help 
they need.
    We are honored that Ed Edmundson, whose son, Eric, was 
severely injured in Iraq in 2005, is here to give us a 
firsthand account of the challenges that families face, and 
thank you for being here. To deal with Eric's injuries, Mr. 
Edmundson quit his job and is devoting himself full time to his 
son's care.
    I also welcome our other witnesses. Your testimony will 
provide the committee with a wide range of perspectives. I know 
some of you did not want to be here today, but you recognized 
your obligation to respond to our questions.
    I want to say a few words about a witness who is not here 
today. Roger Chapin has a long history of establishing 
veterans' charities dating back to the Vietnam War. Currently, 
he is operating a number of charities focused on veterans from 
Iraq and Afghanistan.
    There have been serious allegations against Mr. Chapin, 
including allegations that he is paying exorbitant salaries to 
himself and his wife, using donations to pay for questionable 
expenses such as new condos, shifting funds among his various 
groups to skew reporting numbers and concealing millions of 
dollars in payments to for-profit fundraising corporations.
    Mr. Chapin not only refused to testify voluntarily today, 
but he refused to allow his attorney to receive the subpoena 
our committee issued to him. For the last week, Mr. Chapin has 
gone into hiding and evaded the best efforts of the U.S. 
Marshals trying to serve him.
    Mr. Chapin's charities have raised over $98 million last 
year, yet he refused to appear to answer questions about how 
this money was spent. I suppose he figured if he could hide 
from the Marshal for a few days, he could avoid this hearing.
    Mr. Chapin will not be here today, but he will be at a 
second hearing that we are going to call on January 17, 2008. 
The committee is issuing a new subpoena for Mr. Chapin, and we 
are sending it directly to the U.S. Marshals to serve Mr. 
Chapin.
    I ask unanimous consent that the committee's letter to him 
be made part of the record and, without objection, that will be 
the order.
    [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Waxman. I want to thank Mr. Davis and his staff 
for their cooperation in this investigation. This is a genuine 
bipartisan investigation. They have been champions of the 
interests of veterans, and this committee is grateful for their 
efforts.
    I think all Members today share my outrage as how our 
veterans have been treated and how those who have donated money 
to help them have been betrayed.
    I want to recognize Mr. Davis for an opening statement.
    [The prepared statement of Chairman Henry A. Waxman 
follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Davis of Virginia. Thank you, Mr. Chairman, for holding 
this hearing today as we continue to focus on issues affecting 
the brave men and women who serve our country.
    We are joined in this mission by the American people. 
Public support for our troops is overwhelming, and our fellow 
citizens generously give their money, time and prayers to those 
who defend our freedom.
    Much of that support is channeled through private 
charities. Today, we take the time to evaluate some of these 
organizations and ask some appropriately tough questions.
    We all want to believe that money donated to a charity is 
used wisely. We put our faith in what we assume to be the good 
faith of others, but charities do not always perform as we 
hope. With some heartlessly capitalizing on broad public 
support for veterans to engage in wasteful or even fraudulent 
fundraising and management practices.
    Today, we will hear testimony to help guide us in 
evaluating the efficiency, accountability and governance of 
charitable organizations. We will hear from various watchdog 
groups whose role is to oversee the charitable community and 
provide donors with the objective facts they need to make 
informed decisions about where to best direct their 
contributions.
    Now, Congress has visited this issue before. In 2004, a 
panel on the non-profit sector, convened at the impetus of the 
Senate Finance Committee, brought together a broad cross-
section of those involved in charities and foundations for a 
thorough examination of non-profit governance, transparency and 
ethical standards.
    The panel's conclusions emphasized that a vibrant 
charitable sector must remain independent to be effective, 
recognizing that the first amendment demands charities be given 
wide latitude in the exercise of fundamental associated 
freedoms, but the panel also found Government oversight and 
regulation necessary to deter abuse, misrepresentation and 
fraud.
    We build on those important findings today because a new 
generation of veterans and their families, suffering the acute 
and latent traumas of modern warfare, are looking to charities 
for help and they are looking to us to help them know which 
organizations are really trying to help veterans and which 
organizations are just helping themselves.
    There is no easy test, no magic ratio of program 
expenditures to fundraising costs that automatically 
distinguishes good charities from bad ones. Some startups for 
marginalized or unpopular causes may have to spend 50, 60 or 70 
percent of their revenue on outreach, education and fundraising 
for a while.
    But charities that consistently spend up to 90 percent 
gross donation revenue on overhead, with only a trickle of the 
remainder going for token program grants, just don't pass the 
smell test. Those charities are soaking up funds meant to help 
veterans, and badly managed or abusive operations merit close 
scrutiny by local and State regulators, State and Federal tax 
authorities and Congress.
    Particularly during this holiday season with holiday joy 
and sharing, Americans are unmatched in their generosity and 
willingness to help those in need. We owe it to those generous 
donors and the veterans they want to thank to make sure 
charities operate as faithful and efficient stewards of the 
money that they collect. Testimony by today's witnesses will 
help us do that important job.
    Again, Mr. Chairman, than you for convening this hearing 
and your leadership on this issue.
    [The prepared statement of Hon. Tom Davis follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Waxman. Thank you very much, Mr. Davis.
    I know many Members have been active on this issue, and I 
want to recognize any Member who wishes to make an opening 
statement.
    Let me see if anybody does. Mr. Tierney, no.
    Ms. Watson, do you wish to make an opening statement.
    Ms. Watson. No, I will concede my time to you, Mr. 
Chairman.
    Chairman Waxman. OK, thanks.
    Mr. Shays, I know that you do.
    Mr. Shays. Thank you, Mr. Chairman. I am eager to make a 
statement, and I thank you for this hearing, a very important 
hearing.
    In 1625, sir, Francis Bacon proclaimed, ``In charity, there 
is no excess.'' The American people certainly agree as U.S. 
charitable giving in the United States reached a record of 
almost $300 billion in 2006.
    Unfortunately, at today's hearing, we will learn there can 
be egregious excess of a different kind. Many self-proclaimed 
charities are collecting funds on behalf of our Nation's 
valiant veterans only to devote a small amount to actual 
services for veterans and their families. While this is not a 
crime, it is an outrage we must correct.
    As in past wars, the global war on terror has inspired the 
American people to open their giving hearts to support 
returning soldiers. Since 2001, contributions to military and 
veterans' charities have increased by almost half a billion 
dollars, totaling $2.48 billion in 2007. Implicit in these 
generous donations is the assumption that most, if not all, of 
the funds are going toward actually helping veterans.
    Recent reports from five private sector charity watchdogs 
have exposed many charities devote less 35 percent of the money 
they raise to actual veterans' services. In one particular 
case, the American Veterans Relief Foundation of Santa Ana, CA, 
raised $3.6 million of which only $21,000 was ever directed to 
veterans' grants and assistance. That is less than 1 percent of 
the donations.
    And, as we will find out today, behind some of these 
charities are telemarketing and mass mailing businesses whose 
contracts with charities allow them to keep up to 90 percent of 
what is raised. While these practices may be technically legal, 
they are clearly immoral.
    I am looking forward to hearing more about the state of the 
veterans' charities from two of our country's top charity 
oversight groups, the Better Business Bureau's Wise Giving 
Alliance and the American Institute for Philanthropy.
    I recognize through continuous rulings, the Supreme Court 
has limited executive and legislative power to regulate 
charitable giving and that much of the existing oversight power 
lies at the State level. I look forward to hearing from the 
Bureau of Charitable Organizations' representative from the 
State of Pennsylvania as Pennsylvania has done some of the most 
aggressive charity oversight in the Nation. We need to 
encourage more States to do what Pennsylvania is doing.
    At the Federal level, we should examine whether the 
Internal Revenue Service [IRS], or the Federal Trade Commission 
[FTC], should do more and what laws can be changed to stop this 
outrage.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Christopher Shays follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Waxman. Thank you very much, Mr. Shays.
    Does any other Member wish to make an opening statement?
    Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman, and I will be brief.
    I appreciate the fact that you are holding this very 
bipartisan committee hearing at this time of year. As many of 
us are contemplating a donation to charitable organizations, it 
is important to ensure we can give with confidence and that our 
contributions will help someone in need.
    In preparation for today's hearing, I, perhaps like other 
Members, had to scrutinize the list of charities that will be 
discussed today against those I had given. Even though we do 
endeavor to look and to get to the bottom of what the ratio of 
contributions to overhead to recipients receiving are, it is 
certainly possible for any of us to find ourselves giving to a 
charity that is less than reputable.
    Although I hope that we will not look into legitimate costs 
of fundraising because often a direct mail campaign, which can 
be quite expensive, does two things: it raises money for a 
cause and it also educates.
    It is clear that today the examples that we will see do not 
fall into that category. They fall into the category of what I 
would call profiteering, profiteering by those who use the name 
of a soldier or a cause in order to justify fundraising that 
ultimately leads to profits for individuals who may or may not 
be veterans, may or may not have any need, may simply be good 
at fundraising.
    I join with my colleagues on both sides of the aisle, 
saying that although we have limited jurisdiction, it is clear 
that on half a billion dollars of tax-deductible donations, we 
certainly give a great deal of what one might call matching 
funds. I have no objections to that tax deductibility, but it 
is very clear that if we can help educate the consumer to give 
more wisely, then the dollars of tax deductibility that the 
Federal Government effectively matches with the donor will be 
better spent.
    Therefore, I appreciate your holding this hearing and hope 
that we all view that it is not only the individual's money 
that is being squandered but the matching tax-deductible 
portion, thus Federal taxpayers' dollars that are going into 
the hands, at times, of profiteers.
    With that, I yield back.
    Chairman Waxman. Thank you, Mr. Issa.
    Any other Member wish to make an opening statement?
    Yes, the gentlelady from D.C.
    Ms. Norton. I appreciate this hearing, particularly the 
timing of this hearing, Mr. Chairman, because it is the end of 
the year when even people of modest income, like Members of 
Congress, give end of the year contributions.
    I would wager that as the American people sit down and see 
our frustration in trying to bring the troops home, one of the 
things that might trump all the charitable giving might be 
anything that looks like it would help or give to the military 
or, for that matter, Mr. Chairman, to their families.
    I think we have to understand who the military is. The 
military is under the exclusive direction of the U.S. 
Government, but they can become a market, and we have an 
obligation to see that they are not simply a market.
    Even for Federal employees, the Combined Federal Campaign 
provides you with a book. You go through that book, and frankly 
I take the time to go through the book because there is an 
enormous difference in the amount spent that goes directly to 
the charity. So, if you quickly go through it, you can 
eliminate many charities simply by saying, do I really want to 
give that much to their overhead or to wherever they put it.
    I think we owe our military at least that much, set some 
standards and the way to find out what kind of standards to set 
is to have precisely the kind of hearing that you are having, 
Mr. Chairman, this morning, and I thank you for it.
    Chairman Waxman. Thank you.
    Any other Member wish to make an opening statement?
    Mr. Shays.
    Mr. Shays. Thank you, Mr. Chairman.
    I would like to put on the record you caught my attention 
when you mentioned Phil Chapin [sic] from Darien. That is the 
very center of my district and where I grew up. I just called 
up my staff because I want to make sure this man has not 
contributed to my campaign and want to put on the record he 
hasn't, but there is also another individual connected, Phil 
Kraft, as well, though who has not contributed to my campaign.
    I also would like to put on the record a letter we wrote on 
May 2, 2006. Mayor Koch had alerted me to the fact that there 
was a quote that they had used of mine in 1988 that they were 
using, and we wrote them in 2006 and said, don't use that 
quote. They were using a quote of Mayor Koch's, and they were 
also using a quote from the Attorney General of the State of 
Connecticut, Dick Blumenthal. So I would like to put that on 
the record if I might.
    Chairman Waxman. Without objection, we will receive that 
for the record and to protect Mr. Phil Chapin, I want to 
indicate it is Roger Chapin.
    Mr. Shays. It is Roger Chapin and Phil Kraft, yes. Thank 
you.
    Chairman Waxman. OK. Good.
    [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Waxman. Any other statements?
    If not, we will proceed to the witnesses.
    I want to welcome today Mr. Ed Edmundson, who is the father 
of the wounded veteran that I mentioned earlier, and Ms. Tracy 
L. McCurdy, director of the Bureau of Charitable Organizations 
for the Commonwealth of Pennsylvania. Senator Chuck Grassley 
will join us when he is able to complete the vote on the Senate 
floor, but he is anxious to participate and give us the benefit 
of his work on this area.
    Mr. Edmundson, why don't we start with you? Thank you again 
for being here.
    Oh, let me indicate the rules of the committee do require 
all witnesses to testify under oath. So if both of you would 
please stand and raise your right hands, I would appreciate it.
    [Witnesses sworn.]
    Chairman Waxman. Let me indicate for the record that the 
witnesses answered in the affirmative.
    Your prepared statement will be in the record in its 
entirety.
    We would like to ask you, if you could, to keep as close as 
you can to the 5-minutes. We will have a clock that will be 
running. It will be green. It will turn yellow when there is 1 
minute left. It will turn red when the 5-minutes is up. If you 
still need a little bit more time, just go ahead, don't worry 
about it, but we would like to try to keep it in the 5-minute 
period.
    Mr. Edmundson, there is a button on the base of the mic. Be 
sure it is pressed in and pull it close enough to you that we 
can hear.

    STATEMENTS OF EDGAR EDMUNDSON, FATHER OF SERGEANT ERIC 
 EDMUNDSON, A WOUNDED VETERAN; AND TRACY L. MCCURDY, DIRECTOR, 
  BUREAU OF CHARITABLE ORGANIZATIONS FOR THE COMMONWEALTH OF 
                          PENNSYLVANIA

                  STATEMENT OF EDGAR EDMUNDSON

    Mr. Edmundson. Mr. Chairman, committee members, a heartfelt 
thank you for allowing me to appear before you and participate 
in this discussion.
    My name is Edgar Edmundson. I am here today, speaking for 
all of Eric's family in regards to our experiences with our 
soldier, Sergeant Eric Edmundson, U.S. Army retired after 7 
years of service.
    Today, I will be telling you about my son and his injuries 
along with the many issues and obstacles that he and the family 
have confronted and overcome. I will also share with you the 
utilization of non-profit organizations and their role in my 
son's rehabilitative outcome.
    My son, Sergeant Eric Edmundson, was a Cavalry Scout with 
the 4th Squadron, 14th Cavalry based out of Fort Wainwright Air 
Base, Ak. He was assigned to be the company commander's driver. 
This is a position that he took very seriously and pushed 
forward to excel in. He took pride with having the finest 
running, best driven vehicle in the company.
    On October 2, 2005, near the Syrian border along the Tigris 
River in northern Iraq, my son was driving the command vehicle, 
a Stryker. While advancing through a dry river bed to support 
another disabled vehicle, an insurgent detonated an improvised 
explosive device [IED], which detonated directly behind my 
son's seat. At that instant, my son's life and the lives of his 
family changed forever.
    Eric, having suffered severe blast and shrapnel injuries as 
well as a moderate traumatic brain injury [TBI], was airlifted 
to Baghdad where he underwent a number of surgeries. He was 
then moved to Ballad to await exit to Germany. While there, the 
doctors were performing a surgical procedure, and my son 
suffered a cardiac arrest.
    We were told it took a great deal of time to bring him 
back, and now he suffers from an anoxic brain injury or ABI. 
This condition is from a lack of oxygen to the brain. After 2 
days in Germany, Eric was transferred to Walter Reed Medical 
Center in Washington, DC.
    We knew that Eric would be facing challenges that we would 
never have dreamt possible. We knew our son. We knew he needed 
us.
    Because of his anoxic brain injury, he was left with 
cognitive and memory issues, suffers from muscle contractions 
and toning that plague him. A Baclofen pump was placed in his 
abdomen in January 2007, to aid him in controlling the 
contractures.
    It became apparent early in Eric's recovery that he would 
need a caregiver-advocate to watch out for his well being. At 
that time, my wife and I made the decision to resign my 
position at work in order to be with Eric.
    Non-profit organizations became an answer to our prayers. 
As I stated earlier, I resigned my position to be available for 
Eric and his needs. That resignation came at the cost of my 
income, retirement, insurance and our previous way of life. It 
was a decision that we made as a family, and we do not regret 
it.
    Non-profit organizations helped fill the gap in what we 
lost financially. They also relieved extreme stressors. We 
needed to devote so much of our time to Eric's needs, dealing 
with how to get our financial obligations met was difficult and 
an additional stress.
    We feel very strongly that Eric's recovery and 
rehabilitative outcomes would have been different had it not 
been for the support we received from non-profit organizations. 
Eric needed his family close by. He needed the reassurance of 
someone was going to be there for him and aid him in going 
through this journey of recovery.
    Per our conversations with non-profit organizations, they 
recognized the need. They see themselves as being able to meet 
needs.
    Most have some connection with the military and understand 
how slow the Government takes to address issues, but in the 
meantime real life continues to tick along. It is our 
experience that they connect quickly and efficiently.
    It may not seem like much, but even simple little things 
like meals, lodging for extended family, laptop computers to 
cell phones are critical when dealing with the recovery of a 
wounded soldier. These little incidentals are so imperative to 
a soldier and his family's recovery because they allow them to 
stay connected to the world.
    I have listed only a few ways in which non-profits have 
come to our aid. I am certain there are many more.
    Salute, Inc. out of Chicago, IL; Wounded Warrior Project 
out of Florida; Hope for the Warriors out of Jacksonville, NC; 
and the Semper Fi Fund are just a few examples of fine 
organizations that have kept true to their mission.
    What is important at this time is that non-profits be 
utilized to their full potential.
    I would hate to think what Eric and his family would have 
experienced throughout these last 2 years without the non-
profits by our side. We made the commitment to be there for our 
son, and that commitment would have been met no matter what. 
With the help of non-profits, we have been able to be there for 
Eric.
    Eric was a good soldier. He honored himself, his family, 
his community and his country. We owe it to him and the 
thousands of other soldiers that honor themselves and us all to 
provide the best available care to enable them to return to the 
life they fought so hard to defend.
    I am concerned, the negative effect that the few self-
serving non-profits will have on the ability of the legitimate 
non-profits to obtain funding from the general public. It would 
be an unfortunate turn of events if the service they provide is 
not available. As I have shared, the service they provide is 
immediate and personalized to the needs of the soldiers and 
their families. I believe that measures need to be implemented 
to ensure the availability of non-profits and their services.
    It is my sincere hope that by sharing our story, you will 
have a glimpse into why we need to continue to support the non-
profit agencies and the service they provide.
    Thank you for allowing me to share our story with you 
today. I am open for any questions.
    [The prepared statement of Mr. Edmundson follows:]

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    Chairman Waxman. Thank you very much, Mr. Edmundson, for 
being here and for that presentation to our committee in 
helping us understand more about the issue that we are dealing 
with today.
    I am going to have some questions, others will as well. But 
we want to hear from Ms. McCurdy, and then we will ask both of 
you, questions.
    Ms. McCurdy.

                 STATEMENT OF TRACY L. MCCURDY

    Ms. McCurdy. Thank you. I must first just say thank you to 
Mr. Edmundson and also what a moving story.
    Good morning, Chairman Waxman and distinguished members of 
the Committee on Oversight and Government Reform. On behalf of 
the Pennsylvania Governor Edward G. Rendell and Secretary of 
the Commonwealth, Pedro A. Cortes, I thank you for the 
opportunity to be present before you today and for your 
leadership on this important issue.
    My name is Tracy McCurdy, and I am the director for the 
Pennsylvania Department of State's Bureau of Charitable 
Organizations.
    In Pennsylvania, the charitable solicitation law requires 
charities, professional solicitors and professional fundraising 
counsels that are soliciting charitable contributions in 
Pennsylvania to be registered with the Department unless 
otherwise excluded or exempt. By way of an example, an exempt 
organization would be one that raises less than $25,000 in 
gross annual contributions. Unless they pay someone to solicit, 
then they would have to be registered.
    The Department currently maintains registration and 
financial information for more than 10,000 charities and 400 
professional solicitors and fundraising counsel soliciting 
charitable contributions in Pennsylvania. Included among those 
registered organizations are veterans groups.
    The Secretary of the Commonwealth annually prepares a 
report on the number of registered charities, the number of 
charities ordered to cease and desist solicitation, the number 
of charities contracting with professional solicitors and the 
compensation of professional solicitors for each solicitation 
campaign in relation to the funds raised and administrative 
costs. A copy of the report is available on our Web site, and I 
do believe I made one available for you today.
    Relevant to the committee's discussion is the portion of 
this year's annual report that highlights the average amounts 
paid by charitable organizations to professional solicitors. 
Although there is no legal standard defining the permissible 
amount of fundraising costs, it is generally acknowledged that, 
on average, charitable organizations should spend no more than 
33 a third percent of its contributions on the costs to raise 
those contributions.
    Based upon campaign financial reports submitted by 
professional solicitors in Pennsylvania, the annual report 
details that 88 percent of the charities, on whose behalf 
campaign financial reports were submitted, paid higher than the 
standard, with 54 percent of them actually paying more than 
double the standard. Given this data, the Pennsylvania 
Department of State is keenly aware of the issue of high 
fundraising costs being paid by charitable organizations that 
use the services of professional solicitors.
    I heard some discussion earlier from the opening statements 
that there is concern when it is 90 percent or more. We have 
found some of the contracts actually allow for more than 100 
percent of the money to go to the professional solicitors. So 
that is, of course, a big concern.
    In addition to registration and annual reporting duties, 
the act gives the Department the power to investigate 
allegations of wrongdoing by organizations soliciting 
contributions in Pennsylvania.
    Generally, as a question rises involving fundraising 
issues, the Department, through its Bureau's investigation and 
audit divisions, assiduously investigates the following 
matters: unregistered activity by both professionals and 
charities, failing to file contracts, failing to file campaign 
financial reports, failing to provide required disclosures, 
making false and/or misleading statements in solicitation, 
making false or misleading statements in reports filed with the 
Bureau and fraudulent transactions involving charitable 
donations for personal use.
    Please note, however, that based upon current Supreme Court 
case law, high fundraising costs alone do not establish fraud. 
As a result, the Department cannot pursue an investigation 
solely on the basis of high fundraising costs.
    What the Department can and does do is engage in public 
awareness efforts to promote informed charitable giving. The 
Department uses a variety of outreach tools to educate 
consumers about making smart donation decisions. Available on 
our Web site is a wealth of consumer information, including 
tips for charitable giving as well as information about dealing 
with professional solicitors.
    In addition, Department staff routinely participates in 
senior expos, consumer fairs and other educational forums. 
Consumers are encouraged to call the Department's Bureau to 
learn more information or to file a complaint about a charity, 
a professional solicitor or a fundraising counsel.
    The most important tip that the Department routinely 
conveys to consumers is to ask questions. I tell them, question 
everything. If consumers are not happy with the answer, they 
should not give to that group. There are many other worthy 
organizations in need of charitable contributions.
    The question, I believe, that is really before us today is 
how can we help to ensure that Americans' contributions to 
veterans' causes are being responsibly used. In response to 
that question, we offer three recommendations: Increase efforts 
in public outreach and education. Consumers, again, need to be 
educated to ask questions, to ask for information about the 
charity. Specifically, how does it spend its money and, most 
importantly, how does it spend its money on its charitable 
purpose and programs versus fundraising and administrative 
costs?
    Second, require increased oral and written disclosures at 
the point of solicitation. Professional fundraisers should be 
required to tell potential donors that a portion of the 
contributions will be used to pay for the cost to raise the 
money. The disclosure should also include the minimum amount of 
contributions guaranteed to be retained by the charity as it 
was provided in the contract submitted to the State in which 
the solicitation is occurring.
    Disclosure of charitable finances, fundraising expenses, 
administrative costs, efficiencies and successful mission 
outcomes to the public will provide the kind of accountability 
and transparency of charities that increases knowledgeable 
giving.
    Finally, increase Federal oversight. I throw out Federal 
Trade Commission, but whatever organization or Federal agency 
would be deemed to be appropriate would be helpful.
    Professional fundraisers should be required to submit, just 
as charities do, an annual report disclosing their activities. 
They should detail the charities for whom campaigns were 
conducted, the amount of contributions received in each 
campaign, the actual expenses of each campaign and the amount 
of contributions actually received by the charity.
    Sort of related to all of these issues is the issue of the 
Internet. There has been an explosion of the Internet. Of 
course, as we all know, solicitations are occurring and very 
difficult to regulate at the State level unless we can 
demonstrate that our State residents are being targeted. If 
there could be some sort of more Federal oversight or required 
more disclosures on the Internet, that, we believe, would be 
helpful.
    In conclusion, the majority of charities are honest and 
provide valuable services for many of the most needy and 
vulnerable in our society, including our veterans. The 
Department encourages the public to provide donations to 
charitable causes.
    The key message that consumers should remember from this 
testimony is that whenever they wish to donate to a charitable 
organization, they should become informed about the charity's 
operations by doing some homework. More specifically, they 
should research the charity to determine if the majority of the 
money raised is going to its charitable purposes.
    Once again, Governor Rendell and Secretary of State Cortes 
thank you for providing me the opportunity to appear before you 
today. I welcome any questions that you have at this time. 
Thank you.
    [The prepared statement of Ms. McCurdy follows:]

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    Chairman Waxman. Thank you very much, Ms. McCurdy.
    Mr. Edmundson, I was very moved by your situation, what you 
said about your son and what you have gone through, but I also 
was angry about it for two reasons.
    One, we sent him to Iraq, and I think most Americans would 
think that the Federal Government is going to take care of all 
his medical needs and all the services he may need as a result 
of the injuries he suffered in fighting that war on behalf of 
the American people.
    Second, since that is not happening, I am angry at the idea 
that some of these groups are not providing the care that they 
promised that they were going to provide to the veterans and 
what they promised they were going to provide to the veterans. 
So it is hard not to be with mixed emotions in hearing what you 
had to say.
    Did you think when Eric went off to war that if something 
happened to him, the U.S. Government, the military was going to 
take care of him?
    Mr. Edmundson. Mr. Chairman, when Eric went to war, we had 
no idea, as parents, when Eric was injured so severely and when 
he came home that we would have to go through as a family what 
we did in order for Eric to receive the care that he received.
    I said many times before, I spoke with my son just before, 
a couple days before he was injured, and we could tell by his 
demeanor that he was proceeding to do something dangerous and 
mentioned to him to just stay safe, keep your head down. He 
mentioned to me and his mother to just relax, that if something 
happened, that the Army would take care of him.
    Chairman Waxman. Instead, he was hurt, and then you found 
out that there is a maze that he had to go through and there 
was no one to guide him. You even quit your job just to be his 
care coordinator. You made a tremendous sacrifice for your son, 
and I am sure, in fact I know, it has had a very positive 
impact on his case.
    But a lot of injured veterans don't have personal advocates 
like you or their family members can't quit their jobs and move 
across the country to battle the Government bureaucracy.
    What would you say are our greatest unfilled needs for 
veterans who are returning home with severe injuries?
    Mr. Edmundson. We feel that one of the most important 
things that we have had to deal with is Eric and many families 
of severely injured soldiers, they are in desperate need of 
options, options for the medical rehabilitative care of their 
soldier, options to stay home and take care of their soldier, 
such as myself. I had to give up my livelihood in order to stay 
home and take care of my soldier.
    We feel that it should be an option for a parent, a support 
group, a spouse or whatever, if they so choose, to stay home 
and take care of their soldier because they know what is best. 
They can take care. They know their soldier best, but they need 
to have the option for caregiver support and maybe insurance to 
stay home, so they don't have to totally give up everything.
    Myself, I have been uninsured for 2 years. We, as a family, 
don't complain because we feel very fortunate our soldier is 
home. There are 4,000 families that don't have their soldiers 
home.
    Chairman Waxman. There are charitable groups. There are 
non-profit groups that raise money to help veterans. You have 
said to us very clearly that many of them have done terrific 
work for Eric and have been very helpful to you and your 
family.
    Based on your experience, what was the most valuable type 
of help you received from these veterans' groups?
    Mr. Edmundson. The most valuable help that we received is 
they have enabled through financial contributions to us. They 
have enabled me to stay home and be Eric's 24-7 caregiver.
    They have enabled me to stay for 7 months in Chicago with 
Eric while he was going through rehabilitation at the 
Rehabilitation Institute in Chicago. It was very expensive to 
stay there. I was under orders with Eric, but I had to, such as 
when I first arrived in Chicago, it cost me roughly $1,900 for 
my apartment in Chicago.
    I had to pay that $1,900 up front and then wait to be 
reimbursed from the DOD for that. It, initially, was a 
tremendous outlay for us and created a burden.
    But non-profits enabled us to stay communicated and 
connected with the family. They enabled the family with air 
tickets to come up and give Eric and I support, and enabled me 
too. It was a morale support for me to be able to stay there 
and deal with the issues that Eric was having to go through.
    Eric's outcome, my son's outcome would be drastically 
different if it were not for non-profit organizations.
    Chairman Waxman. Thank you.
    You are emphasizing how important it is to help these non-
profits. Of course, we are also looking the kind of chicanery 
that some of these non-profits are using by not providing the 
benefits and not actually using the funds they raise for 
veterans.
    If Members will permit, I just want to read an e-mail that 
I received from Senator Bob Dole, a great American who served 
our country, suffered injuries in World War II, and headed a 
panel looking at veterans' health care.
    He said to me, ``Thank you for holding hearings and 
considering veterans' charities. The timing is excellent since 
some of the groups unfairly and perhaps unlawfully raise a 
great deal of money during the holiday season. We cannot do 
enough for America's deserving veterans and, while many of the 
groups do a good job, a great many are parasites who take the 
money and keep all or most of it. I cannot imagine anyone or 
any group stooping so low to enrich themselves by exploiting 
veterans' misery. The committee hearing will serve many useful 
purposes by exposing the downright fraud used by some and the 
good other groups do. The winner will be deserving veterans and 
their families.''
    I thank former Senator and former Majority Leader Bob Dole 
for that message that is an important one for all of us.
    Mr. Davis, I want to recognize you.
    Mr. Davis of Virginia. Well, thank you very much.
    Let me thank the panelists for being with us today and 
sharing your story.
    Mr. Edmundson, in your written statement, you related that 
non-profit organizations became an answer to your prayer. What 
specific need did the charities meet that the Department of 
Defense and the Department of Veterans Affairs couldn't do?
    Mr. Edmundson. I am sorry, sir.
    Mr. Davis of Virginia. What did the charities step forward 
and do that the Defense Department and the Veterans Affairs 
Department didn't do?
    Mr. Edmundson. Non-profit organizations have the ability 
to, as I mentioned in my statement, they have the ability to 
meet immediate needs of the families.
    Mr. Davis of Virginia. It is not bureaucratic?
    Mr. Edmundson. Yes, sir.
    Eric was injured 2 years ago back when before the Walter 
Reed incident broke, and we were having to deal with a huge 
amount of bureaucracy, and one of the issues was that you 
couldn't get a direct answer from a person. It was like the 
left side didn't know what the right side was doing, that kind 
of thing, and we were having to wait and deal with bureaucracy. 
We were having to deal with hundreds of e-mails, phone calls, 
advocating to get Eric what he needed.
    In the interim time, non-profit organizations were able to 
come through and aid us in getting support to Eric.
    Mr. Davis of Virginia. They got back quicker and more 
personal, those kinds of things?
    Mr. Edmundson. Yes, sir.
    Mr. Davis of Virginia. Ms. McCurdy, what standards does 
Pennsylvania use when deciding to allow a charity to register 
in Pennsylvania?
    Ms. McCurdy. I am sorry.
    Mr. Davis of Virginia. What are the standards that 
Pennsylvania uses when you allow a charity to register in 
Pennsylvania?
    Ms. McCurdy. Well, the actual process of registration is 
more of an administerial function, if the forms are filled out 
completely and, as best as we can tell at that, function 
correctly.
    It is more if we have reason to believe that there is 
something going on that is improper by that charity. If they 
are not reporting everything accurately, we have an 
investigative and audit division that will then take over and 
look at the matter.
    Mr. Davis of Virginia. They file annual reports basically.
    Ms. McCurdy. Yes.
    Mr. Davis of Virginia. They are supposed to, if you look at 
these reports, talk about how much is used for fundraising and 
how much overhead and how much goes to the actual recipients.
    Ms. McCurdy. Yes. In Pennsylvania, we have a registration 
statement which asks about 25 different questions just more 
about what their general activities were.
    One of our filing requirements is the IRS Form 990. If you 
are familiar with that form, it is the reporting form by 
charitable organizations that gets to all of those things that 
you mentioned. Then depending upon their threshold amounts in 
contributions, we also require financial statements which may 
need to be audited.
    Mr. Davis of Virginia. You probably have something that 
would trigger an audit if the numbers don't reach a certain 
level, or look a little funny?
    Ms. McCurdy. Not necessarily if they don't reach a certain 
level but if we are questioning how those numbers have been 
reported, that would trigger us looking at that.
    Mr. Davis of Virginia. How many auditors do you have that 
can look at that?
    Ms. McCurdy. We have a staff of four auditors.
    Mr. Davis of Virginia. How many charities do you have 
registered in the State?
    Ms. McCurdy. We have information on more 10,000 charities 
in Pennsylvania right now.
    Mr. Davis of Virginia. Wow.
    Ms. McCurdy. But we believe there are more out there, and 
we have been engaging in a huge effort to bring as many of them 
into compliance as possible.
    Mr. Davis of Virginia. What statute does Pennsylvania have 
that might prevent a solicitor from engaging in fraudulent 
activities including obtaining money based on a false pretense, 
representation or promise?
    Ms. McCurdy. Well, I think we have several available 
generally. The only one that falls under my jurisdiction would 
be the Solicitation of Funds for Charitable Purposes Act. That 
is found in Title X of the Pennsylvania statutes. It starts at 
Section 162.1.
    The attorney general, which also has jurisdiction over that 
law, certainly has other avenues available under the consumer 
protection laws, but we have some specific prohibited acts that 
are identified in our law.
    Mr. Davis of Virginia. Have there been successful 
prosecutions under those laws?
    Ms. McCurdy. Absolutely. I was a prosecuting attorney for 
the last almost 5 years before I became the director, and we 
have been very aggressive in our pursuit.
    Mr. Davis of Virginia. Would higher penalties in these 
areas, including jail time, be appropriate in your opinion?
    Ms. McCurdy. Well, and I should say we have been working 
with the local criminal authorities on pursuing criminal 
matters as opposed to just pursuing them at the administrative 
level.
    I don't think it is necessarily higher money is going to 
get the job done. It is going to be criminal prosecution.
    And then it is also just going to be, and someone 
mentioned. I think Chairman Waxman mentioned earlier that we 
have the problem where we have people in Pennsylvania. We get 
them out of Pennsylvania, and then they go somewhere else, and 
that is unfortunate. But at the State level, all I can do is to 
work to get them out of Pennsylvania if they deserve it, and we 
have done that.
    Mr. Davis of Virginia. I guess the last question is maybe 
federally there ought to be some Federal law or something that 
looks at this. It always on our side to start some new 
regulatory agency, but seeing some of the outrageous actions 
that are brought to our attention today, I think it may be 
merited.
    We appreciate the example that Pennsylvania is setting and, 
Ms. McCurdy, we appreciate your testimony. Thank you.
    Ms. McCurdy. Thank you.
    Chairman Waxman. Thank you, Mr. Davis.
    We are being called to the House floor. We do have 5 
minutes, Ms. Watson, if you want to take it now.
    Ms. Watson. Yes, let me go real quickly and thank Mr. 
Edmundson. Your testimony was very moving.
    This committee has been investigating Mr. Chapin and his 
charities, and we are concerned that he may not be using the 
money he raises in an appropriate manner. I would like to ask 
some questions.
    My understanding is that after your son, Eric, was injured, 
your family sought assistance from a number of veterans' groups 
and that Mr. Chapin's group, the Coalition to Salute America's 
Heroes, is one of the organizations that provided assistance. 
Is that right, Mr. Edmundson?
    Mr. Edmundson. That is correct.
    Ms. Watson. Can you tell us what Mr. Chapin's group 
provided to you?
    Mr. Edmundson. Shortly after Eric was first injured, like I 
said, he was based at Fort Wainwright, Fairbanks, AK, and ended 
up receiving medical care at Walter Reed. Shortly after he 
arrived at Walter Reed, his wife and daughter came down from 
Fairbanks, AK, and stayed with him at Walter Reed for the 3-
months he was there.
    That organization aided Eric and his wife in taking care of 
some of their financial obligations back in Alaska, which took 
a great burden off of them at that time and allowed his wife 
and his daughter to stay with him there.
    Ms. Watson. We are concerned that Mr. Chapin and some other 
people who operate these veterans' charities are keeping too 
much of the donations they received for themselves and not 
giving enough to soldiers and their families. For example, we 
understand that Mr. Chapin paid himself and his wife more than 
$500,000 last year in salaries and benefits.
    In your opinion, Mr. Edmundson, do you think it is 
appropriate to make a half a million dollar salary in 1 year 
while running veterans' charities? What is your opinion on 
that?
    Mr. Edmundson. I don't think that is appropriate.
    My son as well as the other thousands of injured soldiers 
from this war or any other war, they are not a commodity. 
Organizations come to us and offer their assistance. We gladly 
welcome them to aid us in our quest to get Eric the care that 
he needs and help us maintain so that we can help and be with 
him.
    But I don't think it is right that you can use these 
soldiers as commodities to raise funds and, as an organization, 
to say that you are raising funds to aid all of the thousands 
of soldiers and receive charitable contributions from the 
public and then turn around and give a small percentage of that 
to what you are saying you are going to do with those 
contributions.
    Ms. Watson. Let me just comment that we understand that Mr. 
Chapin's group raised over $98 million through donations that 
he solicited from people who thought they were helping people 
like your son, Eric. But according to his IRS filings, his 
group spent only 30 percent of those funds to help other 
veterans, and he used the rest of the donations to pay for for-
profit fundraising corporations to raise even more money for 
his groups.
    For example, he paid one of those for-profit 
organizations--it is called American Target Advertising--$3.5 
million last year alone, $3.5 million. Think of how it would 
help Eric and other families like yours.
    I don't think you know that less than a third of every 
dollar donated to Mr. Chapin's groups actually goes to help 
directly the injured veterans.
    So we asked Mr. Chapin to come into the hearing today to 
explain these actions, but he refused. In fact, the committee 
issued a subpoena. I don't know how you can refuse receiving a 
subpoena unless nobody is ever there to receive it, but they 
evaded the Federal Marshals who were trying to serve the 
subpoena. That behavior alone speaks greatly to me and should 
speak greatly to you.
    Let me ask you this.
    Chairman Waxman. Ms. Watson, your time is up.
    Let me indicate to you that we are not going to accept his 
evasion of service and unwillingness to be here.
    Ms. Watson. Yes. Thank you.
    Chairman Waxman. We are going to have another hearing, and 
we are going to get that subpoena issued to him and demand that 
he come before us.
    Ms. Watson. Yes. Thank you so much.
    Thank you, Mr. Edmundson, and may God bless you and yours.
    Chairman Waxman. We are going to break now because there 
are four votes on the House floor. It will probably take us at 
least a half-hour. So let's plan to reconvene at 11:30.
    The committee stands in recess.
    [Recess.]
    Chairman Waxman. The meeting of the committee will please 
come back to order.
    We were questioning Mr. Edmundson and Ms. McCurdy, and I 
want to recognize Mr. Shays to proceed with questioning.
    I wonder if somebody can close the door in the back, so we 
can avoid the noise coming in the chambers.
    Mr. Shays. Thank you very much, Mr. Chairman.
    Mr. Edmundson, thank you for coming.
    Ms. McCurdy, thank you as well. Thank you for what your 
Government is doing.
    There are so many elements to this. There is the element 
that the chairman raised just about what is our country doing 
for our veterans irrespective of the charity groups.
    Then there is the acknowledgment that Americans want to 
assist, want to provide help and give to charities because they 
want the charities also to be able to add value-added. It 
should be not to do the basics. It should be for those extra 
things that can make life a little more tolerable for the 
veteran and his or her family.
    I got introduced to this issue a few years ago when we had 
another charity. Actually, it was for campaigns.
    It was Americans for Bush and Americans for Dole, and each 
of them raised about $10 million. It was the same outfit that 
raised it for both. They gave $5,000 to George Bush and $5,000 
to Senator Dole, and they kept the rest.
    Really, what it was is it was a fundraising phone bank 
operation. So they just kept increasing their lists, but then 
they had lists to sell and so on. They had money to pay all 
their employees, and the people who ran it did well.
    In this AIP, which is not a pamphlet I am too familiar 
with, American Institute of Philanthropy, I think, Mr. 
Chairman, your hearing has raised an amazing opportunity for us 
to do some good. I was looking at some of these charities, and 
some score very well, frankly.
    Abortion and family planning, As and Bs and Cs; African 
American fundraising, As and Bs; AIDS, As and B pluses; 
American Indians, a lot of Fs, Cs and Ds; cancer, a lot of Fs, 
amazing number of Fs; blind and visually impaired, a lot of As 
and Bs, and we go down.
    Then when they get to international relief, a lot of As and 
Bs. Save the Children in my district is an A. Other 
organizations, I am pretty impressed with.
    Then you get to criminal justice issues, and we are back 
down to Cs and Ds. Anyway, lots of opportunity to look at this 
issue.
    But we ended up with a challenge with the Supreme Court 
when we wanted to look at the constitutionality of putting a 
little bit more requirements on the fundraising done for 
Americans for Bush and Dole.
    Ms. McCurdy, maybe you could tell me what challenges you 
think exist when we deal with the Constitution on the Federal 
level and why are the States able to do it a little better than 
we are?
    Ms. McCurdy. First of all, you pointed out the challenge 
from the perspective of the U.S. Supreme Court, and that is the 
first amendment, and that is routinely what is thrown out there 
as an impediment sometimes for us to be able to do some further 
regulation because the professionals enjoy the same protection 
as the charities of the person when they are raising money for 
the charities.
    Mr. Shays. It is a freedom of speech issue, basically.
    Ms. McCurdy. Yes.
    Mr. Shays. They can say what they want and do what they 
want.
    Ms. McCurdy. That is what it would appear although that is 
not entirely true.
    Mr. Shays. So why do the States have a little easier time 
or how do the States deal with this issue?
    Ms. McCurdy. First of all, I don't believe that there is 
any Federal agency charged with oversight of the sector other 
than the Internal Revenue Service, which, what they do is just 
focus really in on the reporting issues, on how the documents 
are being reported and their activities are being reported to 
the Internal Revenue Service.
    I am not aware of any Federal agency that enjoys the power 
to regulate the sector as at the State level.
    Mr. Shays. So one issue is that we should be looking to see 
if, for instance, the Federal Trade Commission or the Internal 
Revenue Service should be empowered to have more oversight 
potentially or some oversight?
    Ms. McCurdy. If there is that ability. I know with the 
proposed new Form 990, the Internal Revenue Service is looking 
at some governance issues.
    Mr. Shays. Explain again what you do that is so much better 
than what other States do? What are the things that you do?
    Ms. McCurdy. We do enjoy the luxury, I guess, of having a 
dedicated staff of investigators and auditors who are devoted 
to this issue, solely.
    Mr. Shays. So you are allowed to audit them.
    Ms. McCurdy. Yes.
    Mr. Shays. And that opens up opportunities.
    Ms. McCurdy. Yes.
    Mr. Shays. You are allowed to publicize what they do, and 
that probably is helpful.
    Ms. McCurdy. Actually, we are directed to publicize what 
they do.
    Mr. Shays. But what would constitute an illegal act in your 
State versus another State?
    Ms. McCurdy. Well, I don't know that I can say, make the 
distinction, but I can talk about what would be in my State, an 
illegal act.
    Mr. Shays. Your State does it better than others. I am just 
trying to understand what do you do. Is it just the people and 
just the energy or do you have certain laws that give you 
opportunities?
    Ms. McCurdy. I don't believe that our law is really that 
much different from other States' laws. I think it is that we 
have the staff. We have the energy, as you pointed out, to be 
able to push this forward. We have a prosecuting attorney who 
is dedicated full time to work on the cases that are brought in 
by the investigators and the auditors.
    Mr. Shays. Thank you.
    Evidently, my time went by faster than I realized. Thank 
you.
    Chairman Waxman. Thank you, Mr. Shays.
    Ms Norton.
    Ms. Norton. Thank you, Mr. Chairman.
    Ms. McCurdy, I am interested in pursuing the question I 
raised in my opening remarks about the amount of funds that go 
directly to the charity as announced.
    I have here this month's Better Business Bureau guide, Wise 
Giving Guide, and I note that their guide says no more than 35 
percent of the money should go for what we will call 
fundraising or expenses, in other words.
    Then there is another guide, the American Institute of 
Philanthropy. This is the charity rate guide and the watchdog 
report. Both of these are this month's report, and they say $35 
percent for every $100. I think it is pretty generous.
    I will ask you about that. Would you agree that fundraising 
costs should be capped at one-third or below?
    Ms. McCurdy. I think this was pointed out in one of the 
opening statements. You can't say that necessarily across the 
board. If you have a new organization that is just getting 
started, there will be higher costs of fundraising at the 
beginning. It is where you look at the historical tracking of 
that particular organization and if they can't find a way to 
reduce their fundraising costs to keep them below that amount.
    That is the, I think, the average. I think I made that 
point in my statement as well, that is the generally accepted 
standard for fundraising. So you have to look at it over a 
historical time, but if consistently they are spending more 
than that, I believe it would be a concern, yes.
    Ms. Norton. It would be a concern.
    I wonder if you could look at a slide that I would ask the 
staff to put up concerning the percentage of funds spent on 
veterans by a number of groups. As you look at the first group, 
TAPS, and this group has a solid record as they kept 
fundraising down to around 27 percent, meeting the benchmark.
    But all four of the other groups failed the test. Some of 
them are well-known groups. In other words, they spent the 
majority of their funds raised from the public on the 
fundraising. It ranges, if you look, from 58.6 percent to 85.9 
percent.
    Would you agree that at least people know in advance, for 
example, that 85 cents of every dollar they are giving is going 
to expenses, fundraising expenses? Is that at least the kind of 
knowledge?
    I am not sure what kind of regulation. I am using, at least 
as a guide, the one group I know under Federal jurisdiction and 
that is Charitable Giving here.
    Ms. McCurdy. I assume when you are saying these people, you 
are talking about the donors should know about this?
    Ms. Norton. Charitable giving.
    Ms. McCurdy. Yes, absolutely, that is part of my point that 
I am hoping I get across today. I believe the donors should 
know this, and it should be disclosed at the beginning of any 
solicitation whether it is in writing or oral.
    Unfortunately, we are, as I mentioned earlier, constrained 
by the Supreme Court case, the Madigan v. Telemarketing 
Associates case, which says that it will be unconstitutional to 
require that disclosure at the outset.
    Ms. Norton. It would be unconstitutional? I am sorry.
    Ms. McCurdy. To require the disclosure of the actual 
percentage of money that is going to go to the fundraiser 
versus to the charity.
    Now, if the donor asks the question----
    Ms. Norton. Well, I don't think we are violating the law. 
The Combined Campaign Fund does, in fact, list what amount of 
funds go to fundraising, so you know.
    Ms. McCurdy. Absolutely. The problem would be if the 
Government required that disclosure. I believe that the 
charities should fully disclose that, and it is certainly not 
only acceptable, but I think should be encouraged to disclose 
that.
    Ms. Norton. You said there may be constitutional problems 
with requiring the disclosure of the amount of the funds that 
go for expenses even though they have to file an annual report 
that go for expenses and that go to the charity.
    Ms. McCurdy. It is at the point of solicitation which is 
where the issue is.
    Ms. Norton. Sorry?
    Ms. McCurdy. It is at the point of solicitation is where 
the issue becomes the issue. If the donor asks the question, 
which is why I want to focus so much energy on trying to better 
educate the donors, if they ask the question, they are required 
to answer truthfully, but we cannot require that there is a 
voluntary disclosure at the outset.
    The reason that is stated is it would quash fundraising 
efforts if the donor knew, and it is sort of ironic because 
that is exactly what we are hoping.
    Ms. Norton. I don't know this decision, but I think, Mr. 
Chairman, we will have to look at this decision because I don't 
think the Federal Government is in violation of this decision.
    I know this: Federal employees, we have some jurisdiction 
on. They are our employees. We have, forgive the expression, 
sole custody of these soldiers. They are under our command. 
They must do exactly what we say.
    So the notion that there can't be at least some way to 
inform people whether they are giving to our soldiers or giving 
to expenses does not seem to me to be forbidden.
    Ms. McCurdy. I think the Combined Federal Campaign is a 
perfect way to be able to do exactly what you are suggesting 
which is to disclose how the money is going to be spent.
    Chairman Waxman. Thank you very much, Ms. Norton.
    Mr. Platts.
    Mr. Platts. Thank you, Mr. Chairman.
    I would like to first yield to my colleague, Mr. Shays.
    Mr. Shays. Yes, I thank the gentleman for yielding.
    Just to correct the record, Mr. Chairman, I had said that 
myself and Mr. Koch and Attorney Blumenthal had been used by 
the National Veterans Service Fund in quotes that they took 
from us in 1980, and Mr. Koch had notified me of that and we 
got ourselves off the list. But it wasn't Attorney Blumenthal. 
It was former Governor William A. O'Neill who just recently 
passed away, whose quote they were using, I think, mistakenly.
    I thank the gentleman for yielding.
    Mr. Platts. You are welcome.
    Mr. Chairman, thank you and the ranking member for hosting 
this very important hearing. We certainly are a blessed Nation 
because of those who serve in uniform, and we want to make sure 
when individuals seek to help them by contributing funds to 
charity groups, that those funds really go to those who have 
served us or the family members.
    I want to thank both of our witnesses for your work and 
especially, Mr. Edmundson, please convey my sincere gratitude 
to your entire family for your son's service and sacrifice. As 
I said, we are blessed because of him and all our heroes who 
wear the uniform.
    Certainly, Ms. McCurdy, I am delighted to be here with a 
fellow Pennsylvanian, and I appreciate your work at the Bureau.
    Without breaching any privacy requirements on you, can you 
give some examples of actual investigations you have done into 
misconduct or allegations of misconduct?
    Ms. McCurdy. I can talk about a couple of veterans ones we 
have done or I can talk in the broader scope if you would like.
    Mr. Platts. If you can keep the focus on the veterans, that 
would be great.
    Ms. McCurdy. Sure. As I mentioned earlier, and you weren't 
in the room at the time.
    Mr. Platts. Yes, I do apologize if I am repeating because 
of trying to be in too many places at one.
    Ms. McCurdy. No. I certainly understand, but I mentioned 
that we do work with the criminal authorities. The local 
district attorneys in Pennsylvania share jurisdiction over our 
act. It has been one of our goals of our Bureau to work more. 
There are 67 counties in Pennsylvania, and we probably have 
about 8 or 9 that we have had some good working relationships 
with now, and we believe that is the best way to get to some of 
this.
    We have successfully prosecuted two individuals who were 
using a veterans' organization as a mechanism to raise money 
for themselves.
    Mr. Platts. How did they or that information come to your 
attention that led to the investigation and prosecution?
    Ms. McCurdy. I know at least one of them was doing 
solicitation in front of a Wal-Mart, and they were violating, I 
think, a local solicitation law. I am not sure on the facts, 
and I do have the chief of our investigation division with us, 
and he can certainly amend anything that I have to say.
    But we learned about them through local authorities, that 
they were out there, that they were asking for money, and 
someone would report it to us. We have enjoyed the benefit of 
being able to call up the local authorities, and then they 
would go out and exercise their arrest powers on our behalf, 
basically.
    Mr. Platts. Does the Bureau only respond to when there is 
information brought to you--having been in the State House, but 
it has been 7 years, so I am maybe a little rusty on the 
interaction--or do you do any kind of spot checks on charitable 
groups, more kind of an undercover approach, proactively?
    Ms. McCurdy. All of the above. We have reactive 
investigations. Of course, if we receive a complaint, that is 
going to be something that we will consider to be a priority 
that we would pursue, but we have proactive investigations. We 
learn a lot about our investigations through the media, anyway.
    We also do random audits. We do maintain the records for 
the 10,000 organizations that I mentioned in my statement, and 
we have the ability. We have five investigators and four 
auditors to be able to routinely check them.
    Of course, it is sort of like any other agency. If you have 
come to our attention before, you will stay on our radar 
screen, and we will look at you in the future as well.
    Mr. Platts. I apologize. This may have been asked as well 
earlier. Is there something, anything particular or specific 
that we could do that would better help you at the State level 
and then alternately at the local level with our DAs in 
Pennsylvania and across the country that is currently not in 
law?
    Ms. McCurdy. If there was some way that we could better 
educate the donors. We are one bureau in Pennsylvania. The 
attorney general's office also has jurisdiction, and they do 
some outreach efforts through their charitable trusts section.
    But it needs to be more national. It needs to be more 
global. We struggle with how do we reach the donors, how do we 
educate them that the most important thing a donor can do 
before they give money is ask questions. Question everything.
    Mr. Platts. Yes. So we have done better nationally with 
identity theft and outreach to better get the public aware or 
something similar, that type of national effort?
    Ms. McCurdy. Absolutely, that is a perfect example of 
something that I think has been done well. Whatever the methods 
that were used to achieve that, if we can employ that in the 
charitable sector, it would be really helpful.
    Mr. Platts. Great.
    Well, again, my thanks, Mr. Chairman and to our witnesses 
for your important testimony and again, Mr. Edmundson, to your 
family for your family's service to our Nation.
    Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Platts.
    Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    Mr. Edmundson, thanks for coming and talking to us today 
and testifying. You really set the stage for all the testimony 
that follows in terms of why we have to pay so much attention 
to this. So, thank you.
    Ms. McCurdy, I had a couple questions. I am going to go 
back to this line of questioning that Congresswoman Norton was 
pursuing just so I can understand a little bit better because 
disclosure seems to be a key ingredient here in solving the 
problem, and you talked a lot about just needing to have more 
information available to people.
    Just so I understand, you are saying that the law currently 
prohibits at the point of solicitation a disclosure at that 
point, whether it is orally like over the phone or something or 
embedded somehow in a written solicitation.
    It prohibits requiring that, at that point, you disclose 
how expenses have been paid for--is that what you are saying--
versus a requirement that would say how money is going to be 
spent going forward? Is there any distinction there or are both 
prohibited?
    Ms. McCurdy. As I understand the case, the Supreme Court 
case which was the Madigan versus Telemarketing Associates 
case, first of all, they come right out and say that high 
fundraising costs per se are not per se fraud. Then the second 
element of that is that the States or whoever is regulating the 
disclosure cannot require that they voluntarily disclose that 
amount during a solicitation. However, if asked, they have to 
truthfully answer.
    That is as I understand the case.
    Mr. Sarbanes. I, like others, want to understand that case 
better because it seems to me there must be some way to build 
some basic disclosure in there.
    Ms. McCurdy. It is critical.
    Mr. Sarbanes. But let me ask a different question. Are 
there any accreditation opportunities out there? Are there 
organizations, and maybe the next panel is better positioned to 
respond to this than you are, but are there any organizations 
out there that, in effect, accredit, where you can seek 
accreditation?
    Like within the non-profit world, I know that there are 
accrediting organizations that have grown up where if you hit 
15 measures successfully, then they will say you have the stamp 
of approval from such and such organization which gives people 
some confidence in dealing with that non-profit. Are there any 
similar kinds of organizations out there and, if so, is it 
having the effect of people, charities invoking that or using 
that stamp of approval as a way of promoting their cause or 
giving more comfort to the donors?
    Ms. McCurdy. I am not aware. The only organization that I 
have any knowledge of is the Association of Fundraising 
Professionals, and I don't know if they have any accreditation 
process as is done at the charitable level.
    I know in Pennsylvania the Pennsylvania Association of Non-
Profit Organizations does use the Standards of Excellence 
Program, but I can't really speak on how they view the success 
of that. I know it is a program that they are using more and 
more, so they must believe that it is being successful for 
their member organizations in how they are building the donor 
confidence with their own donors.
    I am not familiar at the fundraiser level. I think the next 
panel maybe might have some more insight into that than I do, 
but I don't know if that would help necessarily at the point of 
solicitation.
    Mr. Sarbanes. When you say that, why is that? What do you 
mean?
    Ms. McCurdy. Well, it relates to the fact of it is like 
with any profession. People who want to do good will do good. 
People who will join those organizations, they are not the ones 
we are concerned about.
    We are concerned about the other ones who aren't joining 
member organizations, who aren't participating in accreditation 
programs. They are the ones that we have to worry about. They 
are the ones that are the profiteers. They are the ones.
    I would imagine that if I were to look at the contracts in 
Pennsylvania, the ones that are problematic and they are in our 
report. You can see the ones where the high numbers of costs 
are versus the amount of money, and we also report on the ones 
that are responsible. They are not going to be helped by any 
further disclosure.
    Mr. Sarbanes. I guess what I would hope is if you develop a 
mechanism, a kind of good housekeeping seal of approval thing 
that people wanted to get to help with their credibility in 
solicitation, over time when people are calling in or you are 
doing your education efforts, you could say, look for the good 
housekeeping seal of approval, so that over time, people, the 
donor audience would come looking for that as a way of giving 
them some comfort. I was wondering, do you have any?
    You have 10,000 charities that are registered, I think you 
said. Are you aware of charities that are using in their 
solicitation and, in the case that they make to the public, are 
pointing to how efficient they are? Do you instances of that 
and how effective do you think that is as part of the pitch 
that they are making?
    Ms. McCurdy. I am aware that they are doing it. Of course, 
it makes absolute sense to do that if they have achieved, and I 
know it is a stringent process for PANO, the Pennsylvania 
Association, to achieve that standards of excellence.
    If they have gone through everything, and they look at 
everything. They pull out all the drawers and look at 
everything that is in those drawers. So, certainly, if they 
survive that process, absolutely, they are going to use it.
    How effective is it in their solicitation campaigns? I 
can't comment. I don't know.
    Mr. Sarbanes. OK.
    Chairman Waxman. Thank you, Mr. Sarbanes.
    Mr. Burton.
    Mr. Burton. Thank you, Mr. Chairman.
    I just don't understand how an organization can give less 
than 5 or 4 or 3 or 2 percent to the soldiers involved and not 
be guilty of some kind of infraction, so they can be 
prosecuted. Well, what is the standard?
    I mean maybe you have answered this before. At what point 
does it become fraudulent?
    Ms. McCurdy. There is not a legal standard that is applied.
    Mr. Burton. Is there a way to create a legal standard?
    It seems like the State legislatures or, if we are talking 
about veterans from across the country, the Congress could pass 
some kind of a law saying that there has to be accountability 
and set some kind of a standard.
    Ms. McCurdy. If the legislature can do that, I would 
applaud it, and it certainly would make our job easier if we 
had a standard for us to be able to look at whether or not the 
high fundraising costs are a problem. Then certainly that 
triggers us to look at it if it is a high amount, but we have 
to look at the underlying numbers and we really have to look 
for actual fraud.
    Mr. Burton. I get these things all the time. I am sure all 
of us do. Some of these on this list, I have given money to on 
a regular basis, and it is really distressing to know that.
    That is a tax-deductible item to the person who is giving 
that money. If they are frittering away that money or wasting 
that money, it seems like they would be complicitous in tax 
fraud because they are taking my money and they are not 
spending it wisely or they are putting it in their own pockets. 
It seems like there ought to be some retribution for that.
    Ms. McCurdy. I don't disagree.
    Mr. Burton. Have you ever thought about or has there been 
any legislative proposals to set some standards like that?
    Ms. McCurdy. Not in the 5-years that I have been working in 
this area. I know we are revisiting our current statute in 
Pennsylvania. We haven't done anything officially with the 
legislature, but we in the Bureau are looking at it and looking 
for areas where there might be some amendments that would be 
helpful.
    Mr. Burton. Are there any groups that are looking at a 
legislative way or a law that could constrict some of these 
people's appetites for pocketing this money?
    Ms. McCurdy. I am not sure what you mean by are there any 
groups looking at?
    Mr. Burton. I mean are there any groups coming up with any 
legislative proposals?
    You folks are watchdog groups, but have any of your 
organizations that are watching these charities come up with 
some legislative mechanism that we could work on here in 
Congress or in the State legislatures to set the standard?
    Ms. McCurdy. Not that I am familiar with, but I can.
    Mr. Burton. That is something. That seems like to me that 
is something that we need.
    Having these hearings and talking about it and focusing 
attention on it like in the paper, the Washington Post this 
morning, I think that is good, but I will bet you that not 1 
percent of the American people are following this hearing. They 
are not going to know it is going on, and so they are going to 
continue to pour this money into these charities that are 
wasting it.
    It seems to me that there has to be some way to say, OK, if 
you are getting a dollar, you have to at least put this much 
money into the charitable purpose. You can use the rest for 
advertising and whatever you want to, but you have to put at 
least this percentage in. That would, I think, put a real 
hammer on these people.
    But you don't know of any legislative proposal like that?
    Ms. McCurdy. I am not aware of any, but the State, the 
State regulators are all members of an organization called the 
National Association of State Charity Officials [NASCO]. I am 
actually on the board of directors for that. I can certainly 
bring that up at our next board meeting and see if we think 
there is anything at our level that we might be able to start 
looking at.
    Mr. Burton. Well, I have Brian, my staff guy, here. I would 
like to really have somebody. When you meet with these people, 
if you could give us some kind of parameters that could be put 
into a legislative proposal, that might at least scare the hell 
out of these people that are stealing this money.
    Ms. McCurdy. We can certainly do that. I would be happy to 
provide further information to you to that.
    Mr. Burton. I will have Brian get in touch with you then.
    I don't think I have any other questions. I just feel the 
frustration--I think all of us do--especially when I think of 
the money I have given them.
    Ms. McCurdy. You are not alone.
    Mr. Burton. Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Burton.
    I want to express my concern that there is not sufficient 
legislative protections. I think we ought to, on this committee 
in our oversight, not only find out the problems but figure out 
some solutions, and I hope we can all work together on this 
committee to come up with some ideas to do that.
    I think a lot of people don't realize how little of that 
money they are giving to these charities, not just veterans' 
charities but all charities, actually goes for the purpose that 
they were told charities serve.
    Another thing that most people don't realize is we have 
heard about the charities raising money, but there are 
professional organizations. In fact, there is an entire 
industry of for-profit companies that do nothing but send 
letters and make calls to solicit charitable donations.
    For example, you have a charity. Let me give an example, 
the Disabled Veterans Association. They have a major 
fundraising campaign from August 2005 to April 2006, but they 
didn't do the fundraising themselves. Instead, they hired a 
for-profit fundraising corporation called Civic Development 
Group to help them, and DVA has provided the committee with a 
breakdown of its fundraising expenses. I would like to see if 
we can put that on the board.
    As this document shows, the first number is the amount of 
money that people donated. Fundraising collections were over 
$4.5 million, and that is a phenomenal amount for a charity. 
But the next line indicates fundraising expenses were about $4 
million. In other words, out of $4.5 million in donations, this 
charity got less than 500,000. That is what the charity got, 
and that is not even 10 percent of the money that was raised 
for that charity.
    Now, Ms. McCurdy, based on your experience, do donors know 
that up to 90 cents of every dollar they provide could be eaten 
by fundraising costs?
    Ms. McCurdy. I don't think that the large amount of donors 
do know it, and I do believe that is one of the most critical 
things that we as State regulators and that you as the Federal 
Government can do is to provide better education, as I was 
discussing with Representative Platts, that there could be some 
way that we could take this to the level that we have on other 
important issues and make them more aware.
    Chairman Waxman. So people aren't aware.
    That which we have just shown on the board is the breakdown 
of the fundraising campaign's expenses, but the actual expenses 
are broken down even further. They have all kinds of things you 
would expect. They are paying for salaries. They paid for rent, 
equipment, telephones, all the supplies, printing and shipping.
    Most people think, of course, there are fundraising 
expenses, but then you come to the last line. Even after all 
these charges for every expense imaginable, the for-profit 
corporation charges $2.2 million for ``management consulting 
fees.'' This $2.2 million is 55 percent of all the money that 
they have raised in that campaign, and they have something 
called a management consulting fee.
    I don't know what goes through your mind, but let me ask 
you, Mr. Edmundson. What goes through your mind when you now 
see that they are taking $2.2 million or 55 percent of all the 
money raised, and it is going to a management fee?
    It is pretty outrageous, isn't it?
    Mr. Edmundson. The first thing that goes through my mind 
when I read this is anger, absolutely.
    Chairman Waxman. Well, we all share that anger. Just giving 
them a seal of approval or not doesn't seem to me enough. We 
ought to do what we can do, but I don't think this should be 
tolerated, and I don't think most Americans would think it 
ought to be tolerated either.
    It makes all of us angry that the veterans, people who have 
served our country, are used to raise money to give some 
professional organization and the business of fundraising, 
management fees of 55 cents out of every dollar. It is 
absolutely inexcusable.
    I see Mr. Van Hollen has come, and I want to recognize him.
    Mr. Davis of Virginia. Mr. chairman, can I just take 1 
second to say I would associate myself with your remarks?
    Chairman Waxman. Yes.
    Mr. Davis of Virginia. We are talking today about veterans, 
but I think unfortunately this stretches into every part of 
charitable donations to diseases, orphans and the like.
    I really applaud you for holding the hearing, and I hope we 
can work with you to followup with some legislative action.
    Chairman Waxman. Thank you very much.
    Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman, and thank you for 
calling this hearing on a very important issue. It is, 
obviously, important that the American people have confidence 
that when they are providing money to our veterans, in support 
of our veterans, that it is being used for that purpose.
    I appreciate your testimony and, Mr. Edmundson, I heard 
your opening statement. I want to thank you for being here and 
for the sacrifice your family has made.
    Ms. McCurdy, I had a question with respect to the recourse 
that the public has in these cases. I understood your testimony 
with respect to the Supreme Court ruling which is they said 
that you can't essentially hold one of these non-profits 
accountable through the criminal justice system anyway right 
now with respect to fraud.
    If an organization that is raising money, one of these 
charitable foundations, makes a statement, a representation to 
the public as part of their fundraising, for example, if they 
say, 80 cents of every dollar goes to veterans, and that proves 
to be untrue, then there would, would there not, be some 
recourse against them in terms of a misrepresentation and fraud 
on the public?
    Ms. McCurdy. Absolutely, and we would pursue that in 
Pennsylvania aggressively both administratively through my 
office and hopefully with whatever criminal jurisdiction that 
fell in.
    Mr. Van Hollen. Right. So did the Supreme Court decision 
bar in any way either State or local governments from requiring 
that non-profit organizations that register in their 
communities be required to disclose the amount that goes to 
veterans' organizations?
    Ms. McCurdy. There is disclosure that does take place. It 
is in the annual reporting that they are required to do, and 
the professionals are required to file with us every contract.
    I mean the disturbing thing for us--coincidentally, before 
this issue came up that we had the opportunity to be here today 
and speak to you, we had been looking. As I said earlier, in 
our annual reports, we report on what professional solicitors 
are reporting and we look at their contracts. Charities are 
agreeing to this, and it doesn't violate State law for them to 
agree to a contract.
    I can tell you we looked at all the ones that were over 100 
percent of the costs went to the professionals. So, in other 
words, the charities were actually paying for the campaign, and 
they got nothing out of it, and they agreed to this in contract 
form.
    Mr. Van Hollen. I understand.
    I guess my question is that you get the information. You 
get to look at the contracts. But is there anything that would 
prohibit a State government, for example, from saying as a 
condition of registering as a non-profit, you must tell the 
public how much of the dollars you are raising goes to veterans 
and how much is going to the purpose, so that then you can hold 
them accountable for making a public statement?
    In other words, then if they misrepresent to the public 
what they are doing, you do have grounds for going after them. 
Is there anything that would prohibit us from requiring that 
they disclose to the public how much of every dollar raised is 
going got the cause that people giving think it is going to and 
how much is going to overhead and profit or overhead and to pay 
the salaries?
    Ms. McCurdy. Legislatively, we don't have that ability to 
do that right now. I don't know whether or not that is 
something that can be changed in Pennsylvania law. I don't know 
whether or not the Supreme Court case, any constitutional 
challenge to that law would prevent it ultimately.
    However, we can require them to state that when asked, and 
that is required in Pennsylvania. If the donor asks the 
question, they have to give a truthful answer. At that point, 
if it is not a truthful answer and we are able to demonstrate 
that, we would pursue it.
    Mr. Van Hollen. Yes, we want to educate the public.
    Ms. McCurdy. Right.
    Mr. Van Hollen. But that, of course, puts the burden on 
every financial contributor to ask that question.
    Ms. McCurdy. Yes, it does.
    Mr. Van Hollen. I am just asking whether there is anything 
that you know of in the Supreme Court decision that would 
prevent us from reversing that burden and saying to somebody 
who is raising money for a good cause, how much of that money 
is actually going to the cause that they are serving.
    Ms. McCurdy. I would love to see that if that could happen. 
We are as frustrated in my Bureau as anyone else. At the same 
time that we are regulating this, we are donors also, and we 
enjoy the ability to be able to investigate the organizations. 
If that could happen, that would be a really, really helpful 
thing.
    Mr. Van Hollen. Thank you.
    Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Van Hollen. Let me commend 
you for your leadership on this issue. I know it has been a 
very important cause to you.
    Thank you both very much for being here. You have certainly 
set out the framework for the issue that we are looking at, and 
we are going to have another panel of witnesses. I very much 
appreciate your participation in the hearing, and we are 
grateful for that.
    Mr. Edmundson, we owe you and your son to do something 
about this problem. Thank you so much.
    Mr. Edmundson. Thank you.
    Ms. McCurdy. If there is anything that I or my Bureau can 
assist with in the future, please don't hesitate to ask.
    Chairman Waxman. Thank you.
    I would like to now call forward Mr. Robert Friend, 
president of the American Veterans Coalition, Gig Harbor, WA; 
Ms. Pamela L. Seman, executive director of the Disabled 
Veterans Associations in Rocky River, OH; Mr. Daniel Borochoff, 
president of the American Institute of Philanthropy; Mr. 
Bennett Weiner, chief operating officer, the Better Business 
Bureau's Wise Giving Alliance; and Ms. Bonnie Carroll, 
executive director, Tragedy Assistance Program for Survivors in 
Washington, DC.
    I want to welcome each of you to our hearing today. We very 
much appreciate your being here.
    It is the practice of this committee now that you are 
seated, to ask you to stand because all witnesses that testify 
before us must do so under oath.
    [Witnesses sworn.]
    Chairman Waxman. Let the record show that the witnesses 
responded in the affirmative.
    Ms. Carroll, why don't we start with you?
    Let me indicate that your prepared statements will all be 
in the record in full.
    We would like to ask you to limit the oral presentation to 
no more than 5 minutes. We will have a clock there that will be 
green, turn yellow for the last minute and then red when the 5-
minutes are up.
    Please proceed.

   STATEMENTS OF BONNIE CARROLL, EXECUTIVE DIRECTOR, TRAGEDY 
 ASSISTANCE PROGRAM FOR SURVIVORS; PAMELA L. SEMAN, EXECUTIVE 
   DIRECTOR, DISABLED VETERANS ASSOCIATIONS; ROBERT FRIEND, 
   PRESIDENT, AMERICAN VETERANS COALITION; DANIEL BOROCHOFF, 
  PRESIDENT, AMERICAN INSTITUTE OF PHILANTHROPY; AND BENNETT 
 WEINER, CHIEF OPERATING OFFICER, THE BETTER BUSINESS BUREAU'S 
                      WISE GIVING ALLIANCE

                  STATEMENT OF BONNIE CARROLL

    Ms. Carroll. Mr. Chairman, distinguished members of the 
committee, on behalf of TAPS, the Tragedy Assistance Program 
for Survivors, and the families of those who have died while 
serving in the Armed Forces, I am honored to have this 
opportunity to speak about the care provided to surviving 
military families.
    Dr. Daniel R. Sudnick, the chief financial officer for 
TAPS, has provided a written statement addressing critical 
aspects of the subject before today's panel, and I respectfully 
request his statement be submitted to the record.
    Chairman Waxman. Without objection, that will be the order.
    [The prepared statement of Mr. Sudnick follows:]

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    Ms. Carroll. The subject of today's hearing reflects the 
gravity of the words of President Abraham Lincoln, inscribed on 
the front of the Department of Veterans Affairs building: 
``With malice toward none; with charity for all; with firmness 
in the right, as God gives us to see the right, let us strive 
on to finish the work we are in; to bind up the Nation's 
wounds; to care for him who shall have borne the battle, and 
for his widow, and his orphan.''
    As the widow of a soldier killed along with seven other 
soldiers in the Army National Guard, as a Reserve commander who 
lost two of my airmen, as Chief of Casualty Operations at 
Headquarters U.S. Air Force Casualty Affairs, as a Department 
of the Army civilian serving in Iraq and now as the executive 
director of TAPS, I have seen the best of the services provided 
to our surviving families, both in the public and private 
sectors. It is my privilege to offer insight today.
    For the past 14 years, TAPS has been a sanctuary providing 
hope, comfort and healing for all those whose lives have been 
forever changed by the death of a loved one who served in the 
Armed Forces. Whether they are parents, children, spouses or 
siblings, TAPS meets a critical need by offering a national 
network of peer-based emotional support, the Survivor Seminars 
and Good Grief Camps for young survivors, long-term case work 
assistance connecting families with all public and private 
agencies, bereavement and trauma resources, and information 
across America and crisis intervention.
    This network is available 24 hours a day, 7 days a week, at 
no charge to the family and at no expense to the Government. In 
cooperation with our fellow veterans service organizations such 
as Gold Star Wives, Gold Star Mothers, Society of Military 
Widows, National Military Family Association and others, we 
meet the need of offering loving, emotional support services to 
all those grieving the death of their loved one.
    TAPS was founded after 2 years of careful research 
examining the need, the existing services provided, and the 
private and public support already in place. The goal of 
creating this veterans service organization was to provide care 
not otherwise offered. From this extensive research, TAPS 
identified those areas where gaps existed and carefully 
benchmarked the best practices of existing peer-based emotional 
support programs in America and abroad.
    In speaking with officials from the Departments of Defense 
and Veterans Affairs in 1993 and 1994, TAPS was able to 
determine where the federally funded services ended and it was 
appropriate for private sector support to begin. I would offer 
special thanks for guidance in those early days to then 
Secretaries of Defense Cheney and Perry, Senators Bob Dole and 
Ted Stevens, and the director of our sister organization for 
police officers, Suzie Sawyer.
    The military has a critical mission to meet. The surviving 
families, likewise, have a mission: remembering the life and 
grieving the loss of their loved one while honoring their 
service and sacrifice.
    TAPS provides an understanding embrace of care and comfort. 
Through our peer-based emotional support network, families are 
not only able to help others but, in doing so, continue to help 
themselves. As Ralph Waldo Emerson said, ``It is one of the 
most beautiful compensations of this life that no man can 
sincerely try to help another without helping himself.''
    This network and the staff and infrastructure to support it 
is made possible entirely through the generosity of Americans 
who understand our mission and support our non-profit 
organization.
    A decade ago, then-chairman of the Joint Chiefs John 
Shalikashvili looked carefully at our program, and when he 
spoke at the TAPS National Military Survivor Seminar, he told 
our families, ``We can't do for you what you can best do for 
each other.''
    This solidified our mission and forged the bond that exists 
to this day between TAPS and the military casualty teams. After 
9/11, TAPS served alongside the American Red Cross as the only 
private organization inside the Pentagon Family Assistance 
Center. It is our partnership with the military that allows us 
to provide a comprehensive package of support to all who are 
grieving a loss.
    TAPS supports over 15,000 surviving family members in our 
data base with 24-7 support, quarterly journals, invitations to 
regional and national events and weekly online support 
services.
    In the past year, TAPS has hosted 11 regional and national 
survivor seminars and Good Grief Camps, serving over 2,500 
family members. We provided TAPS Care Teams to support 4 major 
national gatherings of surviving military families attended by 
over 5,000 people. We sent 5,236 TAPS Survivor Care Packages to 
grieving families, casualty officers and military installations 
supporting surviving families.
    Our call center received 8,844 calls from surviving 
families on our toll-free line. We averaged 750,000 Web site 
hits per months, hosted 208 national online support group 
sessions, organized 24 TAPS Care Groups, trained 254 peer 
mentors to support newly grieving families, provided Care Team 
training to over 834 military members and DOD civilians, 
recruited and trained 465 military volunteers who serve as 
mentors to surviving children.
    We have expanded our services to support the families of 
1,000 civilian contractors who died while serving in Iraq and 
conducted outreach to the large population of Spanish-speaking 
surviving family members.
    To meet our mission, we must have a sophisticated 
technology and communications infrastructure and a staff who 
not only understand the military surviving family but who are 
also academically and professionally qualified.
    We are in the process of developing our next level of 
staffing and infrastructure to meet the demands of today. This 
will require TAPS to invest significant portions of its 
operational budget in the technology infrastructure and 
training that will enable to deliver critically needed support 
services to the surviving family members.
    Chairman Waxman. Ms. Carroll, your time is up. Do you want 
to conclude your testimony?
    Ms. Carroll. Yes. I am sorry.
    On behalf of the families of our fallen heroes and TAPS, I 
appreciate the dedication and commitment of the distinguished 
members of the committee to protect, defend, restore and 
improve the services provided to those who have served our 
Nation in peace and war and to their families, and to ensure 
the organizations who are seeking funds from a patriotic public 
use the funds wisely to meet essential mission requirements as 
dictated for the needs of the military and the families, not by 
the needs of the non-profit.
    [The prepared statement of Ms. Carroll follows:]

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    Chairman Waxman. Thank you very much, Ms. Carroll.
    Ms. Seman.

                  STATEMENT OF PAMELA L. SEMAN

    Ms. Seman. Thank you, Chairman Waxman, Ranking Member Davis 
and distinguished members of the committee for the opportunity 
to appear before you today on behalf of the Disabled Veterans 
Associations.
    My name is Pamela Seman, and I am the executive director of 
the Disabled Veterans Associations.
    Disabled Veterans Associations, which started in 1996, is a 
charitable organization registered under Ohio law. Its mission 
is to help improve the quality of life of our veterans through 
aiding and assisting needy and disabled veterans, their 
families and dependents, whether they have been hospitalized at 
one of the U.S. Department of Veterans Affairs medical centers, 
admitted to one of the 100 State-run and State-funded veterans 
homes, or simply in need at home.
    We have developed a number of programs to assist veterans 
and have funded these programs through our fundraising efforts. 
Our organization accomplishes its goals with the assistance of 
only three paid employees.
    Statistics from the U.S. Department of Veterans Affairs are 
staggering. There are now more than 23 million living veterans. 
Nearly 2.2 million of these veterans suffer from a service-
connected disability and nearly 40 percent are 65 years or 
older.
    There are over 100 State-run, State-funded veterans' long-
term care and domiciliary homes that provide care exclusively 
to veterans and their spouses. Yet, four out of five people you 
meet on the street have no such idea that these facilities 
exist. Our public service announcements inform the public and 
veterans that these State-run veterans homes exist and are 
available to the men and women who gave up so much for our 
freedom.
    Our public service announcements can be heard on more 3,500 
radio stations nationwide. They inform the listener that help 
is available to honorably discharged veterans. A toll-free 
number is provided for the listener to obtain information not 
only on the State-run homes but on any veterans' issues they 
may have.
    We offer gifts and grants to the State-run veterans homes 
and the VA medical centers throughout the country, so they may 
provide veterans with day-to-day necessities that they 
otherwise may not receive due to budgetary limitations. We have 
provided everything from basic toiletries to reconstruction 
[sic] and refurbishing an audiology room. These gifts and 
grants have proven to be vital to the well being of veterans in 
these facilities.
    Our Helping and Assisting Veterans in Emergency Program 
allows us to assist our veterans on a more individual basis. 
Many of these veterans are awaiting their benefits through the 
VA and find they are unable to pay their bills during the 
interim. By working hand-in-hand with county service offices 
and other agencies, we are able to assist veterans on a short 
term, beneficial basis. Veterans can receive a one-time gift to 
help them through their rough period. We assist with mortgages, 
rent, utilities and various other items.
    We also offer a veterans' entrepreneurial training seminar 
program. The day-long seminars are available to all veterans 
free of charge. We include speakers from the Small Business 
Administration, the Service Corps of Retired Executives, 
certified lenders and State taxation departments. The program 
is designed to help veterans struggling with their small 
business or who are starting a small business.
    The Disabled Veterans Associations first entered into a 
fundraising contract with Civic Development Group in 1998. I 
became executive director in 2002. At that time, the contract 
was already in place for fundraising services provided by Civic 
Development Group.
    The first time a fundraising contract came up for review 
while I was Executive Director was in September 2004. The 
percentages in the contract remained the same as they were from 
the beginning, 12.5 percent for us and 87.5 for Civic 
Development Group. I questioned the split and actually made 
inquiries with other vendors and learned that the percentages 
were pretty much a standard in the industry.
    Though we were unhappy with the split, CDG agreed to 
provide us with a guaranteed minimum of 600,000 which was more 
money than Disabled Veterans was able to raise under past 
contracts. Under the arrangement, Civic Development Group 
became a consultant. This appeared to be a good thing for us 
because we were going to receive more money than we had in the 
past and it would mean more money for our vital programs.
    My primary goal as executive director of this charity was 
and is to raise as much money as possible to fund the programs 
that we offer in order to make a difference in the lives of 
veterans.
    I would like to thank the committee again for the 
opportunity to be here today and would be pleased to answer any 
questions.
    [The prepared statement of Ms. Seman follows:]

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    Chairman Waxman. Thank you very much, Ms. Seman.
    Mr. Friend.

                   STATEMENT OF ROBERT FRIEND

    Mr. Friend. Mr. Chairman and members of the committee, I am 
here to testify today as president of American Veterans 
Coalition and as a Vietnam veteran, regarding an ever-
increasing needful sector of our population, our American 
veterans.
    I served proudly for my country in Vietnam. When entering 
the Navy in late 1969, I was sent on four WESTPAC tours of 
Alameda. The first two were on the U.S.S. Bellatrix, and the 
next two were on the U.S.S. Pictor. We acted in the capacity of 
a refrigerated reefer in the Tonkin Gulf at sea for the grocery 
needs for those ships afloat. We also acted as a freezer and 
refrigeration depot when the Danang facility was bombed in 
early 1970.
    In 1971, I was transferred to the Gator Fleet, assigned to 
the LST 609 Clarke County. Our duty was that of moving supplies 
up and down the Mekong Delta from as far south as Vung Tau to 
Dong Dang, which was our home base, and as far north as the 
Cambodian border.
    I spent 1\1/2\ months recuperating at Great Lakes Mental 
Hospital for a small wound, saw many amputees, servicemen 
paralyzed and those who had sustained massive injuries while in 
Vietnam. My last 9 months of service were that of being part of 
the first 34 to arrive on the Ranger stationed at Diego Garcia 
in the Indian Ocean. There, we were part of the Seabees out of 
Quonset Point, RI, responsible for building the initial runway 
and basic infrastructure for those to follow.
    So the veterans scene is not a foreign one to me. One of 
the things I promised myself while there was to continue to 
care for my fellow servicemen and others who entered service 
before me or were to serve after me and who struggle with 
assimilating back into society with their return.
    AVC was founded with these things in mind in late 2002 to 
provide financial aid to needy veterans and their families and 
to educate veterans on various Government and public service 
programs available to them as well as educate the public on the 
needs of and problems facing our Nation's veterans.
    The focus of our organization, aside from education on 
veterans' needs and issues, has been providing direct 
assistance to individual veterans in need and their families 
and making grants to VA hospitals, homeless centers and non-
profit veterans organizations who provide assistance to 
veterans.
    We have provided thousands of dollars in grants and aid to 
individuals and organizations in Los Angeles at the National 
Veterans Foundation. We came to an agreement and developed a 
program where they receive calls and immediately send them to 
us via phone or our Web site.
    All the veterans have to do is go to our Web site into 
assistance, pull down the forms, fill them out to the best of 
their ability and send them on to us. We move very fast on the 
applications for those in need of help. We ask that they send 
us a letter and let us know how they are doing and revisit 
their situation on many occasions, helping some veterans two or 
three times a year.
    We also ask our professional fundraising counsels to send 
us any names of veterans they come across that need help as 
well, and we act on those as well as quickly as we can.
    We are striving to be more efficient in our fundraising so 
that we may make our program services available on a 
continuously increasing basis. This is a slow process but can 
and will come to fruition as other alternate activities are 
entered for that of raising moneys without the assistance of 
professional fundraisers.
    I have been with the American Veterans Coalition since its 
inception and am the Fundraising and Program Service Director. 
I spend a significant amount of my week in service to the 
organization. The organization is small and has limited 
resources.
    As you can see from the financial information we supplied 
in response to your invitation to be here today, the 
organization has three employees, one of whom is my wife. She 
and I both draw minimal salaries although her service to the 
organization entails financial recordkeeping, fundraising 
regulation compliance issues, corresponding with contracted 
fundraisers and other activities that take up most of her week. 
We receive no other fees or payments from the organization.
    Like my other colleagues present here today, we can 
appreciate the committee's interest in fundraising efficiency 
and the cost associated with raising funds to help our 
veterans. We are proud of our program service accomplishments. 
We know we can be more efficient and continue to strive to 
lower our cost of fundraising.
    As I stated previously, we are a small organization. 
Without the help of outside fundraisers, we would not be able 
to disseminate the information we are able to get out to 
veterans and the public, and we would not be able to raise 
enough funds to continue as a going concern.
    We maintain fundraising registration with all States that 
require same and provide significant information to those State 
agencies when information is designed to be available to the 
public. We are completely transparent on our fundraising, 
accounting and other operations.
    We have taken steps beginning in the early part of this 
year to scale back our use of outside fundraisers and to 
consult with counsel and other professionals on steps we can 
continue to take to lessen our fundraising costs.
    It is evident that there remains a significant number of 
people who were put off with organizations that incur high 
costs of fundraising. We aren't proud to be one of those 
organizations but still believe that the first amendment has 
given us the opportunity to make some differences in the 
veterans' world.
    Despite some of our inefficiency, we are still able to 
reach a multitude of people with information about veterans and 
veterans issues that would otherwise not reach those people. No 
one is forced to contribute to our organization or listen to 
our message. However, we hope that the steps we are taking 
continue to allow us to deliver our message while generating 
significant revenues that can go directly to benefit our 
Nation's veterans.
    I was proud to serve our country and believe that American 
Veterans Coalition can make a significant difference in the 
lives of veterans. I have a personal interest as a veteran of 
the Vietnam War in making such a difference and hope the 
American Veterans Coalition can strive to do bigger and better 
things to help my fellow veterans in the future. I believe we 
are taking steps to do that in a better and much more efficient 
manner.
    Thank you.
    Chairman Waxman. Thank you, Mr. Friend.
    Mr. Borochoff.

                 STATEMENT OF DANIEL BOROCHOFF

    Mr. Borochoff. Hello. I am Daniel Borochoff with the 
American Institute of Philanthropy. I am gratified that we are 
holding this session today. It is going to be a really big 
help.
    I am gratified for Mr. Burton that his interest in 
furthering legislation to help donors make more informed giving 
decisions. Right now, there is incredible waste out there, and 
it is being done in the name of our brave veterans. We really 
owe a lot. We owe a lot more to the veterans than too many of 
these nonprofit groups are providing.
    The American Institute of Philanthropy, since 1993, has 
been one of the most independent and toughest watchdogs. We are 
not afraid to give an F grade when it is called for.
    If there is one point that I want people to be able to walk 
away from today, to understand that we have these numbers and 
percentages out there. A lot of the groups are able to make 
themselves look good and appear as if most of the money is 
going to charitable programs when in fact that is not at all 
the case. That is why some of these ratings and ratios that we 
are putting out there are helping the public have a clear sense 
as to how the money is actually being spent.
    I am going to focus on four key areas. First, fundraising 
efficiency, it is too low with these veterans' charities; 
second, low accountability; third, excessive asset reserves 
with some of the charities; and the misuse of Congressional 
Charter status.
    First, I will describe our rating system. We give groups an 
F grade if they have 35 percent or less of bona fide charitable 
programs. They may be saying things are charitable programs, 
but it is not at all what the donating public thinks, and I 
will get into that.
    We believe that if your fundraising costs are $60 or more, 
$60 of $100, that deserves an F. If you are holding asset 
reserves in excess of 5 years, that deserves an F. We consider 
3 years to be excessive.
    Most of the charities that we rate do a good job. Seventy-
eight percent of the groups get C or higher grades. But with 
the veterans' groups, this is also true for police and 
firefighter type groups, 75 percent of them get Ds and Fs, 
certainly not adequate.
    One of the main reasons is the very high fundraising costs 
that they incur. This is what is happening. Many of these 
veterans' charities and a lot of the major ones are broadly 
soliciting everybody under the sun. It is ironic because they 
are one of the most very popular causes, so they ought to be 
able to raise money more inexpensively than anybody else.
    But what they are doing is they are asking everybody, and 
they are going for little $5 and $3 contributions. It is too 
expensive to raise money that way. You have to go $25, $50, 
$100 contributions.
    They are sending out trinkets, address labels, greeting 
cards, things that cost money to send out because they know 
many people feel guilty and send a few dollars in return, but 
that is not a way to build loyal long-term supporters to get 
little contributions here and there because somebody got a gift 
and feels they should respond.
    Accountability is a big problem. Fifty-nine percent of the 
veterans' groups that we rate are not willing to provide basic 
financial documentation on their activities. That is the first 
screen. If a group is not willing to answer basic questions 
about their finances and other areas, one should look elsewhere 
about giving to them.
    The tax forms, while widely available on the Internet, are 
very helpful but a lot of them are dated with information being 
like a year or two old.
    We encourage donors to look at the audited financial 
statements and notes. It is a lot more solid document. You can 
find out things where maybe they denied it on the tax form, but 
you can see it happening on the audit.
    But the trouble is audits are hard to obtain. They are with 
a lot of States. Some of the States have them. A few of the 
States have them, but they are hard to get a hold of.
    This is what is going on. A lot of people don't realize 
this, but you know those telemarketing calls that interrupt 
your dinner or all the solicitations that we talked about 
flooding your mailbox. A lot of that is counted as a program 
service.
    What they can do according to the accounting rules is they 
can put a little nice message in like, Hire a Vet, Buckle Your 
Seatbelts, Fly Your U.S.A. Flag, put a magnet on your 
refrigerator that shows you care about vets, and then they can 
allocate those solicitations costs as a charitable program. It 
shows up on the tax form this way and gets reported on the 
Internet this way. It is in the charity's promotion this way. 
The public needs to know what is really going on with the 
finances.
    Another thing that goes on are in-kind donations. Things of 
highly questionable value are flowing through these charities' 
financial statements. The person giving that gets a tax 
deduction, and then the charity can show that they are having 
like millions of dollars worth of things that really are not 
much value to veterans. Then they pass them on to another 
group.
    OK, another problem is excessive asset reserves. 
Unfortunately, three of the major military charities have high 
asset reserves. In fact, Army Emergency Relief makes the top of 
our list. They could operate for 17.6 years with what they have 
already got. They have over $300 billion in reserve.
    We consider it a poor basis to ask for more money if you 
already have more than 5 years in reserves. Part of the problem 
is the people that are allowed to access this money are not 
able to access it because they have too tight of rules of who 
the money is made available to.
    One final point on the Congressional Charter status since 
this is Congress. A number of the charities like to boast of 
their Congressional Charter status, and the public thinks that 
means somehow they are better or superior or they are good 
groups, but it doesn't.
    I think that these charities ought to be required to state 
if they want to say they are Congressional Chartered, they need 
to state that it does not imply endorsement or recommendation 
by Congress.
    [The prepared statement of Mr. Borochoff follows:]

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    Chairman Waxman. Thank you very much, Mr. Borochoff. The 
rest of that statement is going to be in the record. Your time 
is up.
    Mr. Weiner.

                  STATEMENT OF BENNETT WEINER

    Mr. Weiner. I am Bennett Weiner. I am chief operating 
officer of the BBB Wise Giving Alliance.
    Mr. Chairman and members of the committee, thank you for 
inviting us here today to share our views on this important 
subject.
    The BBB Wise Giving Alliance is a charity-monitoring 
organization. We are affiliated with the Council of Better 
Business Bureaus, the national office of the Better Business 
Bureau system, and we evaluate charities in relation to 20 
accountability standards. In fact, under various names, we have 
been doing this work for almost a century.
    About 45 percent of the 114 local Better Business Bureaus 
have a similar program for local charity evaluation. We don't 
charge charities for our evaluation, and the resulting reports 
are free to the public.
    Certainly, veterans' charities fill a very important need 
in society for current and former members of the Armed Services 
and their families, and I am pleased to say a number of these 
organizations meet our standards. However, we have also seen 
some concerns.
    Currently, we find that about half, 50 percent, of all the 
veterans charities we contact do not provide any of the 
requested governance, financial program and fundraising 
information needed to complete our evaluations. This 50 percent 
non-disclosure rate is significantly higher than the 30 percent 
non-disclosure rate that we see for the 1,200 national 
charities that are the subject of our reports.
    While participation in our evaluation service is voluntary, 
it certainly suggests to us that many veterans' charities have 
a way to go in demonstrating accountability.
    Now for those charities that do provide the requested 
information to our office, we generally find that overall about 
65 percent of all the charities meet our standards. However, of 
the veterans' charities that we evaluate that provide 
information, we find a significantly lower number of veterans' 
charities meeting our standards, less than 40 percent of them.
    It is difficult to say that there is no single reason they 
don't meet standards. Some of these organizations are 
relatively new, created in the past few years. But the reason 
that they don't meet standards is not solely because of 
financial issues. Financial issues, we feel, don't provide the 
full picture of accountability.
    The accountability issues in our standards in terms of 
these organizations range from conflict of interest policies 
not being present, insufficient frequency of governing board 
meetings to problems with donor privacy, the accuracy of the 
way expenses are reported on financial statements among other 
things.
    Now, in our view, the message for donors, we think, is to 
be proactive in making giving decisions, to check with outside 
sources such as the BBB Wise Giving Alliance and others in 
making an informed giving decision, and that can certainly go a 
long way.
    I do want to make one comment in response to Congressman 
Sarbanes' earlier questions about accreditation seals. We do 
have such a program at the BBB Wise Giving Alliance, an 
accreditation seal for charities that do meet our standards. I 
am pleased to say that about 200 of the 1,200 national 
charities that we evaluate display the seal indicating they 
meet our standards on their Web sites and in their appeals, and 
we think that is a program that is having an impact.
    So, thank you again for allowing us to share our comments, 
and I will be happy to answer any questions that you might 
have.
    [The prepared statement of Mr. Weiner follows:]

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    Chairman Waxman. Thank you very much.
    Thank you very much, all of you, for your testimony.
    The purpose of this hearing is to examine whether donations 
to veterans' charities are getting to the people who need them. 
So, Mr. Weiner, your view is that of all the charities, the 
veterans' charities seem to be the most out of line in terms of 
the small amount of money that is actually going to veterans' 
care. Is that an accurate statement?
    Mr. Weiner. I don't know if I could say if they are the 
most out of line because we evaluate so many different types of 
organizations, but clearly in what we have seen there is less 
of a degree of cooperation with our self-regulatory process. 
About half of them don't even send us information on request 
and a higher degree of non-compliance with the standards that 
we have. So, yes, I would agree that is an issue that concerns 
us as well.
    Chairman Waxman. Mr. Borochoff, what would you say is an 
appropriate proportion of the resources a charity is spending 
on fundraising? Would you give us a number you think is OK to 
spend on fundraising?
    Mr. Borochoff. Well, it should be $35 or less. The problem 
is charities are saying things. They are labeling things. They 
are disguising their fundraising costs and calling them 
programs.
    Chairman Waxman. Well, we put together a chart based on 
what these veterans' charities spend on fundraising and program 
services, and I would like to put it on the screen. The chart 
is based simply on the numbers that they report on their Form 
990 reports to the IRS.
    Mr. Friend, in fiscal year 2006, you reported to the IRS 
that approximately 59 cents of every dollar donated to American 
Veterans Coalition was spent on fundraising costs.
    Ms. Seman, according to your tax returns, approximately 71 
cents of every dollar donated to Disabled Veterans Associations 
in fiscal year 2006 went to pay for fundraising and not for 
programs.
    In fact, that is what you reported to the IRS, but these 
numbers are actually worse because your organizations count 
many of your fundraising materials as program activities. Mr. 
Borochoff mentioned that.
    You call them program activities that help veterans when 
you send out a solicitation that includes some language about 
the plight of veterans or when you say that the fundraising 
letter is actually a charitable service because it is educating 
the public about the plight of veterans.
    Let me give you some examples. Well, one is American 
Veterans Coalition, and it has information about the plight of 
the veterans themselves, the face of veterans in need.
    So, when you report to the IRS, you report only a portion 
of the costs to produce this mailer under fundraising. That is 
allowed under the accounting rules. Am I right about this, Ms. 
Seman?
    Ms. Seman. Yes, you are correct.
    Chairman Waxman. And, Mr. Friend?
    Mr. Friend. Yes, I agree.
    Chairman Waxman. So, Mr. Borochoff, what do you think of 
these practices when they claim that some of the fundraising 
costs are actually services to the veterans?
    Mr. Borochoff. The donors don't know this is what is going 
on, and I think the charity ought to tell the public when they 
solicit money, to say that 80 percent of the money is going to 
pay for the solicitation that you are reading.
    The accounting rules are very flexible, and they allow for 
a lot of different ways of reporting this information.
    Chairman Waxman. Well, we made a chart that indicates what 
the actual figures would be if you claimed that these are 
fundraising expense and not the services for veterans.
    We look at these numbers, and it is clear that the American 
Veterans Coalition is spending over three-quarters of the money 
it raises on fundraising expenses, salaries and overhead. Less 
than 25 cents of every dollar goes to help veterans.
    The numbers are even worse for Disabled Veterans 
Associations. Over 90 percent of the money you raise goes to 
fundraisers. Less than 10 percent actually helps veterans.
    Mr. Friend and Ms. Seman, how can you justify what you are 
doing? The money you are raising is enriching the fundraisers 
and yourselves, and virtually none of it is going to actually 
helping the veterans when you look at such a small percentage 
for actual services?
    Mr. Friend. In a sense, that is true. Unfortunately, the 
only way a small startup charity can exist and move into the 
spectrum of making direct support with its own tap base is by 
using professional fundraisers. Their fees are exorbitant. I 
mean we are probably between 80 and 85 percent with any 
professional fundraiser that we bring into our fold.
    We do want their tap base. We want to use it for 
traditional mail later on. We want to mail and raise money 
under our own guise, not with professional fundraisers, and we 
are trying to move into other programs so those numbers can 
reflect true numbers and not what you are talking about.
    Chairman Waxman. Well, how long have you been in existence?
    Mr. Friend. I am sorry?
    Chairman Waxman. How long has your organization been in 
existence?
    Mr. Friend. We incorporated in 2002.
    Chairman Waxman. So, for 5 years, you used professional 
fundraisers.
    Mr. Friend. That is correct.
    Chairman Waxman. Ms. Seman, how long have you been in 
existence, and how can you justify this kind of expenditure, 
less than 10 percent going to help veterans?
    Ms. Seman. Part of the problem we have found is these 
fundraisers ask for very long contracts with exclusive and non-
compete clauses in them and, across the board, every 
telemarketer and every direct mail I researched asked us for 
the same thing. We get locked into these long contracts, and we 
can't get out, and we have no other means of raising money on 
our own.
    Chairman Waxman. Well, it is not just small startup 
charities. Mr. Chapin's group raised, what was it, $98 million. 
They have been around for some time. Less than 10 percent is 
gong to help veterans in that organization.
    So I find it unconvincing that small startups need this 
extra expenditure when so little is actually going to the 
veterans.
    Mr. Davis.
    Mr. Davis of Virginia. Thank you.
    I am not sure where to start. It is not that the groups may 
not be trying to help veterans, but the fact is that people who 
are donating need to understand that their money is not going 
to help veterans. That is really the problem, and maybe they 
want to put it somewhere else where their money would go 
directly.
    So I don't want to question anybody's motives in terms of 
what they are trying to do, but the people out there who are 
soliciting. Many of them are seniors on fixed incomes, but they 
just want to do something to help people who have given some to 
their country. They send you $10 and less than $1 is going 
directly to help veterans in some cases.
    Ms. Seman, what is the Disabled Veterans Associations going 
to do in the next year to try to improve the fundraising ratios 
we have talked about?
    Ms. Seman. We are still deciding what we are going to do, 
but we are not going to hire another professional. We are going 
to do it on our own.
    Mr. Davis of Virginia. I mean your argument, as I 
understand, is you have a higher net by going with a 
professional route.
    Ms. Seman. Right.
    Mr. Davis of Virginia. I understand that. You want to help 
people. You have more money to hand out and do public good. Our 
job here is not just to look after the end result but also to 
look at the people how are donating, and that is really our 
concern.
    Mr. Friend, what are you going to do next year?
    Mr. Friend. We are looking into some conservative events. 
It wouldn't be a golf event because of inclement weather or 
something like that, where we would be trapped into a lot of 
expenses and not being able to raise the money, for instance. 
We want something that can be a proven winner for us.
    We are raising money, starting to raise money on our own 
without professional fundraisers. We think that can be or that 
will be a big step forward. However, it is quite surprising 
when you look at those numbers even in-house, how much it 
actually costs to raise money even on your own when you take 
into account the printing and the envelopes.
    Mr. Davis of Virginia. Mr. Friend, you are talking up here 
to someone who has been chairman of the Republican Campaign 
Committee in the House for two cycles and knows something about 
direct mail and phone solicitation and Mr. Van Hollen, who is 
the current Democratic Chair.
    Mr. Friend. Well, I was speaking from my perspective.
    Mr. Davis of Virginia. Well, it is the same. In fact, we 
have more restrictions.
    I understand. I mean I understand the difficulty, but I 
think at the end of the day, what we look at is the people that 
you are soliciting and what they are giving and should they, in 
fact, know that their money is not going for the intent that it 
is solicited.
    Let me ask this, Mr. Friend. How many other charitable 
organizations do you have?
    Mr. Friend. We have three other organizations.
    Mr. Davis of Virginia. Are they all about the same in terms 
of using the same outsourcing for raising money?
    Mr. Friend. That is correct.
    I am sorry. You mean professional fundraising?
    Mr. Davis of Virginia. Yes.
    Mr. Friend. Yes.
    Mr. Davis of Virginia. You use the same fundraiser for all 
the groups?
    Mr. Friend. No. Some, we do.
    Mr. Davis of Virginia. In 2005, the Hartford Courant did an 
investigative story on veterans' charities. It is still on the 
Charity Navigator Web site, which is another charity watchdog 
group.
    Your charity is mentioned first as paying staggering costs 
to a telemarketer that pocketed 85 percent of every dollar you 
raised. This is back in 2003. Is that correct?
    Mr. Friend. Yes, I think so.
    Mr. Davis of Virginia. What would you do to correct that? 
Would you change?
    Mr. Friend. Well, we are starting to work on traditional 
mail, traditional and direct mail.
    Mr. Davis of Virginia. Let me just ask this. Are you still 
using that same telemarketer?
    Mr. Friend. I can't answer that accurately because I would 
have to go look. I don't have those numbers or those 
telemarketers in front of me if they are still----
    Mr. Davis of Virginia. Mr. Borochoff, can you add? Can you 
shed any light on that, Mr. Borochoff?
    Mr. Borochoff. It is the same telemarketer.
    Mr. Friend. Sir, what is your question?
    Mr. Davis of Virginia. I guess my question is if you have a 
telemarketer that you are hiring that is taking 85 percent for 
every dollar?
    Mr. Friend. Yes. Yes, we do.
    Mr. Davis of Virginia. You are still using them?
    Mr. Friend. Yes, we do.
    Mr. Davis of Virginia. Do you think that is fair to the 
donors that are solicited?
    Mr. Friend. I don't think it is fair at all. I think it is 
the only way for a startup charity to generate enough money to 
spread its wings and be able to fly independently of using 
professional fundraisers. I know.
    Mr. Davis of Virginia. That was 2003. You are no longer a 
startup, and you have three other charities going.
    Mr. Friend. No, we are not a startup. It just takes a long, 
quite grueling number of years to get where you are 
independent, a lot longer than any of us wish it would.
    Mr. Davis of Virginia. The IRS 990 form for the American 
Veterans Coalition tells a sad story provided based on 
donations received. In 2003, it says nothing went to veterans. 
In 2004, 1.4 percent.
    What improvements are you making to see that more of the 
money you raise goes to veterans programs and, in general, what 
percentage of money you raised this past year do you think will 
go directly to veterans services, not solicitation costs?
    Mr. Friend. I don't think our numbers are going to be that 
much better. They are a little better this year, but next year 
they should probably improve, and if they don't improve every 
year, quite frankly, we are in the wrong business.
    Mr. Davis of Virginia. You can say that again. Thank you.
    Chairman Waxman. Thank you, Mr. Davis.
    Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman.
    In your statement, Mr. Friend, you said that nobody is 
forced to contribute to your organization.
    Mr. Friend. That is correct.
    Mr. Van Hollen. That, of course, is true. They want to 
contribute to your organization because you solicit them on the 
phone, telling them they are going to do good things for 
veterans.
    In fact, the Hartford Courant that my colleague, Mr. Davis, 
referred to in 2005 has part of the script: the American 
Veterans Coalition is dedicated to helping veterans right here, 
fill in the name of the State, who are homeless or in desperate 
need. The foundation provides assistance to these veterans in 
the form of food, shelter, clothing, job search assistance and 
any other reasonable request.
    That is why people are giving to you because they think the 
money that is going to you when they give you a dollar, that 
most of it is going to help veterans, and so I think a lot of 
them would be very surprised and extremely disturbed to find 
out exactly what is going on.
    Now, as I understand it, you have been at this, as you 
described it, a business, for a very long time. Beginning in 
1999, you founded a non-profit called Abundant Life Foundation 
in California. Is that correct?
    Mr. Friend. That is correct.
    Mr. Van Hollen. When you did that, you hired a man named 
Mitch Gold to conduct a telemarketing fundraising for your 
organization. Is that correct?
    Mr. Friend. That is also correct.
    Mr. Van Hollen. Mr. Gold, as I am sure you know, a 
notorious figure in the world of charitable organizations. In 
fact, in 2002, a Federal judge sentenced him to 8 years in 
prison for charity fraud before he was caught, he was 
apparently making $10 million a year, operating dozens of non-
profit organizations. Those were supposed to be helping 
firefighters, police officer, children and veterans.
    The Orange County Register, a newspaper in California, of 
course, characterized you as part of Mr. Gold's ``money 
machine.'' Do you recall that article?
    Mr. Friend. Of course, it is completely incorrect.
    Mr. Van Hollen. But you hired him. Let me just say this. 
They are saying here he went to prison in 2002. You moved to 
Washington State, as I understand it. Is that correct?
    Mr. Friend. That is correct.
    Mr. Van Hollen. And began four operations, charitable 
operations: National Association for Disabled Police Officers, 
the Disabled Firefighters Foundation and the Children's Cancer 
Assistance Program. Is that correct?
    Mr. Friend. That is correct.
    Mr. Van Hollen. These groups, you have testified, operate 
under the same sort of approach with the telemarketers? Is that 
right?
    Mr. Friend. Yes.
    Mr. Van Hollen. How is it that you are really being that 
different in the sense of Mr. Gold's kind of operation?
    It sounds like you set up businesses that are very 
appealing to the public, charities from children's cancer on 
the one side to veterans, and you are raising a lot of money, 
but very little of that money is going, at the end of the day, 
to the people who all those callers, who want to help, hope it 
will go to.
    Mr. Friend. I can't speak for Mitchell Gold. I wasn't a 
disciple of his, and a lot of the things that were written are 
incorrect insomuch as they say I was a pupil or he was a 
mentor. That is totally incorrect.
    He raised money for us when we first got into this 
business. Unbeknownst to the way we should do it, he gave us a 
contract, if I recall, where he gave us so much money a week 
and he kept the difference. He even went so far as doing his 
own banking, as conducting his own banking. That is a deal-
breaker for us.
    If we can't control the purse strings and the banking and 
know where this money is going and can account for everything, 
we don't want anything to do with anybody in any other way, 
shape or fashion.
    Mr. Van Hollen. Let me ask you this, Mr. Friend. If you had 
a choice as an individual to give between two charitable 
organizations, one of which gave a lot more to the ultimate 
beneficiary than the other, you would choose the one with the 
ultimate gain, right?
    Mr. Friend. I would give to the one that gave a lot more.
    Mr. Van Hollen. There are lots of organizations out there 
to help veterans, isn't that right?
    Mr. Friend. True.
    Mr. Van Hollen. A lot of them give more of every dollar 
that is contributed to the veterans services, isn't that right?
    Mr. Friend. That is correct.
    Mr. Van Hollen. So, as an individual, you would give to one 
of these other organizations before your organization, isn't 
that right?
    Mr. Friend. At this time, I would. I hope that in the 
future we grow into the area where you will want to give to our 
organization.
    Mr. Van Hollen. Well, I think it is clear you would not, as 
an individual, trying to make sure your moneys were used to the 
help benefit veterans.
    Mr. Friend. At this time.
    Mr. Van Hollen. Let me ask you this. Do you have any 
objection to disclosing publicly on a Web site or your 
materials how much of every dollar goes to fundraising 
operations and costs, including the ones Mr. Waxman raised with 
respect to the literature, and how much actually goes to 
veterans? Do you have any objection to that?
    Mr. Friend. Well, we certainly do it over the phone. I 
don't know how.
    Mr. Van Hollen. Oh, you call over the phone and you tell 
people that only 15 cents.
    Mr. Friend. No, no. If someone asks us the question.
    Mr. Van Hollen. I am asking you if you have any objection 
to putting on your Web site or on your literature that you send 
out exactly how much is actually going to the veterans. Do you 
have an objection to that?
    Mr. Friend. I wouldn't be happy with it, but I suppose I 
would adhere to it.
    Mr. Van Hollen. Right. Why wouldn't you be happy telling 
people how their money is being spent?
    Mr. Friend. Because, unfortunately, all the charities in 
the country do hide behind what they call joint cost 
allocation, and the only way you can grow to a point where you 
can begin to utilize that.
    Mr. Van Hollen. But you wouldn't mind if all charities had 
to disclose, you are saying, if all charities had to disclose?
    Mr. Friend. Oh, if all charities did? Absolutely not.
    Mr. Van Hollen. Right, but then everybody would know that 
less of the money they gave to you went to veterans than other 
organizations, correct?
    Mr. Friend. I think that would be all right as long as it 
is the same playing field for everyone.
    Mr. Van Hollen. I think it is important for people to know 
where there is money going. We want to make sure that people 
have confidence that when they are contributing to veterans, it 
is going to veterans.
    Mr. Friend. No. I agree as long as it was the same playing 
field.
    Mr. Van Hollen. Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Van Hollen.
    Mr. Burton.
    Mr. Burton. Yes, I just have a couple questions.
    I was interested. This Mr. Mitch Gold, how did you meet 
that fellow?
    Mr. Friend. I met him through an individual that was 
working at the time for Shiloh Ministries, that wanted to bring 
in some products from China. At the time before the advent of 
the Internet, it was much easier to broker and act in a broker 
capacity.
    Mr. Burton. Had he had any trouble with the law before he 
affiliated himself with you?
    Mr. Friend. I wasn't privy to that, sir.
    Mr. Burton. Did you do any kind of a background check on 
him or anything?
    Mr. Friend. No, no, I didn't. No.
    Mr. Burton. When you are talking about the kinds of money 
that you are talking about, it seems to me that you would want 
to know whether or not somebody has some kind of a problem.
    Mr. Friend. Now, we do.
    Mr. Burton. You do now?
    Mr. Friend. Now.
    Mr. Burton. How much did he get away with? They estimate 
$10 million before he went to jail?
    Mr. Friend. Well, again, I am not privy to the background 
on what exactly happened to Mitch Gold. I know it was a lot, 
but at that time I didn't know. I didn't have knowledge of it. 
That is all I can attest to.
    Mr. Burton. But when you are talking about that kind of 
money, I mean I had a business, and I didn't deal with anything 
like that, and we sure checked everybody out before I did 
business with them.
    Mr. Friend. Well, again, that was when we first got into 
the business, and we were given so much a week.
    Mr. Burton. How about these new charities that you have? Do 
you check the people out that you are dealing with there?
    Mr. Friend. Yes, we do, and I also make a point of going 
whenever I can, as possible, and lumping some of these vendors 
together. I make a point of going out and visiting their 
organizations, looking at the way they raise money, and I pay 
some pretty close scrutiny to it.
    Mr. Burton. I just want to followup with one more question, 
and I will yield to Mr. Shays.
    That is I don't understand why all the charities don't 
divulge when they are soliciting money, the amount of money and 
the percent that is going to go to the charity involved. I 
think everybody ought to do that.
    I know it would discourage some people from giving to some 
charities. I mean I saw some on this list I have given money to 
that I wouldn't after that. But if everybody did it, I think 
that the public deserves to know that.
    I know it would be a difficult thing for some of you folks 
out there because of the margin of profit that you are making, 
but I think that is one of the things we ought to look at 
legislatively.
    In the Supreme Court decision, did they say anything about, 
in any of those decisions, that you did not have to divulge the 
amount of money that was being used for overhead and the amount 
that was going to the charity? Was there anything in any of the 
decisions?
    Mr. Friend. Is this directed to me?
    Mr. Burton. Any of you?
    Mr. Borochoff. Well, what is interesting about that 
decision, as long as you don't go out and lie and specify a 
certain amount, you are OK.
    Mr. Burton. What I am wondering is it has not been tested 
in the court that the legislative branch of Government could 
mandate that the percentage that is going for the charity and 
the percentage that is going for overhead be divulged. What I 
am trying to make is it has not been tested in court from what 
I have heard today.
    Mr. Borochoff. There has been like four cases, four Supreme 
Court cases, to my knowledge, concerning this issue, as a first 
amendment issue, highly controversial.
    Mr. Burton. In that first amendment issue you are talking 
about, did it say specifically that they did not have to be 
required to divulge the amount that was going for overhead and 
the amount that was going for the charity.
    Mr. Borochoff. Yes, at point of solicitation, they are not 
required to.
    Mr. Burton. So, they are not required to, and the Supreme 
Court upheld that? All right, OK.
    I yield back.
    Chairman Waxman. Thank you, Mr. Burton.
    Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    I must tell you, Mr. Friend and Ms. Seman, that this 
testimony has been a bit painful and, in my opinion, you give 
reputable charities a bad one. That is why I want to ask Ms. 
Carroll just a few questions about TAPS.
    Ms. Carroll, it appears to be more efficient and they seem 
to be more efficient at fundraising. We have heard that many of 
these other organizations use for-profit corporate fundraisers 
to do direct mail and telemarketing solicitations and, as a 
result of those professional solicitors, keep 80 to 90 percent 
of the contributions. Did you hear that testimony?
    Ms. Carroll. Yes, sir.
    Mr. Cummings. I understand that TAPS does not currently use 
a for-profit fundraising company to raise its money, but you 
did try it at one time. Is that correct?
    Ms. Carroll. Yes.
    Mr. Cummings. Why did you first decide to try raising money 
through a for-profit direct mail campaign?
    Ms. Carroll. We were approached by the firm, and they gave 
a very compelling case for this being a solid way to raise 
money. One of our sister organizations that I mentioned in my 
testimony, COPS, Concerns of Police Survivors, does use that. 
We tried it for a year. We found the percentage far too high 
and terminated that agreement.
    Currently, we have an in-house development director. She is 
the surviving sister of Captain Blake Russell, who was killed 
in Iraq, and not only is she now raising money for us 
internally, but it is also part of her healing.
    Mr. Cummings. She probably has a passion for it.
    Ms. Carroll. She absolutely does. When she is connecting 
with our donors and with our families, she is connecting from 
the heart.
    Mr. Cummings. Now what kind of promises did your fundraiser 
make, the telemarketing fundraiser make to you?
    Ms. Carroll. Well, that over time, as they build a house 
file from the direct mail, there would be quite a bit of money, 
revenue coming in. After seeing this in place for a period of 
approximately 1 year, we determined this was not an appropriate 
way for us to be managing, and the ratio was far, far too off, 
and it did damage our ratio for a period which we are very, 
very disturbed about.
    Mr. Cummings. Well, let me ask you this. How much money did 
you make under the telemarketer? How much money did you make?
    Ms. Carroll. If I could just defer to our CFO here.
    Mr. Cummings. Sure.
    Ms. Carroll. It is upsetting to say that our income was 
approximately $50,000 to their total of $500,000.
    Mr. Cummings. Wait a minute. Let me get this right. I know 
I didn't hear that right.
    Let me get this right. They got $500,000, and you got 
$50,000?
    Ms. Carroll. Yes, sir, that is correct.
    Mr. Cummings. Jiminy Christmas.
    Ms. Carroll. And we terminated that very quickly, and it 
was a regrettable experience.
    Mr. Cummings. You did something that Ms. Seman just talked 
about, and she said that it was almost impossible to terminate 
these agreements and they had to be long range. Did you find 
that they were requiring long range agreements?
    Ms. Carroll. They did, and we terminated immediately upon 
making the board decision.
    Mr. Cummings. So provisions in your contract allowed you 
terminate?
    Ms. Carroll. Yes.
    Mr. Cummings. They did pretty good now in a year. Was it a 
year? How many years?
    Ms. Carroll. It was approximately 1 year.
    Mr. Cummings. In 1 year, they made $450,000.
    Ms. Carroll, what methods are you using to raise now? I 
think you told me that a minute ago.
    Ms. Carroll. We have one of our most successful fundraisers 
is the Marine Corps Marathon. We have a team in which every 
runner honors a fallen service member. Many of those runners 
are themselves, surviving families. They run. This year, we 
raised over $200,000.
    Mr. Cummings. So that is a much better rate.
    Ms. Carroll. Yes. Yes, that is a wonderful rate, and the 
really great thing about the program is we are bringing 
together the families.
    Mr. Cummings. Last but not least, Ms. Seman and Mr. Friend, 
I am so glad you had an opportunity to hear that testimony. 
Perhaps we can improve on your performance. Perhaps we can see 
more money going to the appropriate folks.
    You say you have no other option than to use direct mail 
and telemarketing, but that is not true, is it?
    Ms. Seman. I never said I had no other option. I said I was 
locked into a contract for right now and that we weren't going 
to do that in the future. That is what I said.
    Chairman Waxman. Mr. Cummings, I am going to have that as a 
question that you put out there rather than get the answer 
because I think it is the kind of question that we all should 
think about.
    Mr. Shays.
    Mr. Shays. Thank you, Mr. Chairman.
    Ms. Seman, you are under oath. Mr. Friend, you are under 
oath. All of you are under oath.
    Ms. Seman, how much do you make? How much does anyone in 
your family make from this?
    Ms. Seman. I make $85,000 a year; none of my family 
members.
    Mr. Shays. You make $85,000 a year?
    Ms. Seman. Yes.
    Mr. Shays. Mr. Friend, I want to know how much you make 
overall from all four of your charities.
    Mr. Friend. Myself?
    Mr. Shays. Yes.
    Mr. Friend. About $85,000.
    Mr. Shays. How much does any of your family members make?
    Mr. Friend. My wife makes about the same.
    Mr. Shays. Not about, I want to know what she makes.
    Mr. Friend. About $85,000. I think we made a hundred----
    Mr. Shays. Does anybody else in your family make any money 
from this?
    Mr. Friend. Yes.
    Mr. Shays. Who else?
    Mr. Friend. A small amount, my father-in-law works in a 
capacity of working in the office in regard to----
    Mr. Shays. Anybody else in your family?
    Mr. Friend. No.
    Mr. Shays. Do any of you get a kickback from the firms that 
do it?
    Mr. Friend. No, no.
    Mr. Shays. Do you get a kickback from anyone?
    Mr. Friend. No.
    Mr. Shays. Do you make money from any other source?
    Mr. Friend. No.
    Mr. Shays. Ms. Seman, I don't understand why you just don't 
get rid of your foundation.
    Ms. Seman. We are in the process of doing that right now.
    Mr. Shays. Just dissolve it.
    Ms. Seman. We are in the process.
    Mr. Shays. Yes, yes.
    Mr. Friend, I think it is just bull that you have to hire 
these folks to do your calls. I think it is a ripoff to the 
public, and I think you are in the business just to make money. 
I don't think you are there to help cancer patients, the police 
or the veterans.
    You tell me how I should believe you are in the business to 
help people.
    Mr. Friend. Unless our numbers can start to prove 
otherwise, then I would agree with you, and I think that I 
wouldn't stay in the business unless I felt that our numbers 
were going to.
    Mr. Shays. You have been in the business too long to make 
that statement. You have been in the business over 5 years.
    Mr. Friend. That is correct.
    Mr. Shays. Yes, well, it is pretty pathetic.
    Mr. Chairman.
    Chairman Waxman. Thank you very much, Mr. Shays.
    We thank all the witnesses for being here today.
    We are going to have another hearing in January, and we are 
going to work on this issue because it is one I think we owe to 
our veterans and all of the people who give to charities.
    Thank you for being here.
    The committee stands adjourned.
    [Whereupon, at 1:15 p.m., the committee was adjourned.]


                 ASSESSING VETERANS' CHARITIES--PART II

                              ----------                              


                       THURSDAY, JANUARY 17, 2008

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2154, Rayburn House Office Building, Hon. Henry A. Waxman 
(chairman of the committee) presiding.
    Present: Representatives Waxman, Davis of Virginia, 
Cummings, Tierney, Watson, Lynch, Yarmuth, Braley, Norton, Van 
Hollen, Sarbanes, Burton, Shays, Platts, Cannon, Duncan, Issa, 
Bilbray, and Sali.
    Staff present: Phil Schiliro, chief of staff; Phil Barnett, 
staff director/chief counsel; Karen Lightfoot, communications 
director and senior policy advisor; David Rapallo, chief 
investigative counsel; John Williams, deputy chief 
investigative counsel; Suzanne Renaud, Susanne Sachsman, and 
Stacia Cardille, counsels; Earley Green, chief clerk; Teresa 
Coufal, assistant clerk; Caren Auchman, press assistant; Ella 
Hoffman, press agent; Leneal Scott, information systems 
manager; Kerry Gutknecht and Miriam Edelman, staff assistants; 
Matt Siegler, special assistant; David Marin, minority staff 
director; Larry Halloran, minority deputy staff director; Keith 
Ausbrook, minority general counsel; Grace Washbourne, minority 
senior professional staff member; Nick Palarino, minority 
senior investigator and policy advisor; Patrick Lyden, minority 
parliamentarian and member services coordinator; Brian 
McNicoll, minority communications director; Benjamin Chance, 
minority clerk; Ali Ahmad, minority deputy press secretary; and 
Todd Greenwood, minority research assistant.
    Chairman Waxman. The meeting of the committee will please 
come to order.
    This is the second hearing our committee is holding on how 
veterans' charities raise and spend their money.
    This issue matters a great deal. More than 4,000 Americans 
have been killed in Iraq and Afghanistan and thousands more are 
coming home with debilitating physical and psychological 
injuries. Our country owes these heroes honor and genuine 
gratitude. If these soldiers and their families face crippling 
financial burdens as a result of their service, we owe them 
generous help there, too.
    Our December hearings show that countless Americans are 
ready and willing to help. They are selflessly donating 
hundreds of millions of dollars to charities that purport to 
help veterans. They are trying to help those who gave such 
tremendous sacrifice for us all. Many of the charities are 
doing invaluable work and spend most of the dollars they 
receive directly on veterans. Other organizations, however, 
engage what I think is an intolerable fraud. Most of the 
millions they receive never reach veterans or their families. 
Instead, the groups waste those contributions on bloated 
overhead costs and self-enrichment.
    We were privileged at our December hearing to receive 
testimony from Ed Edmundson, the father of a soldier who was 
seriously wounded in Iraq. He told us about the great 
challenges families like his face as they try to get their 
loved ones the care they deserve. He told us this: ``My son, as 
well as the other thousands of injured soldiers from this war 
or any other war, they are not a commodity. Organizations come 
to us to offer assistance. We gladly welcome them to aid in our 
quest. But I don't think it is right that you can use these 
soldiers as commodities to raise funds and, as an organization, 
to say that you are raising funds to aid all of the thousands 
of soldiers and then turn around and give a small percentage of 
that to what you are saying that you are going to do with the 
contributions.''
    Well, Mr. Edmundson's concern is why we held our first 
hearing and why we are holding our hearing today. Although we 
had invited Roger Chapin, who has operated a number of 
veterans' and military charities over the past 40 years, to 
join us in December, he refused to attend voluntarily and he 
evaded service of a subpoena by Federal Marshals. I am glad Mr. 
Chapin reconsidered his position for this hearing. His 
charities raised over $168 million from 2004 to 2006. But our 
analysis reveals that only 25 percent of that money was spent 
on veterans.
    During those 3 years, Mr. Chapin and his wife received over 
$1.5 million in compensation from his groups and received 
hundreds of thousands of dollars more in reimbursements. My 
staff prepared a memorandum that provides an analysis of the 
funds received by Mr. Chapin's charities and how they were 
used. Without objection, that memorandum and the documents it 
cites will be made part of the hearing record.
    [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Waxman. Mr. Chapin believes there is another side 
to this story, so it is important that we have an opportunity 
to share his perspective with us. I look forward to his 
testimony and the testimony of all of our witnesses on this 
very important issue.
    Our actions, not our words, are the true measure of our 
commitment to our veterans. And this committee will continue to 
try to honor their service through fair and thorough oversight. 
My colleague and friend, Tom Davis, has done exactly that, and 
I want to recognize him for his statement.
    [The prepared statement of Chairman Henry A. Waxman 
follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Davis of Virginia. Thank you, Mr. Chairman.
    Members of the committee understand the great needs of our 
Nation's wounded veterans. We have heard first-hand accounts of 
the pain and the suffering endured by hundreds of individual 
service members and their families, too often trapped in 
bureaucracy, mired in disjointed administrative processes and 
inertia.
    We have seen a stubborn failure to acknowledge and 
effectively treat traumatic brain injuries and post-traumatic 
stress disorder. We have been to Walter Reed and met America's 
heroes and their families trying to heal and go home.
    For many veterans, an important part of their journey back 
involves critical help provided by charities. Those charities 
are supported by millions of generous, patriotic Americans. So 
this committee's effort to assess the reach and effectiveness 
of veterans' charities is a legitimate and timely exercise of 
our oversight responsibilities.
    While it is well-settled law that charitable solicitations 
merit broad protection from government interference under the 
first amendment, it is just as clear Article I of the 
Constitution charges us to guard the integrity of commerce and 
protect the general welfare. There should be no doubt our 
investigation is a sincere effort to understand what can be 
done by Congress, by States and individuals to protect donors 
from wasteful, fraudulent and abusive charities that exploit 
public support for veterans and siphon precious resources from 
truly worthy causes.
    At our first hearing in December, we learned about Federal 
and State oversight of charities, and we discussed some of the 
standards developed by private watchdogs and others to assess 
charitable operations and help donors make informed choices 
about how to best help veterans. At that time, I said there is 
no per se test, no magic ratio of program expenditures to 
fundraising costs that automatically distinguishes good 
charities from bad ones.
    Other factors have to be considered--transparency, 
governance, track record. But we have to be concerned about 
complex business models and business practices that 
consistently direct as much of the money raised to insiders and 
captive well-paid vendors as to veterans. Wrapping a commercial 
activity in the flag and parking it behind the first amendment 
can't shield sharp practices indefinitely from responsible 
public scrutiny. Sooner or later donors will see through 
flowery direct mail rhetoric to the base realities of 
exploitative self-serving charities. We just want to make sure 
well-meaning contributors have the tools to do so.
    Today the committee looks specifically at the management 
and governance of charities operated by Mr. Roger Chapin. His 
biggest charity, Help Hospitalized Vets, has been praised by 
some, criticized by others. He was the focus of a series of 
articles in Forbes magazine that questioned whether fund 
transfers across the network of veterans' charities and 
advocacy arms were being used to disguise high salaries, 
illegitimate expenses and other fiscal trickery.
    After some initial difficulties in scheduling his 
appearance, Mr. Chapin has agreed to testify and has provided 
substantial documentation in response to the committee's 
request. We appreciate his cooperation and hope to learn in 
more detail how he runs his veterans' charities.
    Testimony by direct mail vendors and others will also help 
us understand the operational realities and legal principles 
that sustain this important segment of our national support 
systems for veterans.
    Without question, veterans' charities, including Mr. 
Chapin's, have provided help of inestimable value to American 
heroes. Now we ask him and others to help us be sure no one is 
taking advantage of the generosity of Americans who also care 
deeply about our Nation's wounded. Thank you very much.
    [The prepared statement of Hon. Tom Davis follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Waxman. Thank you very much, Mr. Davis.
    I wanted to give Members a chance to make an opening 
statement before we hear from our witnesses. On this side, Mr. 
Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    I join my colleagues in thanking you and our ranking member 
for holding this hearing. Those of us, and I am sure most 
Members of Congress do have occasion to visit with our veterans 
and to also to go to the various hospitals and we also have 
opportunities to have them come into our offices and talk about 
the issues that concern them.
    I find it very difficult to understand why it is that folks 
can raise money for these veterans, these men and women who 
have given their blood, sweat and tears, and in some instances, 
in the long run, their lives, trying to lift up our country, 
and when the American people come forward and say that we want 
to be supportive of them, that anyone would do anything that 
would cause a reasonable amount of those funds that should flow 
to them not to.
    So it is our duty as the Congress to look into this matter. 
I am sitting here because I am very, very curious as to what 
the counter-argument is to the article that appeared in the 
Washington Post this morning, written by Philip Rucker, that 
says between 1997 and 2005, the Chapin charity paid $3.8 
million in salary and benefits to Chapin and his wife, and 
spent more than $200 million on fundraising and public 
education campaigns.
    The public records also show that the charity awarded at 
least $19 million in contracts during that period to companies 
owned by Richard Viguerie, who is with us, a prominent 
conservative political commentator and advertising consultant 
based in Virginia.
    So today we take a moment to try to figure this out, not to 
accuse anybody of wrongdoing if they haven't done wrong, but 
simply to try to figure out, how do you take the American 
people's generosity and make sure that it gets to the very 
people who have given so much and continue to give, and make 
sure that nobody is getting a part of that money, an 
unreasonable part of that money that they should not be 
getting. Hopefully from this hearing, Mr. Chairman, we will be 
able to figure out how, if necessary, to create or revise the 
laws of this Nation so that these things do not happen.
    I think that if true, we have a lot of work to do, and it 
is very, very disturbing, as it should be, for every single 
American. I think it is un-American if one takes that money and 
takes an unreasonable amount of it and steers it in another 
direction when our veterans sit waiting and hoping that someone 
will not only recognize them but do them right.
    With that, Mr. Chairman, I yield back.
    Chairman Waxman. Thank you, Mr. Cummings.
    Mr. Shays.
    Mr. Shays. Thank you, Mr. Chairman.
    There are thousands of veterans coming home who will need 
our assistance. Ultimately, we are all accountable to our 
country's wounded veterans and their families. Whether we are 
in Government, business or charities, or just private citizens, 
we are responsible for Americans who defend and protect us, 
particularly those who have been maimed and wounded in service 
to our country.
    The Department of Defense and the Department of Veterans 
Affairs need to continue with their major overhaul of the 
services provided to our wounded and veterans, and our 
committee will continue its comprehensive oversight of these 
departments that ensure that these much needed changes are 
made.
    But our society is also in need of other venues of giving 
and caring for veterans. I know there is a common expectation 
that charities, by their very altruistic nature, will function 
at a high level of effectiveness in providing services and use 
donations efficiently.
    This committee is learning this is not always the case. At 
our first hearing on veterans' charities, it was disconcerting 
to hear the amount of donations that were recycled into 
fundraising costs versus used to provide services to veterans 
these charities were claiming to help. This practice does a 
great disservice to Americans who think their pennies and 
dollars are providing aid and comfort to our Nation's veterans. 
It is appalling to use veterans as poster children to keep 
poorly run charities in business, while claiming to provide 
substantial services to this large and needy population. If 
charities are failing or are not providing proper assistance, 
then it is our role to identify and make transparent to the 
public those charities who are not reputable.
    Today we will hear Mr. Roger Chapin, whose veterans' 
charities have been negatively rated by some charity watchdog 
groups, and whose practices have been the subject of negative 
investigation reports in Forbes magazine. But Mr. Chapin's 
veterans' charities have collected and millions and millions of 
dollars over the years, the vast majority of which are not 
reaching veterans or their families. That fact alone merits his 
appearance before this committee.
    The U.S. Supreme Court has restricted the ability of States 
and the Federal Government to require charities to divulge 
fundraising costs to donors or to limit the percentage 
charities may spend on fundraising. The court noted that for 
many charities the process of raising money is often 
intertwined with advocacy and education, so fundraising should 
be considered a form of free speech protected by the first 
amendment.
    Some causes are hard to raise money for, but groups like 
veterans, policemen and firemen are the subject of the most 
instances of charity fraud and broad direct solicitation, 
because it is easy to exploit feelings of patriotism and 
community to solicit money for those hard-to-say-no-to heroes. 
I question the content of some direct mail appeals and the 
costs associated with direct mailings. I question the promises 
and allusions to programs made by charities in direct mail 
solicitations that are not kept, and language that is purposely 
confusing.
    I question the use of sweepstakes and free trinkets as a 
proper use of donations to secure more donations. I question 
repeated mailings directed to our seniors on limited incomes, 
exploiting their patriotism and generosity. I question the 
reasoning behind the number of mailings sent to the same 
people, month after month after month.
    I look forward to hearing from Mr. Richard Viguerie and Mr. 
Geoffrey Peters, whose direct mail companies have contracts 
with Mr. Chapin's charities. It is important to understand the 
nature of the direct mail business, what contracts contain, who 
drives mail content, and why fundraising costs are so high.
    I have specific questions about the management practices of 
the Chapin veterans' charities, Help Hospitalized Veterans, the 
Coalition to Salute American Heroes Foundation and Help Wounded 
Heroes. Internal Revenue Service 990 forms and board of 
director minutes from these charities indicate that over the 
years, Mr. Chapin and his wife have received millions of 
dollars in salaries supplemented by large expense accounts. I 
question the merit of Mr. Chapin's high salary and lack of 
adequate documentation for expenses paid by the donors in the 
name of veterans.
    I question the movement of funds and loans between these 
charities. It disguises real fundraising costs in an effort to 
achieve higher ratings by charity watchdog groups, ultimately 
deceiving donors.
    I look forward to working with my colleagues on this 
committee on a bipartisan basis and in the Congress to see what 
might be done to stop waste, abuse and fraud by charities so 
that Americans will continue to give with the confidence their 
donations actually make a difference.
    Mr. Chairman, again, and Mr. Ranking Member, thank you for 
holding this hearing.
    Chairman Waxman. Thank you very much, Mr. Shays.
    Ms. Watson.
    Ms. Watson. Thank you so much, Mr. Chairman. As usual, you 
are right on point for these issues that are so critical.
    Mr. Chairman, Americans have given millions of dollars to 
help thousands of veterans wounded in Iraq and Afghanistan. 
Americans are known as a giving people who will open up their 
hearts and wallets for just causes. It is therefore all the 
more disconcerting when we learn that some philanthropic groups 
spent relatively little money on the wounded while collecting 
millions.
    According to an article in last December's Washington Post, 
the American Institute on Philanthropy reported that 20 to 29 
military charities that were studied were managing their 
resources poorly, paying high overhead costs and direct mail 
campaigns and excessive salaries. The Institute gave Fs to 12 
of the 29 military charities reviewed and Ds to 8. That is 
nearly a 70 percent failure rate.
    According to the same article, one of the most egregious 
failures is Help Hospitalized Veterans, founded in 1971 by 
Roger Chapin, who belatedly has decided to cooperate with the 
committee and present his testimony today. And I am very 
pleased that Mr. Chapin has come forth.
    Mr. Chapin, as president of Help Hospitalized Veterans, we 
understand you received $426,000 in salary and benefits, and 
your wife received an additional $113,000. Mr. Chairman, I 
don't want to begrudge anyone earning a livable wage or 
profiting from their endeavors, but profiting in excess on the 
backs of those who are in need does not strike me as very 
American or at least the way Americans view themselves. Such 
practices do not benefit veterans, veterans' organizations, nor 
the public at large and don't speak well of us as a society.
    So I look forward to your testimony, Mr. Chapin. But what I 
have read about these charities appears to me to represent a 
pattern of decades of abuse, maybe not in law, but in the 
spirit of charitable enterprises.
    Thank you again, Mr. Chairman, and I yield my remaining 
time.
    Chairman Waxman. Thank you, Ms. Watson.
    Mr. Bilbray.
    Mr. Bilbray. Mr. Chairman, I thank you for holding this 
hearing.
    As you know, San Diego County is ground center when it 
comes down to veterans and active duty military. And this issue 
is obviously a very important issue to the community of San 
Diego.
    The fact is that Mr. Chapin served for 6 years as one of my 
constituents during my previous stint in Congress. Though I 
have no personal knowledge of his involvement with veterans' 
organizations of any kind, I did have the opportunity to work 
professionally with him on an issue that I think you agree 
strongly on, Mr. Chairman, and that was to perpetuate a 
national program of health prevention. Because of my previous 
personal relationship with Mr. Chapin I will not be asking him 
any questions today.
    But I do appreciate the fact that this hearing is being 
held and that we get these issues. At that, I will yield back, 
Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Bilbray.
    Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. I want to thank the 
chairman and the ranking member for their persistence in 
investigating these questionable fundraising practices, 
especially given the fact that Mr. Chapin resisted the first 
subpoena.
    No. 1, I think that it is disgraceful that anyone might 
capitalize on the good will and the support of the American 
people to support our men and women in uniform for their own 
personal benefit. As have many of the members on this 
committee, I have just come back from my seventh trip to Iraq. 
I have been in Afghanistan quite a few times as well. To see 
the sacrifice of our men and women in uniform close up and on a 
daily basis, having been to Walter Reed Army Medical Hospital 
far too many times to visit our soldiers, it is disgraceful 
that anyone would capitalize on those circumstances and on the 
goodwill of the American people to rally behind our troops for 
ulterior motives.
    I think it is a disservice to the memory of those who have 
made the ultimate sacrifice on behalf of our country, both in 
Iraq and Afghanistan. I think it is a disservice to those brave 
Americans who continue their brave service. I think it is a 
disservice as well, and most dangerously, to the legitimate 
veterans' support organizations that are out there who are 
legitimate, who are operating transparently, and who are trying 
to do their very best on behalf of our veterans. Because I fear 
that when the facts of these irregularities come out and the 
circumstances that we are investigating today, that Americans 
might grow hesitant or reluctant to support certain charities, 
even though their programs are up to snuff and are legitimate 
and are intended and used for the best interests of veterans 
and their families.
    So Mr. Chairman, since Mr. Chapin resisted the last 
subpoena, I am eager to hear his testimony, as you said, to 
hear his side of the story. I yield back.
    Chairman Waxman. Thank you very much, Mr. Lynch.
    Mr. Sali.
    Mr. Sali. Nothing at this time, Mr. Chairman.
    Chairman Waxman. Mr. Burton.
    Mr. Burton. I have no questions.
    Chairman Waxman. Opening statement?
    Mr. Burton. No opening statement.
    Chairman Waxman. Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman. Let me thank you 
and Mr. Davis for bring us together again around a very, very 
important issue.
    The American people are a very generous people. And they 
are willing to give to help those in need, and I think the 
American people are especially concerned about our veterans and 
those who have served our country overseas and their families, 
who have made sacrifices, many of whom return here wounded and 
deserve all the support that we can possibly give them.
    And I hope out of these hearings two things will emerge. 
One is, we need to make sure that the American people have 
confidence that when they are giving to organizations, non-
profits, that serve our veterans, that their money really is 
going to benefit the veterans, and that the money is not going 
instead to benefit just those organizations and the people who 
are involved in raising the money. Because having that 
confidence is very important. We want the American people to 
continue to give and support our veterans, and they need to 
have a confidence that when they make that contribution, it is 
in fact going to the people that they want to support, the 
veterans.
    Of course out of that we are also helping the veterans, 
because the whole purpose of making those contributions is to 
help those who we intend to help. I do think that we need to do 
a lot more to protect the public that wants to give and at the 
same time protect our veterans in that process and make sure 
that they get the benefit of what the American people want to 
give them.
    So I really hope that both in terms of the education 
process that these hearings provide, but also if we can look at 
other measures that we might take to make sure that people have 
to fully disclose how much of what they raise goes to the 
veterans, and how much goes simply to finance the operations of 
the non-profit and to benefit those who are running the non-
profit instead of the veterans, so that the American people can 
make sound choices about how best to help our veterans, as we 
go forward.
    So I thank you, Mr. Chairman, for holding these hearings.
    Chairman Waxman. Thank you very much, Mr. Van Hollen.
    Mr. Tierney.
    Mr. Tierney. I have no opening statement, Mr. Chairman. I 
think we should proceed and I appreciate the work that you are 
doing here.
    Chairman Waxman. Thank you.
    Mr. Yarmuth.
    Mr. Yarmuth. Thank you, Mr. Chairman.
    I would just like to reinforce the comments that have been 
made concerning our resolve to make sure that veterans are paid 
all the respect that they deserve and they are not exploited. I 
have been in the private sector running businesses and I have 
been involved with a lot of legitimate non-profit 
organizations. Some clearly operate as public services and some 
clearly operate as businesses. Unfortunately, we have seen too 
many instances here where organizations look a lot like 
businesses and are using our veterans as basically a raw 
material and a marketing tool.
    And I think that is what we are all concerned about, 
uncovering and correcting if that is the problem. So I thank 
you for this hearing and I look forward to the testimony of the 
witnesses. I yield back.
    Chairman Waxman. Thank you, Mr. Yarmuth.
    Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    I know we are all anxious about whether there needs to be 
stricter regulation of charities to see how they spend their 
money. I would just say this. I think that any charity has a 
duty and obligation, they have a trust that is being placed in 
them when they go out and they make their pitch. But it seems 
to me that charities that serve our veterans have an extra 
obligation because there is a deeper trust placed in them, a 
broader trust than with respect to just about any other 
charitable endeavor.
    So the standard, the expectation is even higher in this 
arena. And I think that is why we are here today for this 
hearing.
    I look forward to hearing this testimony and asking the 
questions that need to be asked.
    Chairman Waxman. Thank you very much.
    Mr. Issa, your opening statement?
    Mr. Issa. Thank you, Mr. Chairman. I will be very brief.
    One is an administrative matter that I hope to air, in the 
spirit of doing better in the future. Mr. Chairman, there is a 
developing pattern that I object to, that we think we are ready 
for a hearing, but in fact rather than 3 days before the 
hearing receiving the scope and the intention, which obviously 
the people testifying today have to be equally informed of why 
we brought them here and what we expect, the Members on the 
dais need it.
    So once again, we received a draft supplement last night 
and to this moment have not, even though it is in the record, 
have not received our official copy of that statement. It is an 
administrative matter. I realize that although your leadership 
is critical, that it is a staff matter, that in the future, I 
will have to object if we don't have legitimate statements from 
the majority 3 days before. Otherwise, I will have to ask, at 
least attempt, to postpone hearings until we have that.
    And I would hope that now is the right time to say it for 
future hearings, because I want these hearings like this one, 
which is very bipartisan, to be about getting to the meat of 
it. And 3 days is not a lot to ask for to make sure our staff 
is prepared as much or more than anyone else here on the dais.
    Chairman Waxman. Thank you, Mr. Issa. I will take your 
concerns into consideration.
    Mr. Issa. I appreciate that, Mr. Chairman.
    Chairman Waxman. I have been informed that there was a 
distribution of the memo 3 days in advance. Was that to 
Members? Well, rather than----
    Mr. Issa. We will deal with this offline.
    Chairman Waxman. You raise a good point, and we will try to 
make sure that we do better.
    Mr. Issa. And then in order to get to our panel, I just 
want to add one thing, that between the first go-round on this, 
in which I spoke, like many of us here on the dais, very 
strongly as a veteran about how bad it is that you are using 
people who have been injured in their service to our country as 
a way to often line the pockets of individuals who have no 
interest in that, I would hope when we conclude this that we 
also expand this. Because ever since the first hearing, my 
office has been widely informed of other abuses, abuses very 
similar to the veterans' ones, dealing with the homeless, 
dealing with food banks, and dealing with environmental groups.
    I would hope that we use this as a springboard for a 
broader reform of the whole charitable giving, versus the 
lining of pockets of those who solicit. I know that is a 
bipartisan effort that we can do, and I would, once again, hope 
that we would do it. I look forward to completing this cycle 
though, because we need to get to the bottom of it and find 
real solutions so that fundraisers not prey upon our veterans.
    With that, I yield back and thank the chairman for this 
hearing.
    Chairman Waxman. Thank you, Mr. Issa.
    We have before us Roger Chapin, from San Diego, CA, who 
operates several different veterans' charitable organizations.
    Richard Viguerie is president of American Target 
Advertising, a direct mail business located in Manassas, VA.
    Geoffrey W. Peters is president of Creative Direct 
Response, a direct mail business, located in Bowie, MD.
    Belinda J. Johns, senior assistant attorney general for the 
State of California. She heads the Charitable Trust Section of 
the California Attorney General's office.
    We are pleased to welcome each of you to this hearing 
today. Your prepared statements will be made part of the record 
in its entirety. What I would like to ask each of you to do, 
because it is the practice of this committee that all witnesses 
testify under oath, is if you would please rise and raise your 
right hands.
    [Witnesses sworn.]
    Chairman Waxman. The record will indicate that each of the 
witnesses answered in the affirmative.
    As I indicated, the statements will be in the record in 
full if you submit it to us. For your oral presentation, we are 
going to limit the presentation to 5 minutes. We will have a 
timer. It will be green during the 5-minute period and it will 
turn yellow in the last minute, and then red when the 5-minutes 
are up. When the red appears, we would like you to conclude 
your statement.
    Mr. Chapin, there is a button on the base of the mic that 
is in front of you to turn it on, and I would like to hear from 
you first.

   STATEMENTS OF ROGER CHAPIN, PRESIDENT, HELP HOSPITALIZED 
    VETERANS, INC. AND COALITION TO SALUTE AMERICA'S HEROES 
  FOUNDATION; RICHARD A. VIGUERIE, CHAIRMAN, AMERICAN TARGET 
   ADVERTISING, INC.; GEOFFREY W. PETERS, CHAIRMAN, CREATIVE 
    DIRECT RESPONSE; AND BELINDA J. JOHNS, SENIOR ASSISTANT 
    ATTORNEY GENERAL, CHARITABLE TRUSTS SECTION, CALIFORNIA 
                   ATTORNEY GENERAL'S OFFICE

                   STATEMENT OF ROGER CHAPIN

    Mr. Chapin. Mr. Chairman, Representative Davis, members of 
the committee. On November 26th, the committee sent us a letter 
requesting the voluntary production of thousands of documents, 
and inviting me to testify at a hearing 16 days later, on 
December 13th. I was consumed with our third Road to Recovery 
Conference in early December, an inspiring event where we 
invite severely wounded heroes from the War on Terror and their 
families to Walt Disney World at our expense.
    Because of the conference, because my wife was recovering 
from back surgery, because we had moved out of our home for 
scheduled renovations and because I did not have time to 
prepare, I declined the committee's invitation to appear. I 
have written a personal letter of apology to Mr. Waxman and Mr. 
Davis for the inconvenience I caused the committee. I have done 
what I can to make it clear that so long as I have adequate 
time to prepare, I have no problem cooperating with the 
committee.
    I voluntarily appeared for a transcribed interview with the 
committee staff that took all day Friday. I am proud to report 
that Help Hospitalized Veterans [HHV], which I founded in 1971, 
has generated $470 million in donations and distributed $362 
million worth of products and services based on their market 
value. This represents 77 percent of total donations, proof 
positive that HHV does right by its donors, as long as they are 
hospitalized vets. HHV has distributed 23 million craft kits 
and millions of greeting cards signed by donors helping boost 
the morale of hospitalized veterans.
    Charity Navigator, the leading internet charity rating 
service, gave HHV two stars, the same as numerous well-
respected charities, including the American Cancer Society, 
American Diabetes Association, National Wildlife Federation, 
the Boy Scouts, the YMCA, VFW and Paralyzed Veterans of 
America. Special Olympics only got one star. You might say HHV 
is in very good company.
    The Coalition to Salute America's Heroes has distributed 
over 3,000 $500 Christmas gift checks to needy, disabled War on 
Terror veterans and their families, in addition to helping over 
6,000 families with direct emergency cash assistance, hosting 
over 1,200 disabled veterans and their family members in our 
life-changing 4-day all-expense-paid Road to Recovery 
conferences at Disney World, providing six nearly cost-free 
homes to catastrophically disabled vets, assisting hundreds in 
finding jobs, furnishing counseling to many more, and picking 
up the travel expenses of many families visiting their wounded 
loved ones in military hospitals.
    The bottom line on direct mail is that if you disregard 
allocations for educational and programmatic content, direct 
mail generally nets us approximately 35 cents on the dollar and 
administration costs generally average another 10 percent. That 
is true for my charities, and it is true for the thousands of 
charities in the United States that raise $60 billion annually 
by direct mail, although most other charities have higher 
direct mail costs than we do. The same numbers apply to 
political fundraising by direct mail, and also to State 
lotteries who raise tens of millions of dollars.
    Throughout my life, I have endeavored to do well for my 
family while I try and do some good in this world. I have been 
working for HHV for 21 years, 8 of those as a volunteer, before 
HHV's board paid me more than $74,000 a year. In 1993, the 
first year I made over $100,000 in salary, I was 60 years old 
and I had no retirement plan. I am grateful that HHV's board 
voted for a retirement plan in 1998, benefiting me and other 
full-time employees. Because I was 66 when the plan began, HHV 
had to make very high annual contributions to fund my 
retirement benefits. I am grateful for the board's generosity, 
but I still make less than the average of non-profit executives 
of similar-sized organizations.
    Before closing, I have one request. I would hope that we 
can work together in helping to ensure that Congress finally 
fulfills its solemn obligation to over 300,000 veterans of the 
War on Terror who are afflicted with PTSD and/or TBI. By the 
Pentagon's own admission, government hospitals are woefully 
ill-equipped to treat them, yet the vast majority are still 
denied the opportunity to seek necessary therapy in the private 
sector at government expense. I consider this to be a national 
scandal of the worst sort. I know, Mr. Chairman, that you and 
the committee have held hearings designed to focus attention on 
this problem, but Congress still has not appropriated the funds 
necessary to provide the necessary care.
    Thank you, and I look forward to a full and fair 
opportunity to answer your questions.
    [The prepared statement of Mr. Chapin follows:]

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    Chairman Waxman. Thank you very much, Mr. Chapin.
    Mr. Viguerie.

                 STATEMENT OF RICHARD VIGUERIE

    Mr. Viguerie. Chairman Waxman, Ranking Member Davis, and 
Members of the committee. I am here today at your so-called 
invitation. I must say this is the first invitation I have ever 
received from Members of Congress that wasn't for one of your 
fundraising events.
    In 1960, just 5 years before I started my marketing agency, 
I estimate there were only about 60,000 donors to the Kennedy/
Nixon Presidential campaigns. Americans received their news and 
information from very limited sources who controlled, filtered 
and limited what Americans knew about what really happens in 
Washington.
    Applying commercial marketing principles to cause-related 
fundraising, I pioneered direct mail for political and 
ideological causes. JFK's late son's magazine, George, credited 
this as one of the defining political moments of the 20th 
century.
    I developed ways to communicate with, involve and raise 
money from millions of everyday citizen supporters, rather than 
the few traditional fat cat donors. Today, the Democratic 
Congressional Campaign Committee, chaired by Congressman Van 
Hollen of this committee, markets its lists of 282,000 names. 
So he is a beneficiary of what I pioneered. I estimate over 8 
million people will make a contribution in this Presidential 
election cycle to some campaign or political cause.
    The Founding Fathers added the first amendment to our 
Constitution because it is inevitable that political elites 
will seek to silence their critics and competitors in the 
marketplace of ideas. This hearing is one of those attempts.
    Four times in the past 27 years, the U.S. Supreme Court has 
ruled that charitable fundraising with high cost is fully 
protected by the first amendment and is not fraud. However, Mr. 
Chairman, at the December 13th hearing on veterans' charities, 
you defamed certain charities for their high fundraising costs 
by calling that fraud. That hearing was based on the false 
premise that the sole purpose of a charitable solicitation is 
to raise money. Charities' advertising mailings do far more 
than just solicit and dole out money.
    I remember all too well, Mr. Chairman, that many Vietnam 
veterans were spit on when they returned to the United States. 
However, hundreds of millions of advertising mail, which 
includes the American flag, car magnets, Support Our Troops car 
ribbons, bumper stickers, decals, etc., has helped veterans of 
the unpopular Iraq war be received back home very differently 
than returning veterans from the unpopular Vietnam war.
    Rather than providing enough Federal funds for our 
veterans, too many Members of Congress have spent billions on 
earmarks and pet projects in their districts. That abuse of 
congressional power is a major reason why veterans and their 
families are getting the short end of the stick.
    But that is not the only abuse of power I want to discuss 
today. Today is just the beginning of a very public national 
airing about issues that Congress for too long has swept under 
the rug. It is a debate about hypocrisy, legal fraud and quid 
pro quo money-laundering, or call it what you will, and 
political fundraising conducted by Members of Congress. 
Americans are angry because of the abuse of power by Congress 
and other elites in Washington. Your ratings are at their 
lowest level because now more than ever Americans have access 
to information from the new and alternative media about what 
really goes on in Washington.
    Some of the most effective and most outspoken critics of 
Congress are charities and other non-profit organizations. Many 
of the landmark first amendment cases, such as the NAACP v. 
Alabama, and New York Times v. Sullivan, involve attempts by 
the government to intimidate and silence non-profits because 
they are such effective critics of government. This committee 
is investigating charities that have received bad grades from 
one individual whose methods are not accepted by other charity 
rating systems nor the standards of the American Institute of 
Certified Public Accountants.
    Also surprisingly, even shocking, he does not grade nor 
evaluate the effectiveness of a charity. Members of Congress 
aren't required by law to hire independent certified public 
accountants and file detailed reports about your own cost of 
fundraising under American Institute of Certified Public 
Accountant rules. But charities must. Your contracts with 
fundraisers aren't regulated by State attorney generals [sic], 
but charities are. Nor are your contracts on file for public 
inspection. But the contracts for charities are.
    And charities can't strong-arm lobbyists and corporate PACs 
in exchange for access, influence and legislative favors. In 
other words, the playing field is not level. I say, level the 
playing field. Whatever charities must do to report and comply 
with the law, Members of Congress should do the same.
    Mr. Chairman, over the past 10 years, your own personal 
campaign committee has raised money ostensibly for your own re-
election, yet you have passed through almost exactly 50 percent 
to other political candidates and committees. Fifty percent 
over 10 years looks less like a campaign than a money-
laundering enterprise.
    You also formed this thing called LA-PAC to solicit and 
pass through even more money. You give that money to candidates 
with whom your donors may disagree on issues important to the 
donors and candidates to whom the donors would not have made a 
contribution. That sounds like what is called bait and switch 
in a commercial context. Any way you look at it, it appears 
wrong and unseemly.
    There are a host of rotten issues in congressional 
fundraising, yet this committee is not merely chilling first 
amendment rights of non-profits and other citizen-backed 
organizations, but is attempting censorship in direct 
contravention with what the U.S. Supreme Court has said 
repeatedly. There are plenty of outstanding or very influential 
charities with high fundraising costs.
    Mr. Chairman, your agenda here is political, anti-
competitive, unconstitutional, and if I may be frank, mean. You 
grab cheap headlines at the expense and in defamation of some 
very worthy charities. You have caused harm for the 
unconstitutional purpose of limiting the amount of information 
that the public receives.
    Chairman Waxman. Mr. Viguerie, your time has expired. You 
ought to complete your remarks.
    Mr. Viguerie. I have one paragraph. What you have said and 
what you are trying to do has and will continue to result in 
harm to, not help for, veterans. As part of that process, you 
are abusing the powers of this institution. Shame on you, Mr. 
Chairman. And shame on any member of this committee who would 
participate in such an agenda.
    [The prepared statement of Mr. Viguerie follows:]

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    Chairman Waxman. Mr. Peters.

                STATEMENT OF GEOFFREY W. PETERS

    Mr. Peters. Thank you, Mr. Chairman, Mr. Davis, who happens 
to be my Representative, and also members of the committee.
    When Mr. Williams contacted me and invited me to testify, I 
asked what information I could provide that would be of use to 
the committee. Mr. Williams indicated perhaps information 
concerning costs of fundraising. A number of you have asked 
about that. Mr. Sarbanes and Mr. Issa in particular have 
mentioned that they are concerned about the possibility for how 
regulation might be formulated.
    Let me start by giving you a hypothetical. Which charity 
deserves our support? The one that raises $100,000, spends 90 
percent of it feeding the poor, has 10 percent administration 
cost, and overhead and fundraising cost, and feeds 90 people, 
or the one that raises $100,000, spends 25 percent on 
fundraising and administration, but manages through innovative 
management and creativity of its staff, to feed 180 people?
    Clearly, if your goal is to have an effect, the second 
charity is more effective than the first, yet it has a higher 
cost of fundraising ratio. Cost of fundraising ratio has been 
looked at within our industry for decades. Scholars have looked 
at it, people within the industry have looked at it, State 
regulators have focused upon it, and we have had four Supreme 
Court decisions on it.
    One of the things that I can tell you from the literature 
is that costs of fundraising ratio as a measure of the 
effectiveness or as the measure of an efficiency of the charity 
have been widely debunked by nearly everybody in the industry.
    Let me give you another example. Mothers Against Drunk 
Driving is a charity that sends out millions of direct mail 
letters every year. Every year those direct mail letters 
include an appeal for funds, yet they get joint costs allocated 
and, contrary to what Mr. Shays implied, having to do with 
shuffling money, that joint cost allocation under the 
accounting rules that the charity is required to abide by, yet 
allocated in part to public education and in part to 
fundraising. Does that make sense?
    Well, if you ask the people from Mothers Against Drunk 
Driving, which reporters have done and regulators have done, 
their response is, those letters save lives. They remind people 
in their daily life at home, when they are sitting down to 
dinner with their teenagers, don't drink and drive.
    So how should we account for that? If we don't account for 
that was part of their mission fulfillment, how do we account 
for it? And won't that charity that uses those letters that way 
end up receiving a poor rating from Mr. Borochoff and AIP 
because he doesn't allow for joint cost allocation in his 
rating system?
    Ms. Watson, you mentioned that you relied on Mr. 
Borochoff's study when you read the Washington Post article. 
Let me ask you what you think of Harvard University, one of our 
great educational institutions, but an institution which has a 
huge endowment? Should other charities be denied the 
opportunity to raise money for an endowment because Mr. 
Borochoff says that charities that have reserves should be 
downgraded in their grade that they receive? It doesn't make 
sense.
    Mr. Borochoff's rating system that then goes after all of 
these charities that receive failing grades is not only not 
agreed to by most of the industry, it is not even agreed to by 
all the other charity watchdog groups. If you try to do a study 
of this, which has been done by the National Association of 
Non-Profit Agencies, that study shows that the ratings systems 
are inconsistent. So who should we follow?
    If you are the manager of a charity, should you follow GAAP 
guidelines in doing your accounting? Or should you follow the 
charity watchdog's that make up their own way of looking at 
things?
    I would hope that the committee is interested more in 
public policy and in legislative opportunities than they are in 
going after Mr. Borochoff's failing grade charities. If so, I 
would be delighted to answer questions about what 
recommendations we might have for legislation that could be 
helpful to the charitable community and the veterans, and to, 
as Mr. Issa suggested, members of other charitable communities, 
including cancer victims and unwed mothers and the homeless and 
so forth.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Peters follows:]

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    Chairman Waxman. Thank you Mr. Peters. Ms. Johns.

                 STATEMENT OF BELINDA J. JOHNS

    Ms. Johns. Good morning, Chairman Waxman, and distinguished 
members of the committee. Thank you for inviting me here to 
speak.
    The California Attorney General represents the public 
beneficiaries of charity, who cannot sue in their own right. He 
has broad supervisory and investigative powers over the 
activities of charitable organizations and their fundraisers. 
The Charitable Trusts Section carries out this oversight role. 
Our mandate is to detect fiscal abuse and mismanagement that 
results in a loss of charitable assets and to take the 
necessary action to return diverted assets to charity.
    We are divided into two parts: the Registry of Charitable 
Trusts and the Legal and Audit Unit. The Registry is 
responsible for administering California's registration and 
reporting law, and for responding to the high volume of 
complaints and inquiries received from this sector and from 
members of the public.
    The Registry's three auditors review and investigate 
complaints and provide audit support to our attorneys. The 
legal and audit unit, 11 attorneys and 7 auditors State-wide, 
carries out the enforcement component of the Attorney General's 
jurisdiction. We conduct audits and investigations into 
allegations of fiscal abuse, fraud, diversion, mismanagement of 
assets with regard to both charitable organizations and 
fundraising professionals, whether registered or unregistered. 
Based on the results of those inquiries, we take corrective 
action to recover diverted charitable assets, remove trustees 
and board members, restrain solicitation activity, 
involuntarily dissolve corporations and restore assets to 
charity.
    Cases relevant to this inquiry include our civil 
prosecution of Mitch Gold, a series of cases which eradicated 
storefront solicitation, a criminal case filed against an 
executive director who embezzled funds from a small veterans' 
charity.
    We face three major challenges. One is our limited ability 
to address compliance because our registry is still paper-
based. We are in the final phase of an automation project, 
which when completed will allow us to more comprehensively 
supervise and systematically address compliance. For example, 
we have over 92,000 registrants. We estimate 50,000 of them are 
delinquent. Another 90,000 which have incorporated in 
California are not registered, and we think at least half of 
them should be.
    Our second challenge is related to the first. Case 
selection is primarily complaint-driven. Once we are automated, 
we will be able to track abuses in a more sophisticated fashion 
and target specific issues.
    Our third challenge is to protect charitable assets 
effectively given our limited staff and budget resources, a 
challenge faced by many State charity offices. We encourage 
compliance by offering guidance on our Web site and in 
community outreach. We offer charities the opportunity to take 
corrective action before we take legal action. We form 
relationships with other government agencies so that we can 
triage complaints and refer them to other agencies that may be 
able to more effectively deal with them.
    We participate in multi-agency task forces and multi-State 
litigation in order to extend our enforcement capability. We 
publish guidance to assist donors in gathering the information 
they need to make wise giving choices.
    Our ability to address high fundraising costs is limited by 
the Supreme Court cases that have been discussed. Our response 
was to amend our supervision act to require fundraising 
professionals to register and file annual reports. We post them 
on our Web site. We publish an annual report summarizing their 
content. We have also added provisions that require specific 
contract terms and prohibit non-voidable contracts.
    With regard to addressing fundraising abuse, we primarily 
rely upon complaints. Our guide to charitable giving includes a 
primer to help donors find relevant information on the 990, and 
a checklist of questions donors can ask and factors they may 
consider to assure their contributions are used in the way they 
intend.
    Problem areas in solicitation in our experience include 
telemarketing and direct mail appeal, because of 
misrepresentations. Again, donors are the first level of 
defense, because if they are educated, they can make wise 
choices and they can refuse to give to organizations that do 
not fit the profile they set.
    We have found no mechanism to quantify fraud in this area. 
Fraudulent schemes will not necessarily come to our attention, 
and if they do, it is after the fact and generally after the 
assets are lost. For these reasons, donors must be vigilant and 
willing to take the time to assure they know who will benefit 
from their contribution and how it will be used.
    The bottom line is that, in order to minimize waste and 
diversion, donors, members of board of directors and State 
charity regulators all have a role in controlling abuses in the 
solicitation of contributions and in the operation of the 
charities themselves.
    Thank you.
    [The prepared statement of Ms. Johns follows:]

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    Chairman Waxman. Thank you very much, Ms. Johns.
    I will now proceed to questions by members of the committee 
who will have 5 minutes each. I will start out with my 
questions first.
    Mr. Chapin, in your written testimony, you stated your 
groups use most of their contributions to provide services to 
veterans. You say Help Hospitalized Veterans uses two-thirds of 
its funds to serve veterans. You claim that the Coalition to 
Salute America's Heroes uses more than 90 percent of its budget 
to help veterans.
    That sounds pretty good, but it is not true. It is not 
accurate. The committee staff examined your group's financial 
statements and found that if you removed all the grants from 
one group to the other, and if you don't count your mass 
mailings as a service to veterans, your numbers are actually 
much, much lower.
    Here is what we found. And let me put up a chart. In the 
last 3 years, 2004, 2005 and 2006, your two groups combined 
received donations of $168 million, but only a quarter of these 
revenues went to providing actual goods and services for 
veterans. That means only one out of every four dollars you 
received ended up directly assisting veterans. That is a very 
different story than what you said in your testimony.
    But it does match what you told our committee staff when 
you met with them last week during your interview. Last week 
you confirmed that three-fourths of the donations do not result 
in the delivery of goods or services to veterans.
    I want to quote from what you said: ``I told you what our 
costs are. Direct mail is, you know, 65 percent range, not any 
given mailing, but the whole mix of a program, 60, 65 percent. 
You put 10 percent on top of that for administration and 
overhead, this is without any, you know, allocation business, 
you are pushing 75 percent, so you got 25 cents goes to 
charity. I will be very up-front with you about that.'' That is 
what you said to our interviewers.
    So last week you told the committee that you were pushing 
75 percent and only 25 cents goes to the charity. But today, in 
your written testimony, you are saying you use more than two-
thirds and more than 90 percent to help veterans. Which is it?
    Mr. Chapin. So, what is your question, Mr. Chairman?
    Chairman Waxman. Well, you said in your testimony that 90 
percent and 75 percent actually goes to help veterans. But in 
your interview and according to the records of your company, it 
looks like 75 percent actually goes to fundraising and only 25 
percent to veterans. Which is which?
    Mr. Chapin. Well, the difference has to do with the 
allocations. I mentioned in my prepared remarks this morning 
that if you disregard allocations, only about 25 percent of the 
donor dollar actually goes to the cause. I was very forthright 
in acknowledging that to you. That is if you disregard 
allocations. If you consider allocations, which--let's look at 
the----
    Chairman Waxman. What do you mean by allocations?
    Mr. Chapin. Well, the American Institute of Certified 
Public Accountants, sir, has set forth the ground rules by 
which charities must report. We don't make the rules, we follow 
the rules.
    Chairman Waxman. What do you mean when you say an 
allocation?
    Mr. Chapin. OK. If we make a--our marketing costs are 
divided into two categories, per the Institute. One has to do 
with what is known as program services, and the other has to do 
with fundraising. This is a very arbitrary and subjective and 
discretionary matter. Now, we have a very conservative 
accountant, who happens to be a very good friend of mine. 
Because of that, I respect him and I go along with him. We get, 
and I would like to put this up on the chart, if I may, we get 
a very small allocation toward program services, and we get a 
very high toward fundraising.
    And by that, I mean--can we put that up, please? So, in 
other words, a very small percentage, compared to other 
organizations, compared to other veterans' charities and many 
others, a very small percentage of our marketing costs are 
allocated to program services and a very high percentage are 
allocated to fundraising costs. It makes us look bad.
    Chairman Waxman. So your own accountant then allocates more 
to fundraising than to actual services?
    Mr. Chapin. That is right. Because we play by the rules.
    Chairman Waxman. OK. Now let me ask you this. The committee 
staff asked you why you used inflated numbers in your mailings 
rather than the real figures. In response, this is what you 
said: ``Because we wouldn't raise any money. I mean, that's a 
pretty straight answer.``
    You are right, that was a straight answer, but the question 
is whether it is an acceptable one, because you falsely 
inflated the numbers to raise more money by telling them more 
money is actually going to go to veterans, but in fact, your 
own accountant and your own figures show that less money is 
going to the veterans. You are not telling them the truth. It 
is unethical, it is wrong. It is really a fraud against 
Americans who agree to give you their hard-earned dollars, 
isn't it?
    Mr. Chapin. Absolutely not. We made no representations 
whatsoever to the donor as to the percentage of the money that 
was going to the charity. Not so.
    Now, our costs----
    Chairman Waxman. What representations have you made to the 
donor?
    Mr. Chapin. What did you say?
    Chairman Waxman. What representations have you made to the 
donor?
    Mr. Chapin. We told the donors that we are going to provide 
craft kits and we are going to provide--we are going to help 
turn back on the utilities of our severely disabled veterans 
that have been shut off. We are going to make payments on their 
cars so they don't get repossessed, such as many of them are. 
We are going to pay their mortgage payments on their houses, so 
they don't get evicted from their houses. We are going to do 
everything that Congress is not doing to take care of these 
guys. Unfortunately, we are very limited----
    Chairman Waxman. Well, let me conclude, because my time is 
up, but in the mailing that was produced by Help Hospitalized 
Veterans, it said, ``This mailing was produced by Help 
Hospitalized Veterans, which retains 100 percent of the 
contributions made.'' A hundred percent, it says, and then you 
would think that 100 percent is going to help veterans, but 
that is not the reality, only 25 percent.
    Mr. Chapin. That is not the--no reasonable person, if you 
will pardon me, Mr. Chairman, would interpret it in that way. 
As a matter of fact, the State of Florida----
    Chairman Waxman. Well, if you say 100 percent goes to 
veterans, most people who are reasonable would believe that.
    Mr. Chapin. We didn't say to the veterans, we said to the 
charity, 100--that is not what it says, sir. The State of 
Florida requires us to put that precise language in the 
solicitation. And Mr. Peters, I think, will attest to that. As 
a matter of fact, Mr. Viguerie, his mailings, he represents 
about 75 percent of all the revenues that we generate, he 
doesn't use that statement. Mr. Peters, who has CDR, that is 
the organization's he is the CEO of, his attorneys apparently 
believe that it is necessary to use that language----
    Chairman Waxman. Let me ask Ms. Johns. Is that California? 
Do we require them to say 100 percent is used for the charity, 
even though 100 percent is not used to help the veterans?
    Ms. Johns. We do not.
    Chairman Waxman. Thank God.
    Mr. Davis, your turn.
    Mr. Davis of Virginia. Well, I am familiar with the high 
costs of fundraising. I was chairman of the Campaign Committee 
for the Republicans. We raised a lot of money through the mail. 
But the costs were very high, particularly in prospecting and 
the like. I got criticized for it, but we looked at the net 
that we could end up spending. So, I am familiar with it.
    But I have a couple of questions. Mr. Chapin, I have a 
letter here. It is a copy of a Help Hospitalized Veterans mail 
solicitation dated June 18, 2007, directed to a Harvard-area 
mailing list. It is focused on a Massachusetts wounded veterans 
fund drive.
    This mailing indicates that the donation will support 
Massachusetts' wounded and hospitalized veterans. How do you 
ensure that these donations help veterans in Massachusetts?
    Mr. Chapin. By providing----
    Mr. Davis of Virginia. Do you keep records to make sure 
that those donations go where the mailings come from?
    Mr. Chapin. We have records showing----
    Mr. Davis of Virginia. Or is this just more aspirational 
than specific?
    Mr. Chapin. Well, we have 288 veterans and military and 
State veterans' homes that we service. And we have records. We 
would be happy to provide them to you, of all the money----
    Mr. Davis of Virginia. I am not asking--I am just asking, 
this was a targeted letter into an area basically saying, this 
is targeted to people in Massachusetts, just saying, we want to 
help Massachusetts' hospitalized veterans. If you can send your 
fund drive in the enclosed envelope, it would be greatly 
appreciated.
    If the money was mailed from Massachusetts, do you allocate 
that back to Massachusetts or do you not keep that?
    Mr. Chapin. Not necessarily 100 percent of it. It helps 
veterans all across the country as well as veterans in 
Massachusetts.
    Mr. Davis of Virginia. So, it is kind of a--there is not a 
direct linkage? It is a little puffery in there, then.
    Mr. Chapin. No. If you give that $10, we can't absolutely 
guarantee you that $10 will wind up in Massachusetts, but a lot 
of other $10 will wind up in Massachusetts, as you will see by 
our records.
    Mr. Davis of Virginia. From what Mr. Waxman said, if you 
give $10, $2.50 goes total, right? And then maybe it goes to 
Massachusetts. But you don't keep a direct allocation?
    Mr. Chapin. No. You will get a better value than if you 
went down to the store and you bought him a craft kit and mail 
it yourself.
    Mr. Davis of Virginia. I am just trying to understand it. I 
am questioning the motive. I am just trying to understand. The 
Better Business Bureau Wise Giving Alliance sent a letter to 
the Coalition to Salute America's Heroes Foundation, and stated 
that the Coalition did not meet its charity standards for 
governance and oversight, finances and fundraising practices. 
The letter also asks for clarification on your organization's 
related party transactions.
    Can you tell us more about these standards? The Better 
Business Bureau standards now, not the other standards that 
were referred to earlier.
    Mr. Chapin. Relative to the Better Business Bureau 
standards, if you take recent years, we meet the financial 
standard. Now, I am not suggesting that we necessarily meet all 
21 Wise Giving Standards that they have. But we meet the two 
financial standards, which are a maximum of 35 percent of 
fundraising. The year that ended in 2006, we were at 26.9 
percent, which is lower than most of the other veterans' 
charities and lower than a lot of big name charities all across 
the country. And the program services is a minimum of 65 
percent. We also met that. We were slightly over 66 percent.
    Mr. Davis of Virginia. Now, board minutes for the Coalition 
to Salute America's Heroes, December 29, 2005 minutes, contain 
a motion to formally evaluate the performance and effectiveness 
of your charity every 2 years. What performance metrics did you 
use and what assessments were made? Can you tell us?
    Mr. Chapin. I can't tell you precisely. I would be glad to 
provide that information.
    Mr. Davis of Virginia. OK. If you could get that back. You 
did have internal controls?
    Mr. Chapin. I can elaborate if you want me to. I will be 
happy to.
    Mr. Davis of Virginia. Sure.
    Mr. Chapin. May I?
    Mr. Davis of Virginia. Sure.
    Mr. Chapin. Yes. We take a look at how effective our 
funding has been in terms of meeting the needs of the VA 
hospitals and the patients. As an example, we are shipping over 
65,000 craft kits on the average every single month, which is 
enough to, if every veteran wanted a craft kit, which is our 
goal, every hospitalized veteran in a hospital, we would be 
able to provide it. Now, the fact of the matter is that some of 
these fellows might use 6 or 8 or 10 a month, and others may 
choose not to do any at all.
    So that is how effective our are we in that regard, as an 
example. We provide virtually over 100 percent, well over 90 
percent, let me be conservative, of all of the craft kits that 
are provided in the veterans' hospitals.
    Mr. Davis of Virginia. OK.
    Mr. Chapin. Along with, incidentally, we pay the salaries 
of 51 creative craft specialists who enhance the program 
enormously. Because the VA was no longer able to do that, so 
we----
    Mr. Davis of Virginia. What does a creative craft kit 
entail? I mean, what is in that kit?
    Mr. Chapin. Well, we have over 350 different kits. We have 
leather, which is extremely popular, we have moccasins, we have 
wallets.
    Mr. Davis of Virginia. OK. I get it. OK. Thanks. That is 
fine.
    Mr. Chapin. I would be happy to expound on that. There are 
lots of them.
    Mr. Davis of Virginia. That is fine.
    I just want to ask a quick question to Mr. Viguerie and Mr. 
Peters. How many different mailings do you do annually for Mr. 
Chapin's charities, particularly for Help Hospitalized 
Veterans? Are the numbers of mailings done dictated by your 
contracts? How do you make the decision when a mailing is done 
who it is directed to? I assume you do some prospecting with 
that, which are not going to have as high yields to try to 
build. And who owns the list, at the end of the day? I am 
trying to just get an understanding of that.
    Mr. Viguerie. Who is the question addressed to?
    Mr. Davis of Virginia. To both you and Mr. Peters. You may 
have different answers.
    Mr. Viguerie. We mail--I don't have the figures at my hand 
here or on the tip of my tongue, but something in excess of 50 
million letters in the last year, I think, in that neighborhood 
that we have mailed, which means hundreds of different 
mailings, mailing thousands and thousands of different lists. 
And we have something in excess of 20 people working on this 
project.
    Mr. Davis of Virginia. And these are your lists that you 
own? Is that right?
    Mr. Viguerie. Well, it is a combination. We are--a small, 
small fraction of what the organization mails is our names. 
Probably less than 1 percent. The vast majority, we will get 
names from the Republican National Committee, they will rent 
our names, we rent theirs.
    Mr. Davis of Virginia. You buy lists, and everything else?
    Mr. Viguerie. We don't buy. Usually we exchange. We will 
exchange and rent for one-time use.
    Mr. Davis of Virginia. Mr. Peters.
    Mr. Peters. We don't own any lists ourselves. We manage 
lists on behalf of charities but we don't own any lists. And 
then if their list is rented, the revenue goes to the charity. 
But mostly the names are exchanged with other charities, which 
is the industry practice in order to keep fundraising costs as 
low as possible.
    I have no idea what the volume of mail we do is. I know 
that I asked this morning of my staff, we raise about 9 percent 
according to their 990 of the amount of money that they raise 
in a year. But I don't know what the actual mail volume is.
    Were you asking, though, about frequency or were you asking 
about----
    Mr. Davis of Virginia. I was asking also about frequency.
    Mr. Peters. I don't know precisely in this case, but I can 
tell you typically a charity will have a number of prospect 
mail drops during a year, somewhere between two and six or 
maybe even eight, which is an attempt to find new donors. And 
then they will mail existing donors who have shown an interest 
in their cause somewhere between 6 and 12 times a year. And how 
often any individual is mailed is a function of that 
individual's own propensity to give money or otherwise 
participate with the charity.
    Sometimes the charities are not asking for money. They are 
asking for like a petition drive, and I am sure you all have 
received petitions from constituents that come in very large 
volumes. Sometimes they are asked to complete a survey, 
sometimes they are asked to volunteer. Depending upon how the 
individuals respond, they get different frequency of 
solicitations.
    Chairman Waxman. Thank you, Mr. Davis.
    Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman. To all of 
you, thank you for testifying here today.
    Mr. Chapin, you know, you started off your written 
statement by saying ``I am passionate about veterans' issues,'' 
and I do believe that you are. And I am just wondering, as I am 
sitting here, I am just curious, do you see anything wrong with 
the 25 cents on the dollar going to the veteran, and the 75 
cents being spent elsewhere? Do you see anything wrong with 
that?
    Mr. Chapin. Let me tell you. When I started out, I sent 
600,000 gift packs to GIs in Vietnam. Then I went into a 
veterans hospital and somebody asked, a very severely wounded 
fellow asked me, I asked him was there anything I could do to 
help him, he said, yes, give me something to do with my hands. 
That is how the craft kit program started. Initially I was 
horrified at the direct mail expense. I will just tell you that 
flat-out. I was horrified.
    Mr. Cummings. Now, I want you to answer the question 
because I have a lot of questions, and I have only got 5 
minutes.
    Mr. Chapin. Oh, all right. I am trying to answer. Let me 
tell you----
    Mr. Cummings. Do you see anything wrong with 25 cents----
    Mr. Chapin. When somebody can go down to the store, buy the 
craft kit for $15, go to the post office, spend another $4, 
that is $19. And we can send a craft kit with that $15, they 
take a tax deduction. It is only costing them $10.50, opposed 
to $19 that if they sent the craft kit on their own. We are 
giving the donor a good value and at the same time, we are 
providing a very important service for the hospitalized 
veterans who otherwise would not receive these craft kits. This 
is an extremely important program.
    Mr. Cummings. I got you. So, you see nothing wrong with it?
    Mr. Chapin. I didn't say I see nothing wrong.
    Mr. Cummings. Well, let me ask you this----
    Mr. Chapin. I would rather have lower fundraising costs. 
Yes, we would. I have tried everything under the sun to lower 
our fundraising costs.
    Mr. Cummings. How about reducing your salary?
    Mr. Chapin. Excuse me?
    Mr. Cummings. How about reducing your salary? Mr. Chapin, 
let me ask you a series of questions.
    Mr. Chapin. Certainly.
    Mr. Cummings. Mr. Chapin, the documents the committee 
received show that most of what you raise never gets to the 
veterans you are supposed to be helping. At the same time, 
however, you appear to be doing quite well for yourself and 
your wife.
    Mr. Chapin. By whose standards?
    Mr. Cummings. Let me finish. You have provided the 
committee with a spreadsheet detailing your compensation 
history and I would like to walk you through exactly how much 
you and your wife have received over the past 3 years from 2004 
through 2006.
    First, both you and your wife receive salaries. Yours was 
approximately----
    Mr. Chapin. She is now retired.
    Mr. Cummings. I'm sorry?
    Mr. Chapin. I say she is now retired.
    Mr. Cummings. When did she retire?
    Mr. Chapin. What say?
    Mr. Cummings. When did she retire?
    Mr. Chapin. February 28, 2007. She worked for the first 20 
years as a volunteer. She got a salary of a maximum of $65,000 
at her highest point. She is my right hand arm. She has raised 
over $7 million with her newsletters.
    Mr. Cummings. I believe you.
    Mr. Chapin. She has raised more than 10 times her salary.
    Mr. Cummings. I am convinced that she is a great wife and a 
great asset to the company. We will stipulate to that. Both you 
and your wife receive salaries. Yours was approximately 
$250,000 a year. That is more than the Secretary of Defense or 
the Secretary of Veterans Affairs receives. Then your wife made 
about $60,000 a year.
    You both also received bonuses during this period. They 
varied, but in 2006 you received a $50,000 bonus.
    Mr. Chapin. That was for 2 years.
    Mr. Cummings. All right. You received your $50,000 bonus, 
your wife also received thousands of dollars in bonuses.
    Mr. Chapin. Well----
    Mr. Cummings. Let me finish. I know you want to get at it, 
but let me get my little piece out. Finally, you have generous 
pensions. I think you referred to that a moment ago. When you 
retire, you will get 75 percent of your salary for life, over 
$200,000 per year. This costs donors to your charity about 
$100,000 a year.
    So, based on the data you provided to the committee, when 
you total up all these salaries, bonuses and pension 
contributions for 2004, 2005 and 2006, you and your wife 
received more than $1.5 million. That is based on your data.
    My question is not a legal one. It is not whether you broke 
the law. Because I don't think you did. My question is whether 
you believe this compensation is appropriate for someone who 
works at a charity for veterans.
    Mr. Chapin, you and your wife got over $1 million during 
these 3 years. The public thought this money was going to 
veterans. But instead it went to you and your wife. Over a 3-
year period, you raised $168 million from the public but very 
little of that made it to veterans. You spent an astounding 
$124 million in overhead, salaries, mailings, payments to Mr. 
Viguerie's firm, and you and your wife kept over $1 million for 
yourselves.
    This sounds like a great business for you and Mr. Viguerie, 
but a lousy deal for contributors and veterans. How do you 
respond to that?
    Mr. Chapin. First of all, Congressman Cummings, my salary 
is in the lower half as measured by the Chronicle of 
Philanthropy November 1, 2006 survey of several hundred non-
profit CEO's. I am in the lower half. I think my performance is 
in the upper half. I have probably raised--I have raised more 
money for veterans than anybody in the United States. I have 
also delivered more services than anybody else who ever founded 
a non-profit organization and still the CEO of that 
organization today.
    The point is, my cash compensation, sir, is about six 
tenths of 1 percent of the gross revenues of my organizations. 
No. 2, the total compensation, of which a good bit of it I have 
never received, because it is in the form of futures retirement 
benefits--I don't intend to retire for one heck of a long time, 
so I may never see it--is roughly now $300,000.
    Even if you take the total compensation benefits, which 
include retirement money I have never seen, that would be less 
than 1 percent. The average non-profit executive, sir, receives 
3 percent of gross revenues. So I don't know what standard you 
want to use, but it is measured by a comparison to other non-
profit executives, of which there are thousands and thousands 
of them, I am in the lower half of salary.
    Now, yes, I get what I think is a generous one.
    Mr. Cummings. Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Cummings. Your time is 
expired.
    Mr. Sali, do you wish to ask questions?
    Mr. Sali. Not at this time, thank you.
    Chairman Waxman. Mr. Burton, I think you were next.
    Mr. Burton. Yes. Thank you.
    This is very interesting. Ms. Johns, have you ever 
contemplated or think that there needs to be legal action taken 
against Mr. Chapin or his companies?
    Ms. Johns. Well, after reading the articles and hearing 
what I have heard in these hearings, we will certainly take a 
look. I don't know.
    Mr. Burton. No, I am not talking about taking a look. 
Because, you know, that is speculative. Has the Attorney 
General of California found any reason in the past or done 
anything to investigate or charge them with any illegal 
activity?
    Ms. Johns. We have not in the past, no.
    Mr. Burton. OK. Thank you.
    I was looking at this list from Charity Navigator of 
charities in the same category as the Help Hospitalized 
Veterans organization, the same category. The Alzheimer's 
Association, the American Cancer Society, the American Diabetes 
Association, the American Heart Association, the Anti-
Defamation League of B'nai B'rith, the Art Institute of 
Chicago, the Boy Scouts of America, Ducks Unlimited, the Jewish 
Federation Council of Greater Los Angeles, the March of Dimes, 
the Muscular Dystrophy Association, the National Trust for 
Historic Preservation in the United States, the National 
Wildlife Federation, the Planned Parenthood Federation of 
America, and YMCA and on and on.
    I understand that we would like to see a lot more of the 
money that is spent in raising funds go to these charities, but 
the cost of raising this money is expensive. And I think a lot 
of my colleagues understand that.
    I would just like to ask the members at the table, all of 
them, what would happen if we didn't do the direct mail, and 
what would happen to the amount of money that would come into 
these charities that does get to help these people? Any one of 
you can answer that.
    Mr. Chapin. $60 billion would evaporate tomorrow. Of all 
the $300 billion that is raised by the 1.6 million non-profits, 
over 20 percent of it comes from direct mail. You folks might 
lose 25 percent of all your donations in 2008, because 25 
percent of all the political donations come from direct mail, 
at the same expense that we have. And I am not sure that you 
folks disclose to your constituencies--I am not trying to be a 
wise apple--that only 25 cents on the dollar is actually going 
to your campaigns.
    Mr. Burton. Mr. Peters.
    Mr. Peters. Mr. Burton, I think it is an excellent 
question. What I would like to do is turn back history 50 
years. If you looked at charity in the United States, there 
were a lot fewer charities. It reminds me of Alexis 
DeToqueville's comments about Americans' propensity to get 
together in clubs and groups and the huge diversity of 
interests that they have.
    But back then there were a lot fewer charities. And I guess 
I have outgrown my tux, unfortunately, but back then you 
attended a charity ball. And you were with the rich, the famous 
and the influential.
    What has happened in our country is the democratization of 
fundraising. Direct response, not just mail, but other forms of 
direct response fundraising, have allowed us to reach into 
communities that previously were never asked to support non-
profits. It has allowed us to get into those communities and 
allow people to express their feelings and who they support and 
how they support them.
    And yet we, through regulation and through IRS rules and 
through transparency, we allow the donor to see whatever they 
wish to see. Every charity has a Web site. The 990's are all 
available. Everyone can go to GuideStar and look up the ratios 
if they wish to do so.
    But without that, we would be back to the days of rich 
people letting a few crumbs drop off the table for poor people.
    Mr. Burton. Let me just say this. I think, Mr. Chairman, it 
is good to keep an eye on these charities to make sure that 
they aren't any illegal activities or fraud going on. But I 
think for those of us who have been familiar with charities and 
fundraising in the past, we realize that there is a great deal 
of cost involved. So as long as there is reporting, and as long 
as we know what is going on, and it is in the public domain and 
we can check it, then I think that we can hold them accountable 
and make sure they are not wasting money.
    There is no question that there is probably some fraud and 
waste, and I appreciate Ms. Johns being here and I am sure they 
are going to investigate that sort of thing, as they will 
across the country. But charity giving through the mail, I 
think, is important. We should keep an eye on it and make sure 
that they aren't blowing money unnecessarily. But I think it is 
an absolutely necessary thing. Otherwise, it if we didn't have 
these charities, I believe the Federal Government would have to 
take up some of this slack and do it ourselves. Charities do 
provide a necessary function in this country.
    With that, I yield back the balance of my time.
    Chairman Waxman. Thank you.
    Mr. Chapin. We can't begin to fulfill the need. I am the 
first to acknowledge that, but at least we are trying and 
something is better than nothing. And Congressman Cummings, if 
you had experienced as I had disabled veterans without legs who 
got--a young child, as a matter of fact, a baby and a wife who 
is living in the back of his car and he is freezing, because 
this guy doesn't have any other means, as a matter of fact, he 
was evicted from his trailer, and we are helping him.
    Chairman Waxman. Mr. Chapin, I am going to have to 
interrupt you. Members have the opportunity now to ask you 
questions.
    Mr. Chapin. Sure. Something is better than nothing.
    Chairman Waxman. Save it for an answer to a question.
    Ms. Watson.
    Ms. Watson. Mr. Chapin, we are looking very carefully at 
the facts that were presented to us. And you are here to help 
clarify if we have the right information. I do appreciate your 
coming. As you know, we sought your input before, and you were 
not here. This gives you an opportunity to speak directly to us 
with the facts.
    So I want to query you about a letter that was sent to you 
on December 22, 2006, from a Dorothy W. Smith, Houston, TX. And 
she says, ``Dear Sir, I have contributed to your organization 
in previous years, and am in the process of evaluating my 
contributions for 2007. I would appreciate knowing the 
percentage and charities received versus administrative costs 
and other expenditures.'' And she goes on. Your response, or 
Alicia Griffin responding, says: ``Dear Mrs. Smith, as per your 
request, enclosed please find an annual report for the 
Coalition to Salute America's Heroes. Please note that 92 cents 
of every $1 donated goes toward programs supported by the 
Coalition to Salute America's Heroes.'' And then the programs 
are listed, Emergency Financial Relief, etc.
    Can you then clarify for us, you said that 100 percent, 92 
percent of what is donated goes out for charitable causes. Can 
you clarify that for us, please?
    Mr. Chapin. Well, now we are speaking specifically in terms 
of the Coalition as opposed to Help Hospitalized Veterans. You 
are talking about a particular year. Now, what happened was, 
when we started the Coalition----
    Ms. Watson. Well, your response--the response was March 14, 
2007.
    Mr. Chapin. Yes. The Help Hospitalized Veterans board of 
directors saw fit to make a substantial loan, which was later 
converted to a grant, in the neighborhood of, about $2.5 
million to the Coalition. And so therefore, the Coalition did 
have extraordinarily low fundraising costs. Starting in 2007, 
the Coalition did its own direct mail as opposed to HHV doing 
the direct mail and passing on the money to the Coalition. And 
that was the reason why, yes, we did have very low fundraising 
costs.
    To start the Coalition, if I may just mention this, I had 
to loan $500,000 of my own money, which represented that 
together with an additional $260,000, which I advanced the 
Coalition in expenses. I didn't collect any of the various 
expenses that I was incurring over the first 3 years. A total 
of $760,000, which represented over half of my after-tax 
compensation for the previous 10 years, because I believed in 
what I was doing.
    The fact of the matter is, just so you have some idea of my 
commitment to this, when I started the Coalition, the first 
thing we did was some direct mail with, not Mr. Viguerie, but 
this other gentleman, and we bombed. Is that correct, Mr. 
Peters?
    Mr. Peters. I can't say. I believe it is true, but as you 
know, my partner, who did the mailing, is----
    Mr. Chapin. It was very unsuccessful. So, then I went out 
to corporations. So, I begged corporations--I just assumed the 
corporations were going to open up their pockets or their 
wallets. That didn't happen.
    In the meantime, we had planned this wonderful Road to 
Recovery Conference, which everybody, the DOD, the VA, all were 
participating in this, and were helping launch these guys on 
their road to recovery. We have had over 1,200 of them come 
down there, the most severely disabled veterans and their 
families. And by that time, we had committed to well over 100 
of these veterans and their families to come to the Road to 
Recovery Conference that December 2004. I was faced with a 
very, very tough personal decision.
    Ms. Watson. Well, let me just ask you this----
    Mr. Chapin. Let me just tell you----
    Ms. Watson. Let me--sir. My time is----
    Chairman Waxman. Excuse me, Mr. Chapin. You have to let the 
Members ask the questions and respond to the questions.
    Ms. Watson. Maybe you can give me another minute. I 
understand you are trying to get all this out, but there are 
some very specific things I would like you to address for us.
    Mr. Chapin. Absolutely.
    Ms. Watson. And I would like the staff to put up on the 
screen, there was an issue dealing with a country club in 
Temecula, CA. It is called the Cross Creek Golf Club. Are you 
familiar with it?
    Mr. Chapin. I am a club member.
    Ms. Watson. Yes. Well, according to a resolution from HHV 
board in 2001 that has been provided to this committee, HHV 
authorized the payment of $17,000 a year for a corporate 
membership to the country club in the name of Mike Lynch, the 
executive director.
    Can you help clarify and explain to us why your group is 
spending money donated to help veterans on a country club 
membership?
    Mr. Chapin. I think it was entirely appropriate. The board 
plays golf when they come to meetings out there. The board is 
all volunteers. They don't get paid to come to meetings. And 
that is what you might call a ``perk,'' which I think we are 
all familiar with.
    Ms. Watson. That is a benefit, being on the board?
    Mr. Chapin. I never set foot in that country club.
    Ms. Watson. OK. I just wanted to hear from you that you put 
$17,000 into a membership where they can play golf rather than 
$17,000 into the hands of a homeless veteran that might be 
renting a motel.
    Mr. Chapin. Unfortunately, we are not able to----
    Ms. Watson. I have another question for you, Ms. Johns. 
Could California have concerns--and I am from California--and I 
was there for 20 years in the Senate, so I am very concerned. 
Would we have concerns about a charity in our State using 
donations for a country club membership regardless, for a board 
member?
    Ms. Johns. Yes, I believe we would.
    Ms. Watson. And is there any way to track to see how many 
memberships were purchased by this outfit?
    Ms. Johns. The way to do that would be to initiate an 
audit.
    Ms. Watson. OK, thank you very much.
    Let me ask another question about another expense that was 
related to Mr. Lynch. Let me show you a copy of minutes from a 
meeting of the HHV board on July 28, 2003. These minutes state 
that the board authorized a loan of $135,000 to Mr. Lynch. 
According to the minutes, the purpose of this loan was to 
provide Lynch the ability to purchase his ex-spouse's interest 
in his home.
    Now, to me, this looks like a personal loan to Mr. Lynch, 
not a business expense. So Mr. Chapin, can you clarify for me?
    Chairman Waxman. The gentlelady's time has expired, but we 
will let Mr. Chapin answer.
    Ms. Watson. OK, thank you.
    Mr. Chapin. It is exactly as you have characterized it, and 
I think it was entirely appropriate. It has been paid back with 
interest. And this fellow has done an absolutely extraordinary 
job. He works around the clock to help hospitalized veterans.
    Ms. Watson. OK, I really appreciate the Chair allowing 
time. I just want to say this. It seems to me that a personal 
loan of $135,000 at a time when we have veterans that are not 
receiving the care immediately, regardless of whether he paid 
it back or not, appears inappropriate. This is something that I 
would like our Attorney General to take a look at.
    And is it, Ms. Johns----
    Mr. Chapin. It is absolutely legal, I can assure you of 
that.
    Chairman Waxman. The gentlelady's time has expired. But Ms. 
Johns, is this appropriate? Is this acceptable?
    Ms. Johns. No. California law requires loans to be approved 
by our office.
    Chairman Waxman. Your office?
    Ms. Johns. Yes. By our section.
    Ms. Watson. Thank you, Mr. Chairman.
    Chairman Waxman. Thank you.
    Mr. Shays, do you have questions?
    Mr. Shays. Not at this time, thank you, Mr. Chairman.
    Chairman Waxman. Mr. Bilbray.
    Mr. Bilbray. Ms. Johns, I think if anybody knows about 
fundraising, Governor Brown [sic] has a lot of experience on 
that. But you were stating that California right now, the 
office is in transition from going to a paper system over to 
electronic. Do you feel that will give your agency the ability 
to monitor non-profit activities and keep a closer watch on 
what has been going on in California?
    Ms. Johns. We do.
    Mr. Bilbray. The other issue that you really raise was the 
fact that the front line of, let's just say review of the most 
effective charitable giving is the donor themselves. Now, I 
have run into situations where I have seen fundraising going to 
my mother, trying to scare the heck out of her, over the fact 
that, give us money now or they are going to take your Social 
Security, they are going to take your Medicare and all this 
other stuff. With this new type of electronic review, are you 
going to be able to monitor those kinds of fundraising 
activities, especially the scare tactics to seniors?
    Ms. Johns. No. Because unless somebody sends us those 
mailings, we won't know that they are occurring. We require 
fundraisers to give notice before they start a campaign in 
California. But they don't have to send us their mailings.
    Mr. Bilbray. Do you have any way of developing a policy of 
proactive contact with donors to make sure that they know that 
if they have any questions they have the ability? Because I 
think it is pretty well public record that, especially among 
the senior population, that there are certain individuals, not 
necessarily very wealthy, who really are the backbone of the 
charitable direct mail contributions. Are you planning any 
proactive contact with them, saying, if you have any questions, 
if you have any concerns contact us, rather than waiting for 
them to just come up?
    So I guess I am asking you, are you going to do direct 
mailing yourself?
    Ms. Johns. We have no way of knowing who donors are. What 
we do is post a lot of information on our Web site for donors. 
We invite them to call us and send us e-mails. And we can give 
them guidance where to go and tips about how to assess 
charities. Several years ago, I did a series of presentations 
to senior communities. And I am about to do that again to help 
communities at large understand what they can do to make wise 
decisions.
    Mr. Bilbray. Mr. Peters, Ms. Johns has no ability of 
knowing what the lists are that non-profits are receiving 
contributions for, those can't be made available? Are those all 
protected under the Privacy Act?
    Mr. Peters. No. In fact, when I teach with the NASCO group, 
or Ms. Johns' group of charity regulation officials, I tell 
them exactly how to do that. And that is, they need only a very 
modest budget of a couple hundred dollars. They make a $10 
contribution to 20 charities and they will be on the mailing 
list, they will get all the mail. So what I have done is I have 
taught the regulators how you can actually look and see what is 
being mailed, in addition to the usual process of people 
submitting complaints and things like that, and inquiries. But 
there are lots of ways to seed mailing lists. And pretty much 
everybody in our industry seeds other mailing lists.
    Mr. Bilbray. But is there any way to do an outreach to the 
contributors themselves, sort of sensitizing them to contact, 
or whatever, is there any way for Ms. Johns to know basically 
who you are mailing to and is that protected under Privacy or 
does she have an ability to be able to get that information so 
that she can then do an outreach saying, if you have any 
questions, if you have any concerns?
    Mr. Peters. There is a very thin line, and I don't want to 
get over-complicated, but basically the answer to your question 
is yes, it is protected by Privacy. It goes back to a case that 
went to the Supreme Court on the NAACP where they were 
investigated and the State officials asked them for their donor 
list. And it was pretty clear why the State officials wanted 
the donor list, because they were going to harass the donors.
    And so the Supreme Court said, no, the State does not have 
a right to simply subpoena or get the donor list. However, in 
an situation where it is more of an enforcement situation, 
there are opportunities to get on the donor list so you can see 
solicitations.
    The other answer to your question is, if you look at any 
solicitation that is made in the United States, you will see 
contact information for, I believe it's 23 or 25 different 
State charity offices. And these are required by law, they are 
disclaimers, and they include typically the address of the 
State charity office and often an 800 number, so that the 
citizens of that State can call in toll-free and register any 
complaints or concerns they have. And those are included on 
every single solicitation that is made by a legitimate charity. 
The only people that don't include them are the charities that 
never register and never comply with the law who are the ones 
we hope Ms. Johns enforces against.
    Mr. Bilbray. Thank you. Ms. Johns, I appreciate you guys 
upgrading, because coming from local government myself, I know 
that we can talk about the problems, but the real answers are 
going to come from your part of the political spectrum.
    Thank you very much, and I yield back, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Bilbray.
    Mr. Tierney.
    Mr. Chapin. Mr. Chairman, her office was notified in 
writing by us of this loan to Mr. Lynch, and I have the letter 
here. I would be happy to read it. I don't want to interfere.
    Chairman Waxman. Let's let Mr. Tierney ask questions.
    Mr. Tierney. Thank you, Mr. Chapin, for gratuitously taking 
my time.
    Let me ask a question. I was interested to see, since 2004, 
apparently you have been using General Tommy Franks to sign 
fundraising letters for your organization. I guess maybe 
millions of letters have gone out with his signature on there, 
asking the public for their contributions. I presume that when 
a general endorses a charity like that, he is doing it because 
he thinks the charity is worth endorsing and that he is not 
being paid to do it.
    But in fact, you paid Tommy Franks about $100,000 to sign 
those letters, didn't you?
    Mr. Chapin. That is correct.
    Mr. Tierney. A hundred thousand dollars to General Tommy 
Franks to sign those letters. And then I also understand that 
General Diehl gets $5,000 a month to sign letters like that. Is 
that also true?
    Mr. Chapin. Yes. Can I respond to that?
    Mr. Tierney. You just did, and I appreciate your candor.
    Mr. Chapin. Well, the fact of the matter----
    Mr. Tierney. But the fact of the matter is that you give 
$100,000 to General Franks, you give $5,000 a month to General 
Diehl, and I don't see anything in your disclosure to 
individuals that these people were paid to put their signature 
on there.
    So my question to Ms. Johns is, do you have any difficulty 
with that?
    Ms. Johns. There is no specific law prohibiting the payment 
for endorsements by charities. It could be considered a waste 
of charitable assets.
    Mr. Tierney. I could look at this, $100,000 to General 
Franks, $5,000 a month to General Diehl, $14 million to Mr. 
Viguerie's company, a million and a half dollars to you and 
your wife, at some point in time hopefully the veterans are 
getting a little slice of this action on that.
    Also, Mr. Viguerie, let me ask you, you apparently have a 
longstanding personal relationship with Mr. Chapin, of about 40 
years, is that right?
    Mr. Viguerie. Something a little short of that, but we have 
been a client and a friend for many years.
    Mr. Tierney. So when we look at the tax returns for the 
that the committee has for HHV, it looks like between 2000 and 
2005, your direct mail company, American Target Advertising, 
and your list management rental companies, earned more than $14 
million. Would that be about accurate?
    Mr. Viguerie. I don't have those numbers at hand, sir.
    Mr. Tierney. That is what the record seemed to indicate. So 
it seems like a lot from just one client. Is that one of your 
largest clients?
    Mr. Viguerie. Yes, it is.
    Mr. Tierney. And it looks, as I said, that a lot of money 
is going to two beneficiaries in particular, Mr. Chapin and 
then your corporation, your groups on that. They don't seem to 
be paying the expenses, like direct mail, postage, printing 
fees. It just seems to be going toward consulting fees on that 
basis.
    So is all that $14 million a direct profit to you, sir?
    Mr. Viguerie. Sir, that is a very incorrect word to use, 
consulting. We are a vendor. And we employ on the HHV account 
something over 20 people, writing copy, ordering envelopes, 
ordering lists, getting the mailings out, analyzing the 
returns. We are going to----
    [Simultaneous conversations.]
    Mr. Tierney. It doesn't look like direct costs----
    Mr. Viguerie [continuing]. Advertising agency.
    Mr. Tierney. It didn't look like there was any direct mail 
or postage or printing fees associated with that. It looked 
more like it was for the list on that. And I was wondering, for 
the list, how much of that other than for list cost, for rental 
or whatever it is you do, would be just profits to those 
companies?
    Mr. Viguerie. Well, sir, we have, as I said, over 20 people 
putting out hundreds of different mailings, something in excess 
probably of 50 million letters a year. It is an enormous 
undertaking.
    Mr. Tierney. Mr. Chapin----
    Mr. Chapin. He only gets about 6 or 7 cents of the 45 cents 
that he pops in the mail.
    Mr. Tierney [continuing]. I am going to ask you a question 
now so you will have a chance to respond. I know you like to ad 
lib, but I want to cut back a little bit.
    You told the committee that you had given Mr. Viguerie 
nearly $1 million in loans to provide capital for another 
venture on that. Do you see it within your corporate charitable 
purpose to give loans to other individuals for startup 
companies or for capital costs?
    Mr. Chapin. Yes, very much so if it is in the interests of 
the non-profit to do so. Because he has very, very high 
expenses, startup expenses or seed money expenses in terms of a 
particular mail campaign. And if he is not able to fund that 
mail campaign, and front the money until such time as the 
revenues come back, then we are extremely disadvantaged by it.
    Mr. Tierney. Mr. Viguerie, did you try to seek those funds 
first from commercial lenders?
    Mr. Viguerie. Well, for the 43 years we have been in 
business----
    Mr. Tierney. I am sorry, I have very limited time.
    [Simultaneous conversations.]
    Mr. Viguerie. For over 43 years we have not been able to do 
it, because our assets go up and down the elevator every day.
    Mr. Tierney. So Ms. Johns, do you have any difficulty with 
the fact of a charitable corporation lending money to a startup 
company that couldn't get the money from commercial lenders? Do 
you see that within the charitable purpose, or do you see any 
problems with that?
    Ms. Johns. That could either be speculative investment or 
it could be a loan requiring notice to our office.
    Mr. Tierney. Thank you. I yield back, Mr. Chairman. Thank 
you.
    Chairman Waxman. That certainly is a lot of self-dealing.
    Who is next over here? Mr. Cannon.
    Mr. Chapin. I can't allow that go unchallenged. This 
business, of self-dealing. Not a penny--every penny has been 
repaid. Interest rates have gone at the rate of 10 to 12 to 18 
percent that Richard has been charged. And we would not have 
been able to raise anywhere near the amount of money that we 
raised had it not been for the fact that we have made some of 
these advances. It would have been a lousy business decision on 
my part and the board of directors had we not advanced some of 
these moneys. So I will defend that all day long.
    Chairman Waxman. I am sure you will.
    Mr. Cannon.
    Mr. Cannon. Thank you, Mr. Chairman. Like the ranking 
member and I suspect like you, I am also familiar with the high 
cost of fundraising. In fact, I am quite familiar with Mr. 
Viguerie, whose son was a volunteer on my first campaign. And I 
have watched these issues for a long time.
    I am actually quite surprised at the moral outrage and the 
hectoring of the witnesses here today, and I hope we can get to 
a little bit of an understanding about why that is and what we 
are really talking about here. But I understand we have a 
number of veterans in the audience today. Would you mind, Mr. 
Chairman, if we asked for a showing of hands so we can identify 
those veterans? We want to applaud their honor, their 
integrity.
    [Applause.]
    Mr. Cannon. It is, I think, extraordinarily important in 
America that we not only honor our veterans, but that we fund 
their health care and their recovery. If we don't do that as a 
Nation, we are going to end up with their children and their 
nephews and their nieces and their relatives not wanting to go 
into the service. And so I would hope that rather than folks 
have so much on this issue with such animosity and hectoring of 
our witnesses that we actually talk about what we can do to 
help veterans.
    So I would like to ask just a quick question to Mr. 
Viguerie. There is a high cost to fundraising. But we do raise 
a significant amount of money that way. Could you compare 
briefly the effectiveness of fundraising through mail to the 
effectiveness of government? [Laughter.]
    The laugh is all we really need there, by the way. The fact 
is, we don't do things very efficiently in America, and the 
market helps us do things remarkably efficiently. And what we 
need is transparency as to these things.
    I don't mean to cut you off, Mr. Viguerie, but the point is 
that I think it is a laugh when you start considering what we 
do here. And there are a couple of things that I think are 
really important. Mr. Chapin, you offered a letter there and 
were cutoff, I think, that was sent to Ms. Johns' division. 
Would you allow us to have that letter submitted for the 
record.
    Mr. Chapin. Yes.
    Chairman Waxman. Without objection, it will be received for 
the record.
    [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Cannon. Ms. Johns, if that letter was submitted, then 
your earlier opinion that it was illegal would not be correct, 
wouldn't it?
    Ms. Johns. Right. What I meant to say was that loans must 
be submitted to our office. They would be illegal otherwise.
    Mr. Cannon. So we don't want there to be anything in this 
record today to suggest there is something improper as to that 
loan, which a big deal was made about, because apparently it 
was disclosed. So Mr. Chapin, if you could introduce that into 
the record, I would appreciate that.
    And you would mind, you were asked questions without any 
opportunity to respond, can you tell us a little bit about the 
relationship with General Franks and General Diehl and what the 
nature of that relationship is, or anything you would like to 
tell us on the record about that?
    Mr. Chapin. Thank you, Congressman. Very much so. The 
General, this was, sir, in 2005, that the General's arrangement 
with us was taking place. And his endorsement of the whole 
operation was responsible for raising millions and millions of 
dollars, I think over and above what otherwise might have been 
raised had it not been for the association of Tommy Franks with 
the organization. And Tommy, I have had any one of a number of 
conversations with Colonel Michael Hays, his aide, about this. 
Tommy originally had said no, that he had been approached by 
any one of a number of organizations to do similar tasks.
    So the arrangement was entered into with the understanding 
that he can't do it for everybody and it is a lot of time that 
is being consumed by his involvement in this thing. He himself 
cannot be a charity case. He devoted, I think, 36 or 38 years 
in the service of his country. And he had a short window of 
opportunity. And he had to capitalize to some extent on his 
celebrity. And I thought that was totally appropriate. And it 
has benefited the charity enormously.
    So I and General Diehl likewise, as devoting quite a bit of 
time to us, has done a marvelous job, well beyond the few 
thousand bucks that he gets to sign our letters. And that is 
just reality. I wish we could find more folks like that.
    Mr. Cannon. Mr. Chapin, if I could ask, Mr. Chapin, I am up 
here, thank you. I take it that both of these generals have 
looked at your program and have decided that they are somewhat 
more effective than, say, the Federal Government is in some of 
the things that the Federal Government does and therefore they 
support your charity?
    Mr. Chapin. Yes, sir. And my quarrel is, quite frankly, 
that the government has abrogated its responsibility to help 
these folks in desperate need. Let me just explain one thing to 
you. The wives are having to give up their jobs in order to be 
with their very severely wounded spouses at the VA and military 
hospitals. So right away, their income is cut in half. This is 
a total disaster. Because now, they don't have the money that 
they had before. Their utilities are being shut off. Their cars 
are being repossessed. Many of them are being evicted from 
their houses. This is criminal, in my opinion.
    And this is the reason why I am doing what I am doing. And 
if takes 90 cents on a dollar to help these guys, I will help 
them. And I beg the government, and Mr. Chairman, if you will 
allow me, I want to commend the chairman. Because he 
personally, I have been advised by the staff, Suzanne told me 
about this, that the chairman has really made a serious effort 
to try and persuade the Congress, unsuccessfully, and I commend 
you, Mr. Chairman, even though we have some issues on other 
points, that he has really tried to make a serious effort to 
get Congress to face up to their obligations in respect to our 
disabled veterans. And again----
    Mr. Cannon. Mr. Chapin, since it is my time, and I 
appreciate that, and I also agree that the chairman has been 
important in doing what you are talking about here, but there 
was an implication here that General Diehl and General Franks 
had sold their integrity by being paid by you. Is there any 
truth in that?
    Mr. Chapin. Absolutely not. That is an insult. This is a 
great----
    Mr. Cannon. Thank you. It is an insult, if I can just take 
my time back. It is a dramatic insult. I am offended by it. 
What I would like to do now is just take a moment to try and 
establish what the heck we are doing beating up charities that 
are helping soldiers when they are very similar to many other 
charities in the world. Ms. Johns, I think you have been stuck 
here as sort of a stalking horse, you have been asked 
hypothetical questions, you have been left in an awkward 
position. You obviously understand your business. I am going to 
try and move you out of that and into a different context.
    Do you understand the various systems out there for rating 
charities?
    Ms. Johns. I don't, really. We aren't allowed to rate 
ourselves, so we refer----
    Mr. Cannon. But you understand there are rating systems out 
there?
    Ms. Johns. Oh, I understand they are there, yes.
    Mr. Cannon. Would you be surprised if under those rating 
systems the YMCA had a similar rating to Mr. Chapin's 
charities, or the Disabled Veterans Association [sic] or the 
Paralyzed Veterans Associations?
    Ms. Johns. I don't know that.
    Mr. Cannon. You don't? OK, thank you. I will tell you there 
are rating systems out there, and maybe Mr. Peters and Mr. 
Chapin, you could take a moment to describe those systems and 
then establish how these charities rate compared to these other 
systems. Let's start with Mr. Peters briefly and then go to Mr. 
Chapin.
    Mr. Peters. By best count, there are over 50 different 
charity watchdog groups. Most of them operate on a State-only 
basis. There tend to be four large ones that operate on a 
national basis.
    Mr. Cannon. And how did Mr. Chapin's rate compared to, say, 
the YMCA, if you have the knowledge?
    Mr. Peters. It varies, because the ratings systems all use 
different criteria. Some of them don't even use the criteria 
that the charities are required to use in order to file GAAP, 
according to generally accepted principles.
    Mr. Cannon. Do you have any sense about Mr. Chapin's 
charities in particular?
    Mr. Peters. I know that the ratings systems for Mr. 
Chapin's charities are inconsistent, and that in some cases, 
some of the ratings people rate them the same. I believe one of 
the Members read a list, it might have been Mr. Burton, that 
read a list of almost 30 or 40 charities that had the same 
rating. That kind of inconsistency is very typical.
    Mr. Cannon. Mr. Chapin, could you talk about the ratings of 
your charities and other charities and how they compare? And 
how your salary compares with the salaries of comparable 
charities.
    Mr. Chapin. Well, your first question, sir, is about the 
ratings. And we compare very favorably to most of the major 
charities in the United States. The fact of the matter is, Mr. 
Chairman, that a myth has been perpetrated by the whole non-
profit industry. And the American public has been deceived to 
think that fundraising costs are only 10, 15, 25 percent. That 
is not reality.
    And I have tried to be very straight with you. I may be the 
only guy in the whole cotton-picking non-profit establishment 
that is willing to tell it like it is. I do the best I can. And 
if I could do better, I would. I have tried television, I have 
tried radio, I have tried foundations, I have tried 
corporations. And the only thing that works is direct mails.
    So we have this gentleman, Borochoff. Now, I suppose that 
it is his prerogative to be a maverick and to disregard the 
whole system that has been set up by the American Institute of 
Certified Public Accountants and by which we are required to 
report. Borochoff disregards allocations. Personally, I think 
the guy is a wacko. And the reason why he does this is because 
he set himself up----
    Mr. Cannon. Pardon me, Mr. Chapin. Mr. Chairman, I see the 
light is off.
    Chairman Waxman. Mr. Cannon, for some reason or another 
this timer went completely kaplooey. It was adding time.
    Mr. Cannon. Well, that is how it ought to be, under the 
circumstances.
    Chairman Waxman. Yes, I know. [Laughter.]
    Mr. Cannon. May I ask unanimous consent for an additional 
minute to wrap up?
    Chairman Waxman. Without objection, we will do that.
    Mr. Cannon. Thank you.
    Mr. Chapin, I appreciate that answer. Look, there are some 
very important issues here. I am deeply concerned that we are 
whacking on groups that are supporting the military. There is a 
dramatic difference today in how we are treating our servicemen 
than the embarrassment of the post-Vietnam war. As an American 
citizen, I was humiliated that we would treat our military so 
badly after that war. And I think a big part of that is what I 
think Mr. Chapin was referring to as allocations, which is by 
having these expensive processes, we not only get some money 
that comes in, but we send a message out, and that message is, 
we care about vets.
    Why are we whacking on these guys when what we ought to be 
talking about is helping Ms. Johns with her job? And helping 
her with her job means creating a system of greater 
transparency. That is where this committee ought to be focused, 
not on whacking people that are helping vets, and in a very 
substantial way. And with that, Mr. Chairman, I yield back the 
balance of my time.
    Chairman Waxman. Thank you, Mr. Cannon. You did take a 
minute, but the clock did not reflect it.
    Mr. Cannon. Is that adding 2 minutes now?
    Chairman Waxman. It is not worth going into.
    I do want to just point out for the record that General 
Tommy Franks has disassociated himself from your organization, 
Mr. Chapin, and as I understand it, he asked that his name be 
removed from the information that is provided by your 
organization.
    Mr. Chapin. That is correct.
    Chairman Waxman. OK. Now I want to recognize----
    Mr. Chapin. Can I explain to you why?
    Chairman Waxman. Pardon?
    Mr. Chapin. Can I explain to you why?
    Chairman Waxman. Well, wouldn't he be the better one to 
explain it? Why do you think he left?
    Mr. Chapin. He left because he had a number of letters from 
fellow generals who said, hey, I am getting too much mail. And 
then the one that broke the camel's back was he got something, 
his sister called him up and his sister got on him about how 
many mailings in a single day, he said, that is it. He also had 
a problem, I am trying to be very frank with you, he had a 
problem that we didn't meet all of the Wise Giving--we met the 
financial standards, we didn't meet all the Wise Giving of the 
Better Business Bureau. And Tommy's out, trying to make himself 
a living, he gets about $100,000 a pop for speeches to 
corporations and so forth. And he says, Roger, he says, I am 
terribly sorry, but I am not going to renew the contract. As a 
matter of fact----
    Chairman Waxman. So he did not renew the contract, he is no 
longer with you, and he is no longer signing mail on your 
behalf.
    Mr. Chapin. Yes, but I nevertheless----
    Chairman Waxman. Well, I think that is what we want on the 
record. We don't want to hear a long story about the whole----
    Mr. Cannon. But Mr. Chairman, if you would allow me, you 
have just put on the record an indictment of Mr. Franks, who 
may have a much more complicated view of the world, and in 
addition, this very hearing is maybe part of the problem there. 
We may be dissuading heroes like General Franks from doing 
things that are helpful to soldiers by having this hearing.
    Thank you. I yield back.
    Chairman Waxman. Mr. Franks was being paid $100,000 to lend 
his name for this organization. We understand he had misgivings 
about it and he asked that his name be taken off. We will hold 
the record open for Mr. Franks to submit any additional or 
contrary information.
    Now the time goes to Mr. Yarmuth.
    Mr. Yarmuth. Thank you, Mr. Chairman.
    Mr. Chapin, I would like to pursue something that came up 
earlier, and I was confused by the response and I just want to 
clarify it. One of the mailings that you send out that was 
produced by Creative Direct Response, Mr. Peters' company, has 
that disclaimer, this mailing was produced by Help Hospitalized 
Veterans, which retains 100 percent of the contributions made. 
The language is on the screen there. And we have already 
established, and you have basically conceded, that is not 
literally true.
    Now, was it my understanding that you said that precise 
disclaimer was required by law in a State even though it is 
demonstrably untrue?
    Mr. Chapin. First of all, the statement is true. I don't 
know why anybody is questioning the statement. Yes, we did 
retain 100 percent of the contributions. We didn't give it to 
somebody else before we got the money. We took in the money, we 
paid our expenses and what was left we passed on to the 
hospitalized veterans. And yes, the State of Florida does 
require this language.
    Mr. Yarmuth. That precise language. Now, you said that you 
paid Creative Direct Response $100,000. Did all the money come 
into you and you paid them and that is why you say it is 
literally true? Is that your argument?
    Mr. Chapin. Yes. I have been advised by CDR, which is their 
outfit, Creative Response Direct, that this language is 
required. I have never seen it in a statute. The State of 
Florida has never told me that. But I was advised that it was 
necessary to put this verbiage in the mailing. That is the 
reason why it is there.
    Mr. Yarmuth. Mr. Chapin, before I came to Congress, I was a 
journalist, an editor to be specific. So I think very closely 
about exactly what words mean. And when I saw that during our 
last hearing, my thought was that this is exactly the type of 
language that is designed to create the impression that 100 
percent of the dollars being donated are going to the 
beneficiary group. Basically when I looked at it, I said, you 
know, this basically says that you kept all the money. It 
doesn't say that you spent one dollar actually for veterans.
    Now, I know you have. But I took it exactly the other way.
    Mr. Chapin. The fact of the matter is that, what did you 
say you did, 10 percent of our mailings, I think you do 20 
percent of our mailings?
    Mr. Peters. Nine percent of the revenue is what I said.
    Mr. Chapin. Nine percent of the revenue, maybe 20 percent 
of the mailing. The fact of the matter is, this is not in the 
other 80 or 90 percent of the mailings that Richard Viguerie's 
company is doing. So if we were trying to misrepresent to 
people, we would have this in all of our mailings, not just in 
a small percentage of him. His attorneys happen to believe that 
the State of Florida requires this. I could care less if----
    Mr. Yarmuth. Mr. Chairman, if I----
    Chairman Waxman [gaveling]. This is a committee where there 
are 5 minutes granted to Members to ask questions. Respond to 
the questions. Don't give us a speech. Because that time is 
used up and it is unfair.
    Mr. Chapin. I apologize.
    Mr. Yarmuth. You have answered that question. There has 
been suggestion that possibly there has been some self-dealing 
here, and I want to give you an opportunity, Mr. Chapin, Mr. 
Viguerie, Mr. Peters, to answer some questions on the record, 
so that we can clarify if there has been or not.
    Is it your testimony, Mr. Chapin, that Mr. Viguerie's 
company, you said you fronted the money, are they the only 
direct mail company that could have facilitated the type of 
solicitation that you are talking about, that you do, that you 
are involved in?
    Mr. Chapin. Congressman, would you be kind enough to repeat 
that just one more time? I want to make sure I have it clear in 
my head before I answer you.
    Mr. Yarmuth. You fronted Mr. Viguerie money to basically 
allow him to make the investment to produce your, to help you 
with your mailings and your solicitation. My question is, is 
Mr. Viguerie's the only company, in your judgment, in the 
United States, that was capable of doing such a project?
    Mr. Chapin. Put it this way. Richard out-performed every 
other direct mail house, of which there were several, some of 
the top direct mail agencies in the country. That is the reason 
why he gets the bulk of the business. If somebody else can beat 
Richard, we will be there in a minute.
    Mr. Yarmuth. Is that your testimony, that you explored and 
you talked to other direct mail companies before you chose Mr. 
Viguerie's company?
    Mr. Chapin. Yes. Matthews and Smith struck out with another 
program that I started some previous years. Richard made it 
work. This other gentleman here, as much as I admire his work, 
when we first mailed for the Coalition, struck out. And Richard 
made it work.
    Mr. Yarmuth. OK, fine. I am just trying to get this on the 
record now.
    Second question. Do you or does anyone in your company, 
including board members, have a financial interest in either 
Mr. Viguerie's company or Mr. Peters' company?
    Mr. Chapin. Absolutely not.
    Mr. Yarmuth. Does anyone in your company, you or a board 
member, have any financial interest in the manufacturers or 
creators of the craft projects that you distribute?
    Mr. Chapin. Absolutely not.
    Mr. Yarmuth. Mr. Viguerie, I just want to, and this is a 
small point, but your reputation precedes you, you are a 
passionate and outspoken advocate for your cause. I 
congratulate you on that. And all of us here are familiar, both 
sides of the aisle, with spin and pivoting and all those types 
of techniques, and I respect your statement in that light.
    But I have one question. You mentioned New York Times v. 
Sullivan as some kind of evidence for your position that you 
are in some way under assault here on a first amendment basis. 
And wasn't the point and the principle of Times v. Sullivan 
that public figures couldn't sue news media for libel or 
slander based on, unless under certain circumstances there was 
a reckless disregard for the truth?
    Mr. Viguerie. Well, I am clearly not an attorney. But I 
think you are probably right, but I couldn't say for sure.
    Mr. Yarmuth. Well, as I have said, I spent a long time in 
journalism, and every journalist knows that case. And I really 
have a hard time figuring out how that relates to your 
testimony or your argument at all.
    But with that, I yield back.
    Mr. Peters. Mr. Chairman, I know that you have made it 
clear that the Members are to ask questions. But since this 
question has appeared twice now about why that language is 
there, I think I can clarify for the committee.
    Chairman Waxman. Go ahead.
    Mr. Peters. I appreciate it, Mr. Chairman.
    As I tried to indicate earlier in response to another 
question about the State disclaimer languages, the States 
passed statutes that require certain words to be present in any 
mailing that is mailed into that State. When you mail mailings 
throughout the United States, you have to amalgamate all of the 
State disclaimer language throughout the whole States.
    Because of concerns about telemarketing costs, where the 
money doesn't necessarily go directly to the charity, it goes 
first to the telemarketing firm, and then the charity gets what 
is left over after the fees, a number of States have required 
language that states whether or not that is the case. So the 
State of Florida has required language that states how much of 
the money that is contributed goes directly to the charity 
without requirement for saying how the charity may use the 
money that is contributed.
    But the language is required by the States. As to the 
specific language, we have our lawyers who are specialists in 
regulatory law for charities, examine the State disclaimers, 
and then we tell our clients that they have to comply.
    Chairman Waxman. Let me ask Ms. Johns if I might, do you 
think saying that 100 percent is a disclaimer or is it 
something that might well lead to confusion and 
misrepresentation to what people believe when they read it?
    Ms. Johns. When we bring a cause of action under our unfair 
competition law, we send questionnaires to donors and ask them 
what they thought a phrase meant. If a phrase has a tendency to 
mislead, then it violates our unfair competition law. And I 
would think that if we sent donor questionnaires out on this 
language, they would say, gee, I thought they were going to use 
it all for a charitable purpose.
    Chairman Waxman. Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    Just on that last point, obviously the language used has to 
be looked at very carefully, and I guess States ought to review 
what they are requiring, so there isn't any kind of confusion.
    I just wanted to, on this issue of whether the Federal 
Government and what it is trying to do for our veterans is more 
or less efficient than what some of these charities are doing, 
I just pulled some statistics which suggests that the Veterans 
Administration's administrative costs come to about 8 percent 
of the total budget and 16 percent of the discretionary budget. 
So just for the record, I wanted to put that out there. That is 
not a question, that is just an observation.
    I would like to understand a little bit better how, Mr. 
Viguerie, your company and companies like yours get paid. Is 
there a per piece of mail fee that goes with the contract? Is 
that how it works?
    Mr. Viguerie. I can only speak for my agency, Congressman. 
But when I started 43 years ago, I didn't know a whole lot 
about how agencies charge, so I decided on a per piece fee that 
probably has increased 60, 70 percent over 43 years, unlike 
inflation. But every once in a while, I will work it out, and 
it comes to almost exactly what the typical advertising agency 
markup is, which is 17.65. So the answer to your question is 
yes, we charge a per piece fee and have for 43 years.
    Mr. Sarbanes. So whatever profit you need to build into 
your operation, obviously you need to build something in, is 
part of that per piece fee?
    Mr. Viguerie. Right, exactly.
    Mr. Sarbanes. Which means obviously the more mail pieces 
you send out, the more fees are going to accrue. So I guess it 
becomes relevant to you, Mr. Chapin, how that mailing operation 
works and whether it is efficient or not efficient. I think the 
staff pulled some evidence that some of these pieces of mail 
are going to incarcerated prisoners. In fact, I think one State 
began confiscating some of that mail because it was coming with 
dollar bills as part of the solicitation.
    I am just curious if, as part of the RFP process, now, I 
worry about whether your relationship with Mr. Viguerie is 
arms-length enough for you to bring a careful analysis to his 
efficiency in terms of providing these mail services versus 
somebody else. But if you were starting from scratch and doing 
an RFP and having people come in and make the case, what are 
the kinds of things you would look at in comparing and 
contrasting how efficient these vendors are in deciding whether 
to hire them?
    Mr. Chapin. Well, it is always a tough decision. You really 
go on the basis of a track record and what other charities has 
he mailed for, what kind of success has the particular vendor 
had. It is very difficult sometimes to determine that, because 
most of these numbers are pretty confidential.
    I will say that as far as Richard is concerned, we do have 
an arms-length relationship. As a matter of fact, Richard 
wanted to do more mailing than we thought was appropriate not 
too long ago for the Coalition. So I said to Richard, I will 
tell you what, typically you lose 10 cents on a prospect 
mailing. I said to Richard, look, you want to do a few million 
more than I think is appropriate, then we are going to limit 
you, we are going to put a Governor on you of 5 cent loss. 
Anything over that, you have to pay for.
    Now, I paid a premium of a penny a mailing.
    Mr. Sarbanes. That is interesting you mention that. Why did 
you think he wanted to do more? Why did you think what he 
wanted to do was not appropriate? What was there about it?
    Mr. Chapin. Well, Richard gets paid, I would rather pay him 
on a performance basis. Richard gets paid 6, 7 cents per 
mailing, for the most part. So there is an incentive from 
Richard's point of view to maximize the mailing. We have a guy 
who used to be Richard's account executive who now works for us 
that sort of puts a Governor on Richard.
    So I said to Richard, look, I will pay you a premium of a 
penny a mailing, but you have to absorb any loss over 5 cents, 
because typically we lose 10 cents. So Richard put his money 
where his mouth was, and he said fine. Well, it cost Richard 
almost $500,000.
    Mr. Sarbanes. Well, you have introduced into the 
conversation, this is kind of where I was heading, the notion 
that there has to be more scrutiny of the terms of these 
contracts between the charities and the mail houses. Both to 
make sure they are efficient and to make sure that there is not 
an incentive to just send mail out willy-nilly , because you 
are going to get a return on each piece.
    Which brings me to the last sort of point or question I 
wanted to put to Mr. Peters and maybe Ms. Johns. I am very 
focused on the kind of disclosure there can be. You have 
suggested that it is so hard to compare and contrast the 
different criteria for determining whether a charity is a good 
one or using money efficiently or not.
    But that can't be the end of the conversation. There has to 
be a way to provide more information to the donor, apples to 
apples, oranges to oranges, so that they can make some judgment 
of whether this is a charity that is going to handle their 
donation in a responsible fashion. All I keep hearing is it is 
just so complicated to do that we have to throw our hands up.
    So help me with that, because we need to think about the 
donors.
    Mr. Peters. Let me narrow your perception of what I said. 
Because I was focused on the measure cost of fundraising ratio 
as having been thrown out by everybody that has looked at it in 
a responsible way.
    That does not for a moment mean that charities should not 
be transparent, that they should not be required to reveal 
whatever information the donor wishes to receive, and in fact 
under IRS guidelines, charities are required to post and give 
to everyone who wish a copy all of their financial statements 
in their 990 and 1023, which is the original application for 
exemption.
    So I do not for a moment want you to understand me to be 
saying that we are opposed, or the charitable community is 
opposed to disclosure. We are in favor of transparency. We are 
in favor of disclosure. We are in favor of informed donors.
    What we are not in favor of is a regime, either by the 
government or by misguided private watchdogs that rely 
exclusively on a measure that we know to be unreliable and use 
a one size fits all measure for the ranking of charities. And 
that is all I was trying to say.
    Chairman Waxman. The gentleman's time has expired.
    I just wanted to make a comment. Mr. Chapin, you are quite 
a witness. You talked about General Franks, he just didn't want 
all these mailings because some people said there were too many 
mailings. Well, the truth of the matter is, General Franks said 
you are sending too much mail because he knew more money was 
going to pay for the overhead costs to Mr. Viguerie as he sent 
more mail out. General Franks got $100,000 from you, and he 
said he didn't want to be part of it any more. General Diehl 
got money. Others got money. You got your cut, Mr. Viguerie got 
his cut. Everybody got a cut.
    But what was left was only 25 cents for the veterans. Now, 
I know you said this is the way it is. I don't think that is 
the way it should be. I don't think that is right. And as I 
look at how you are paid from this whole operation, you are 
doing very well for yourself. No one, no veteran could get the 
kind of pension you are going to get. No veteran could get the 
kind of money you are getting. No executive except at the very 
top of some major corporations get the kind of take you are 
taking out of this.
    And I wouldn't mind it if we had something really returned 
to the veterans more than just 25 cents on the dollar.
    It is Mr. Shays' time and I am going to comment, unless you 
want to comment.
    Mr. Chapin. I would like to comment. This nonsense about 
lining my pockets, as every other CEO, which is over half of 
them, getting the same kind of compensation that I am getting 
or more, are they lining their pockets? Is the YMCA, is the Boy 
Scouts, are the American----
    Chairman Waxman. There are other veterans groups that raise 
money and provide services to veterans and don't have nearly 
the overhead costs that you have. It isn't true that every 
charity has the same overhead costs that you claim. A lot of 
them have held down their costs so they could do more for the 
charitable purpose and less for the overhead and the personal 
purposes for which a lot of that money goes.
    Mr. Chapin. Paralyzed Veterans of America has higher costs 
than we do. They are not here. DAV has about the same costs, 
they were not invited. The American Legion, I am very, very 
friendly with them. The VFW, all these folks have higher, 
higher costs----
    Chairman Waxman. Then it is your view everybody does it. 
That to me is not a good enough excuse, that everybody does it. 
Because it seems to me that the ones who are losing out are the 
veterans.
    Mr. Chapin. If you have a cheaper way of doing it, I would 
sure like to know about it.
    Chairman Waxman. Well, I will tell you one cheaper way is 
the Federal Government ought to do what is right for its 
veterans. That is what we should be doing.
    [Applause.]
    Mr. Chapin. We are all for you.
    Chairman Waxman. Mr. Shays.
    Mr. Shays. This is, in my 32 years in public, this has been 
a fascinating hearing for a lot of reasons. First, I do think 
the issue is very serious. And I do want to ask you, Mr. 
Chapin, am I to understand that Help Hospitalized Veterans, the 
Coalition to Salute American Heroes Foundation and Help Wounded 
Heroes, all of them basically have 75 percent cost and a 25 
percent benefit to the veteran? Is that accurate? Is that your 
statement before Congress?
    Mr. Chapin. Generally speaking, I would say that does not 
really apply to Help Wounded Heroes. That is just now getting 
off the ground. That is an advocacy organization.
    Mr. Shays. So Help Wounded Heroes even has less or more to 
the veterans?
    Mr. Chapin. Probably has close to 100 percent, because----
    Mr. Shays. A hundred percent goes to the veterans?
    Mr. Chapin. No, the other way around.
    Mr. Shays. A hundred percent does not go?
    Mr. Chapin. A hundred percent goes to the message to beat 
on Congress in order to pass the necessary legislation.
    Mr. Shays. To raise money? Is it cost or benefit? I just 
want to know the difference. And I don't want to spend a long 
time.
    And Mr. Chairman, I would like to ask permission that I can 
keep going on until I get answers to my questions.
    Chairman Waxman. It is your time, keep going.
    Mr. Shays. So the answer is, is most of that an expense or 
a benefit to veterans? It is not a hard question to answer.
    Mr. Chapin. Help Wounded Heroes, Congressman, is not a 
charity. We don't profess to give a dime to charity. It is an 
advocacy organization.
    Mr. Shays. Fair enough. It does not go to veterans, it goes 
to getting the word out?
    Mr. Chapin. Precisely, and that----
    Mr. Shays. Fair enough. You answered the question.
    Mr. Chapin. OK.
    Mr. Shays. Now, I will say to you that I came having 
stronger feelings about this issue than I do now, but I still 
believe that 25 percent to the veterans and 75 percent cost is 
too much. And I just want to say that.
    Mr. Viguerie, I consider you the beginning and the end as 
it comes to fundraising. And you have reason to be proud of how 
you have done it, though I will say to you that what it has 
meant is that in the political side of the equation, we have 
more money to spend and our opponents have more money to spend, 
they get more money spent and we have more money spent, and 
that is the reality of the world.
    But to your credit, I was raised, though, as a young 
person, that when someone is asked a question but goes on the 
attack, it is usually a defensive method because they don't 
want to answer your questions. You have valid answers to 
questions, but your attack in basically saying, we are going to 
investigate Congress, and, and, and, makes me think that you 
have some things that you don't want discussed. I am just going 
to tell you that is the way I feel.
    Mr. Viguerie. Well, Congressman, in reply to that, let me 
say first of all, first of all, you said earlier this morning 
that charities are failing our veterans. No, Mr. Shays, the 
Congress, you Members of Congress are failing the veterans. Not 
compared to charities----
    Mr. Shays. Well, if you want to--no, I understand. I am not 
going to disagree with you. I am not going to disagree with 
you. Congress is failing the veterans. That is true. And each 
of us is up for re-election and our constituency has to 
evaluate that. You and I agree.
    But it is irrelevant right now under this issue on 
charities. And I wonder, in fact, are we failing because we are 
not doing a better job on charities. But if you want to rail on 
Congress for all the things we are doing wrong, so be it. You 
have a field day. You could spend a day, a year, whatever.
    I happen to have been the lead co-sponsor of the 
Congressional Accountability Act. We passed it in 1995. It said 
whatever laws we pass on the public, we should pass on 
Congress. And it passed. It was part of the Contract with 
America.
    I don't disagree with you that what we impose on others, we 
should have to abide by ourselves. So tell me in terms of our 
campaign fundraising what you think would be helpful. Because I 
also think that I have had some interest in campaign 
fundraising.
    But once we get beyond that, then I want to ask you a 
question about what you do. So tell me, what do you suggest we 
do in campaign fundraising? Because usually, I find people, 
particularly conservative Republicans, are opposed to having 
stronger laws on campaign fundraising.
    Mr. Viguerie. Well, gosh, Congressman, you are right, I 
could talk all day, because you are throwing out a number of 
very good, interesting questions.
    Mr. Shays. Well, let's talk about campaign fundraising. 
What would you do that is different?
    Mr. Viguerie. I was just down at an organization that you 
and I both have been at before a few weeks ago. And this issue 
came up over and over, and I made the point over and over, the 
dirty little secret of campaign finance reform is not about 
limiting money, it is about protecting the incumbents. That is 
why 98 percent of the incumbents get re-elected. That is a 
dirty little secret of campaign finance reform.
    Mr. Shays. I don't understand that. What is illegal about 
our raising money, just as what is illegal about your doing it? 
What is your point?
    Mr. Viguerie. No, just that the purpose of campaign finance 
reform is to make sure that the incumbents don't have serious 
competition. And of course it has not had that effect.
    Mr. Shays. No, the irony of this is that you are the expert 
on raising small dollars. And the whole point of campaign 
finance reform was to get corporate money out, union dues money 
out, and have the small contributor like you argue for be back 
in play. So I don't think that is a fair charge. I think 
actually what we are doing is the kind of thing you want. The 
irony is you are accusing Congress of something that you 
advocate.
    Tell me what we require on you that we don't require on us 
that you think makes sense.
    Mr. Viguerie. Well, first of all, we are going in great 
lengths about the contracts that we have, what we are paid. 
Congress doesn't make their contracts with----
    Mr. Shays. Would you support a law that says we should 
disclose the contract?
    Mr. Viguerie. Absolutely. Absolutely.
    Mr. Shays. Now, let me ask you this question, though. Would 
you be opposed in all your fundraising solicitations to say to 
the donor that 25 percent goes to the veteran and 75 percent 
goes to the charity for administrative costs and to this 
fundraising solicitation? Would that be a wrong thing to do?
    Mr. Viguerie. Absolutely.
    Mr. Shays. What?
    Mr. Viguerie. Absolutely that would be the wrong thing to 
do.
    Mr. Shays. Why? The public shouldn't have a right to know 
that you are taking 75 percent out? Why would that be wrong?
    Mr. Viguerie. Congressman, let me read you from the Supreme 
Court----
    Mr. Shays. No, I want to know why it would be wrong to 
disclose to the public----
    Mr. Viguerie. Because the Supreme Court has clearly 
established that charitable appeals for funds involve a variety 
of speech interests. It is amazing that for 2 days----
    Mr. Shays. Why doesn't the public have a right to know the 
information?
    Mr. Viguerie. It is amazing to me, this is the second day 
of hearings about charitable fundraising for veterans 
organizations, and there has been zero conversation and 
discussion about the effectiveness of these organizations. It 
is all as if the effectiveness----
    Mr. Shays. Mr. Viguerie, I have endless respect for you. 
Endless respect for your accomplishments, but you are not 
answering the question. And proponents have argued disclosure 
and transparency is the key. Why would you be opposed to 
disclosing to the people you are raising money from that only 
25 percent is going to the veteran and 75 percent is going to 
you and others?
    Mr. Viguerie. That is your characterization, Congressman, 
that you are making a false assumption, and the chairman has 
made that false assumption. The assumption that the mail 
program is designed just simply to be a conduit from the donor 
to pass it through to the veterans, that is your assumption. 
The Supreme Court has said over and over and everybody who is 
familiar with this, the Republican National Committee, the 
Democratic National Committee, they know that advertising mail 
serves multiple purposes. As I pointed out in my opening 
statement----
    Mr. Shays. Well, then let's do this. Why would you be 
opposed to say that 25 percent goes to the veteran and 75 
percent goes to costs and alerting you to what is happening to 
veterans? Would you be opposed to that?
    Mr. Viguerie. Yes.
    Mr. Shays. Why?
    Mr. Viguerie. You are chilling speech rights. The 
Republican--I wish Congressman Van Hollen was here and we could 
talk about the millions and millions and millions of letters 
that he and the Republicans sent out that he signs these 
letters, knowing that zero money, zero money is going to go to 
elect Democrat candidates, because they're going to do 
prospect, what we call acquisition mailings. And for every 
dollar they spend, it is going to cost them 70, 80, 90 cents, 
because it is achieving other purposes. It is advertising. The 
Iraq war veterans are being treated significantly better than 
the unpopular war in Vietnam. And part of it I think is because 
of the hundreds of millions of communications from veterans 
organization to the public.
    Chairman Waxman. OK, we have to move on. But Mr. Shays, 
these organizations get a break on their postage. They get a 
special rate, a lower rate on their postage. Perhaps we ought 
to consider taking away that low rate unless they disclose this 
information.
    Mr. Viguerie. Mr. Chairman, Mr. Shays did not attack me, 
but he made a comment which I think entails a response. And I 
agree with you, when somebody sometimes gets very intense, you 
wonder what their true agenda is. And perhaps I am very intense 
today, because I feel really outraged at the chairman here. We 
are going to leave at some point here today and Members of 
Congress will go to lunch with their lobbyists and raise 
contributions----
    Chairman Waxman. Mr. Viguerie, I think we have to follow 
the regular order. You have attacked me a couple of times, and 
I just want to say for the record, I raise campaign funds and I 
think campaign funds are a lot different than funds for 
veterans. It is not a charitable contribution, it is not a tax 
deductible contribution. But I only use 20 percent to raise it, 
and 80 percent goes for the campaign cost. And I don't think 
you are in a position----
    Mr. Viguerie. Running the campaign.
    Chairman Waxman. Running the campaign itself. So for you to 
come in and fulminate about politicians this and Congress that 
and everybody does it, you both have wonderful excuses. But 
when it comes right down to it, I think you have to let the 
public decide once we put this out there, whether this is the 
way we want charities to operate. I think disclosure is always 
a good idea.
    Mr. Tierney----
    Mr. Chapin. I will disclose if everybody else will.
    Chairman Waxman. Good.
    Ms. Norton hasn't had her first time around. Ms. Norton, 
your turn.
    Ms. Norton. Thank you, Mr. Chairman.
    As you can see by Mr. Shays' questions and a number of 
questions that have been asked so far, what is it about 
disclosure? I think you sometimes underestimate what Americans 
are willing to do even if they understand that it costs a lot 
of money to raise money. But whatever is on the record would 
absolve you of much of the criticism you have heard today. Just 
before I ask my question, which has basically also in its own 
way to do with disclosure, let me say, I understand that people 
get paid in ordinary life. For example, baseball stars get paid 
after they retire. So nobody is trying to begrudge anybody 
anything. We are just trying to find out what happened, what 
the public knows and does not know.
    Mr. Chapin, you were interviewed by our committee staff. 
You were specifically asked, do you or your employees in any of 
the organizations pay the veterans for their testimony. And you 
said no. And yet when Mr. Tierney asked the question about 
$5,000 a month for one general, $100,000 a month for another, 
you answered, yes, you indeed paid them. They are veterans, by 
the way.
    So I mean, already on the record, we have a contradiction 
from what you told the committee.
    Mr. Chapin. I beg to differ with you. That is incorrect. 
When I was first asked the question about whether these folks 
were getting paid, I said this was a confidential arrangement, 
Susanne will remember. I said this was a confidential 
arrangement, and I asked, do I have to answer that question. 
And I felt that I would be doing a disservice to the gentleman 
that we had made the arrangement with, because I had agreed 
that it was confidential. I----
    Ms. Norton. So you decided to answer falsely?
    Mr. Chapin. No, I didn't answer falsely. I said it was 
confidential and I declined----
    Ms. Norton. Just a moment. I don't want to get hung up on 
this. The fact is that you indeed indicated in your answer to 
Mr. Tierney that the generals were paid, and your answer was 
blanket, when asked if veterans were paid for their testimony. 
There is no way to see that as anything but a contradiction to 
what you said. If the reason was that it was confidential, that 
is not what you told the committee.
    Mr. Chapin. I didn't deny they were getting paid.
    Ms. Norton. I don't begrudge people money. It's all about 
disclosure for me.
    You have a former employee, John Clifford, who has told the 
committee that you stated to him personally that he was to 
withhold assistance, grants, whatever it is you offer, to 
veterans who would not provide testimonials. He indicated that 
he refused to do so because that many veterans desire to keep 
private the fact that they are receiving any assistance at all. 
I am going to give you the opportunity to explain, deny or 
admit that is in fact the conversation you had with John 
Clifford, a former employee. Did in fact you instruct him to 
withhold grants from veterans who did not provide testimonials?
    Mr. Chapin. Quite to the contrary. Clifford stole all kinds 
of documents from us, as a matter of fact. He was fired, he and 
his brother. But apart from that, no, that is totally 
incorrect. I told him that I thought that the veterans, 
whenever possible, had an obligation to help his buddies and to 
step up and speak out.
    Ms. Norton. All right, you deny that one. Let's go on to a 
present employee, Stephanie Lepore, who has given an affidavit 
to the committee. Apparently it is not always easy to get 
veterans to come forward with these testimonials. And you said 
to her, according to an affidavit, which I have here, ``Not 
having these pictures and stories is costing us hundreds and 
thousands of dollars.'' And she states that you authorized her 
to offer any service members a check of anywhere between $250 
and $500 to get their stories and pictures told.
    Now, understand I am not here saying the veterans shouldn't 
have been offered money. I am asking you whether or not you 
instructed this employee or any others to offer grants of the 
kind I have just indicated in this affidavit in exchange for 
the use of their stories.
    Mr. Chapin. That is essentially correct. It is sometimes 
difficult, the veterans very often don't care to have their 
names disclosed who get aid. And we ask them for their pictures 
and for their stories and testimonials. And they are very, very 
slow in many cases providing----
    Ms. Norton. How do you decide whether you give $250 or if 
you give $500?
    Mr. Chapin. Rather than make them a charity case, I would 
rather give somebody $250 or $500 to tell their story.
    Ms. Norton. How do you decide who gets $250 and who gets 
$500 and who gets $5,000 a month and who gets $100,000?
    Mr. Chapin. It depends on what they are doing and the value 
of the service.
    Ms. Norton. Well, I am trying to find out how you decide on 
how much a veteran should be paid, not that a veteran should 
not be paid. Frankly, it is hard for me to sit up here and say 
that you shouldn't pay a veteran any amount of money. I am just 
trying to find out what happens, and I don't know why there 
isn't something that says a small stipend, if it is small, is 
offered to veterans who willing come forward and give 
testimonials.
    Mr. Chapin. Instead of treating these folks as charity 
cases, we now have a program where we pay them and their 
spouses $15 an hour to call our donors.
    Ms. Norton. Now, see, now you are on another subject.
    Mr. Chapin. You are moving so fast. I have already asked 
and answered----
    Ms. Norton. Do you have any objection, would you have any 
objection to noting in your literature that we pay veterans an 
amount ranging between X and Y for their testimonials and 
pictures? Do you have any problem with that? Or do you think 
the public would be hostile to that?
    Mr. Chapin. I am not sure we actually ever did that or not. 
Mr. Lynch, did we ever--I am not sure if we ever did pay a 
veteran, but I don't deny the fact that we offered them. And I 
know it was a good idea. And I stand by that idea.
    Ms. Norton. Well, anyway, there is the affidavit, Mr. 
Chapin. All I am trying to know, and answer my question, 
please, would you have any objection, or do you believe, do you 
really believe that the public would be hostile in knowing that 
the people who have risked their lives for us may be receiving 
an amount of money between X and Y? Why not disclose that? 
Particularly given the way Americans feel about our veterans, 
why not disclose it? Would you be willing to disclose it?
    Mr. Chapin. I will disclose anything you would like me to 
disclose. Give me a list, and seriously, I will be glad to 
disclose it.
    Ms. Norton. You are under oath, Mr. Chapin. We are going to 
look for that.
    Mr. Chapin. Excuse me?
    Ms. Norton. You are under oath, and we are going to look 
for that disclosure, and thank you very much.
    Chairman Waxman. Your time has expired.
    We have had all the Members have a first round, but a 
couple of Members wish a second round. Mr. Tierney.
    Mr. Tierney. Thank you very much.
    Mr. Chapin, I am not sure that some of the things you do 
are done by all the other organizations that you keep saying 
everybody does it, we ought to do it. I don't think other 
organizations pay moneys for country club dues and I don't 
think that they give loans to entities to startup businesses 
when they can't get commercial loans elsewhere. I don't think 
that they fund the CEO's money, advance them money so they can 
settle some divorce buy-out of property. And I don't think that 
necessarily all the other organizations pay people to endorse 
or sign letters on fundraising things, not generals and not 
veterans or people comparable in their organizations.
    But there is another thing that I think is probably out of 
the ordinary in your group, and that is an expense that you 
were reimbursed for that doesn't seem to make much sense in the 
context of charitable giving here. On April 14, 2005, there is 
a document that you signed, perhaps the committee staff can put 
that up there. It is a sales contract between you and the 
Renaissance condo complex in Virginia. It looks like, you can 
explain otherwise, it looks like you and your wife Elizabeth 
personally made a down payment of $24,725 for that unit on 
April 14, 2005.
    I have another document that I won't put up, but it is a 
second contract, nearly identical, dated the same day, signed 
by you to also buy the unit right next door. For that one, you 
apparently paid an $18,500 deposit. So if we understand this 
correctly, you entered into two contracts on the same day for 
two condominium units right next to each other, and you put 
down a total of $43,225. Would that be correct?
    Mr. Chapin. I believe so, yes. I am trying to think of the 
exact amount, but off the top of my head, that sounds about 
right.
    Mr. Tierney. So based on the documents that we have, it 
looks like several months after that date, after the time that 
you entered into those contracts personally, you went to the 
board of HHV, told them you were buying a condo in Virginia. 
And if we show you the minutes of that meeting up there, on 
June 24, 2005, it says this: ``Chapin said that due to his 
requirement to be in the Washington, D.C. area, he was 
purchasing a one bedroom condominium in the area of Tysons 
Corner in Virginia. And the return on his investment for him 
personally is estimated to be very strong. Lynch,'' that is 
HHV's Executive Director, ``recommended that the organization 
consider purchasing a separate property within the same 
complex.''
    So in April, you are buying one for yourself and 2 months 
later, in June, HHV decides it wants to buy one as well. 
Ultimately, we know that HHV did buy one. But you didn't. It 
appears that you pulled out of both contracts that you signed 
in April. And that is where it gets to the crux of my question. 
You pulled out of your contracts, you forfeited $43,000 in down 
payments, but you submitted that amount to HHV for 
reimbursement. So if we put up the document, I think it is 
entitled Summary of Virginia Condo Deal, and I think that is 
your handwriting, isn't it, sir?
    Mr. Chapin. I will accept that, yes.
    Mr. Tierney. So you asked HHV to pay you $43,225 for, what 
it says there is forfeited Chapin down payments. And the 
records we reviewed show that they actually issued you a check 
in that amount.
    Why would anybody that donates to the charitable 
organization expect money that was intended for veterans to pay 
your failed real estate costs?
    Mr. Chapin. Can I----
    Mr. Tierney. That is the question, sir.
    Mr. Chapin. The answer to that was, we had had some 
discussions, because of the amount of time that we were 
spending there, and it would be much more cost effective to own 
a condominium than to go out and stay in a motel or to rent an 
apartment. So as a matter of convenience, I put down the 
original down payments, because, to get the particular units 
that we thought were desirable, they seemed to be selling quite 
rapidly at the time.
    Mr. Tierney. So this was a discussion you had with your 
wife, or who did you have this discussion where you decided it 
would be better to buy?
    Mr. Chapin. Well, I decided it with the board, the board 
was interested in----
    Mr. Tierney. Well, if I can just back up, in April, there 
was no discussion on the board and you reported to the board--
--
    Mr. Chapin. Well, the discussion with the board, there 
hadn't been any decision made.
    Mr. Tierney. Please, sir. You reported to the board, we 
just put it up there for you, I am surprised that you 
contradict it now, but it said that you were talking about the 
return on your investment to you personally, to you personally. 
So it was 2 months later that the board decided that they were 
going to purchase it, and you were going to back out of your 
two agreements and then look for reimbursement.
    Mr. Chapin. I didn't say that the board had decided. I said 
there had been a discussion with the board about the 
possibility of acquiring a condominium. We investigated it, 
went ahead and put up the down payments.
    Mr. Tierney. For two?
    Mr. Chapin. For two, that is correct. One for myself. I 
lived in that building, incidentally, a number of years prior 
to that when it was an apartment and they converted it to a 
condominium. In any event, my accountant, when it came time to 
actually close the deal, the accountant suggested that we only 
buy one, that HHV, I should say, buy the one and that I not buy 
the other. He did not think that was a good idea.
    Mr. Tierney. Was that your personal accountant or the 
organization's accountant?
    Mr. Chapin. The organization's accountant did not think 
that I should be buying a condominium. My wife, we have a 
couple thousand square feet in San Diego. The one that HHV was 
buying was, as I recall, about 1,200 square feet. The other one 
was a one bedroom, which was 800 square feet. We were going to 
put them together, which we did when we rented there many years 
before.
    And in any event, the accountant suggested this was not 
something that I should do. So I didn't do it. So what happened 
was, we renegotiated with these people, we took a much less 
expensive apartment on a lower floor, on the 3rd floor instead 
of the 10th or 11th floor. And HHV wound up spending less than 
they originally committed to spend by buying a less expensive 
apartment. So I said, hey, look, in that case, HHV, because 
they wouldn't refund your money, OK, so the original down 
payments were forfeited. So I said in the event that HHV 
actually saved money on the whole transaction, it is reasonable 
if I get reimbursed for what I put down in the down payment and 
HHV gets reimbursed. Because we still save money and the board 
thought that was fine, and the cotton-picking accountant went 
ahead and 1099'd me for $18,000 or something.
    Mr. Tierney. So your opinion was, you had personally put 
down deposits on two condominiums, personally----
    Mr. Chapin. Yes, but I had no intention of buying the two.
    Mr. Tierney [continuing]. Indicating that your return on 
that investment, you said to the board, would benefit you 
personally. You thought that was a very strong case it would 
benefit you. Then you lost money because you forfeited both of 
those deposits. The corporation decided to buy a unit and in 
the end, you get the entity to also reimburse you for your lost 
deposits. So you----
    Mr. Chapin. Well, I was putting down a deposit in behalf of 
HHV. Because the board, even though there wasn't a formal vote, 
the board had originally indicated yes, they would be favorably 
disposed to HHV acquiring an apartment.
    Mr. Tierney. If that were the case, you would expect that 
the board would go out and issue a check for the deposit on 
those two condominiums, sir. It seems rather suspect that you 
went out personally, put it down, reported to the board that 
you personally expected to get a strong chance of return on 
your investment on that, and then 2 months later, decide that 
you have lost money on those two deposits, the board will come 
in and put down a check and buy a unit, and then they will 
reimburse you for your lost deposits.
    Mr. Chapin. How could I get a strong return on an 
investment for an apartment that I never bought?
    Mr. Tierney. I don't know how you anticipated that you were 
going to get one. But you said to the board----
    Mr. Chapin. I didn't anticipate any----
    Mr. Tierney. Sir, just your own words: ``Chapin said,'' in 
your own board minutes, that due to the requirement to be in 
Washington you were purchasing a one bedroom, ``and the return 
on that investment for him personally is estimated to be very 
strong.'' Those are your board meeting minutes. Those are not 
my words.
    Ms. Johns, would you have any issue, in your capacity of an 
entity, on a charitable basis, reimbursing somebody for a 
personal down payment on a unit that goes bad?
    Ms. Johns. It would potentially be a waste of charitable 
assets.
    Mr. Tierney. Thank you. I yield back, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Tierney. Ms. Watson.
    Ms. Watson. You know, I am listening to all of this, and I 
am quite disturbed. The purpose of your charity is to help 
veterans. And when I hear that there are all kinds of business 
deals, such as we have been able to note that there was a 
reimbursement for three plane tickets to Hawaii, and these 
tickets were bought on Christmas Eve 2004, then there is noted 
that there were gifts given to Mr. and Mrs. Viguerie over a 
period of time, it just seems to me that the purpose of raising 
these funds has been missed. And you know, you might be able to 
explain and so on.
    But the commitment that you said you have made to veterans 
seems to be squandered in moneys lining the pockets of you and 
your wife. And you know, I don't go along either with the fact 
that others are doing it, so why can't I do it. You can turn 
and point to us about campaign funds. This is not a campaign. 
This is your organization, collects money to be able to give to 
veterans.
    Now, what we do in our campaigns is completely separate 
from the purpose of raising charitable funds. And it is my 
feeling that if you raise money, you ought to be able to expose 
everything you give and the reason you give it. We have a list 
of expenditures that would benefit Mr. Viguerie. We also have 
copies of those tickets. I wish that three handicapped veterans 
could have gone to Hawaii.
    So I am just saying that your testimony here, Mr. Chapin, 
has convinced me and Ms. Johns that we need to do a better job 
in the State of California and probably across this country in 
monitoring and bringing some light on what we do with 
charitable funds. We know what we do with campaign funds, Mr. 
Viguerie. But we are not talking about campaigns. We are 
talking about the lives and the health of our veterans.
    And certainly, this Congress ought to do a better job. 
Every time there is a request, I am right there in supporting 
it. But I don't think that you as a charity, and I am not 
talking about you specifically, the charities that operate in 
the name of our veterans ought to be using moneys for 
membership dues at country clubs, giving gifts to the mail 
house owner, reimbursing for tickets to Hawaii. I just think 
these are inappropriate expenses, and with that, Mr. Chairman, 
I yield back my time.
    Mr. Chapin. Can I reply? Thank you.
    The 660 bucks, if that is the right number, for the trip to 
Hawaii, was out of $260,000 that I paid in expenses. That was 
an erroneous charge picked up--incidentally, I fly Southwest 
practically everywhere I fly, sometimes make two and three 
plane changes in order----
    Ms. Watson. Why did you submit it for reimbursement?
    Mr. Chapin. That was submitted and it was incorrect, and I 
apologized for it. Out of 260,000 charges, and I don't know how 
many hundreds of plane fares, and there was a trip that I 
missed because I took the whole out of my CitiBank summary 
statement. I took all the plane charges, because I never fly 
any place unless it is for the cause. And my daughter had gone 
to Hawaii, and I had not realized that it was charged to my 
card. And I struck it out and paid them back plus 5 percent 
interest. So I take exception to that, Madam.
    Ms. Watson. Well, what I want to say, my bottom line, since 
you have given me time, is that I think we ought to shine a 
finer light on charities, all of them, those that you have 
mentioned and those that you are involved in. We appreciate the 
fact that you said you were committed. But I think the actual 
expenditures that have been documented really don't meet the 
need and the purpose. I think the overhead is too high, and if 
you can't live, then you should probably, on that amount that 
you get, you probably should go----
    Mr. Chapin. Our overhead is high. Our overhead is high.
    Ms. Watson. The overhead that you spend out of a dollar is 
too much. Because that group who are the recipients are not 
getting the benefit. And I think any charity ought to use the 
majority of its funds to benefit the purpose of that charity. 
With that, I yield back.
    Chairman Waxman. The gentlelady's time has expired. Mr. 
Shays?
    Mr. Shays. Thank you. Free speech is protected under the 
Constitution as it should be. Congress is an institution 
protected under the Constitution. The White House, the 
Judiciary, some people don't like Congress, some don't like the 
Members, some don't like the White House or the executive 
branch, some don't like the President, some don't like the 
Judiciary, some don't like the judges. But the fact is, we are 
all part of this mix.
    I have a responsibility under the Constitution to look at 
things that I think are wrong. I think it is wrong for the 
public not to know that only 25 percent goes to the actual 
veteran. That is an opinion that I have, which I have a right 
to have. And I have that opinion, and I am happy to go to my 
voters and tell them that is my opinion.
    Now, Mr. Viguerie, I have less problem with the fundraising 
aspect, so long as people know. And if we aren't concerned with 
this, what is to say that someone shouldn't be able to raise 95 
cents on the dollar in order to give 5 cents to the veterans? 
The public has a right to know.
    Mr. Peters, you never answered the question that I asked of 
Mr. Viguerie. Do you have any objection to, in your fundraising 
solicitation, say that 25 percent or 28 percent or 20 percent 
actually goes to help the veterans directly, and the rest is 
fundraising costs and getting out our message?
    Mr. Peters. I really appreciate your asking me the 
question, because I didn't get a chance to respond. First of 
all, there is an impression that is being left that the 
charities do not disclose this information. That is an 
incorrect----
    Mr. Shays. I am talking about when you solicit it.
    Mr. Peters. I understand. That is an incorrect assumption. 
First of all, it is available, I will get to your answer, it is 
available to everyone because the IRS requires, in order to 
keep your charitable exemption, that you make it available to 
everyone. So it is available to everyone.
    Mr. Shays. And yet it has been so hard for us to even get 
this information out in a public hearing because we hear so 
much obfuscation. So with all due respect, I am going to let 
you answer it, the chairman will be a little generous with my 
time, I hope. But the bottom line is, I leave wondering what 
the hell is going on here.
    Mr. Peters. I don't know why it is so hard for the 
committee to get it, because I go can go online to GuideStar 
today and look up any 501(c)(3) in the United States that 
reports to the IRS, which are those who make more than $25,000 
a year. And I can look up the numbers.
    Mr. Shays. Now, answer my question.
    Mr. Peters. The second answer to your question is, the vast 
majority of charities, and most of the people that I do 
fundraising for, publish that number as part of the----
    Mr. Shays. That is not what I asked you.
    Mr. Peters. You said do they disclose.
    Mr. Shays. No, I didn't. I said, do you have any objection 
to the fact that when you solicit the dollars, on the phone or 
by letter, that you disclose, for instance, in the case of Mr. 
Chapin's two groups, Help Hospital Veterans and Coalition to 
Salute American Heroes Foundation, and we will leave Help 
Wounded Veteran Heroes out, because that is a C(4), and it is a 
different operation, but those two. If you were raising money 
for them, do you have any problem, you call me up or you send 
me a letter saying that 25 percent will go directly to the 
veteran and 75 percent will go to Mr. Chapin's group and the 
solicitation costs and so on? Do you have an objection to 
making that public when you raise those dollars?
    Mr. Peters. We recommend to our clients that----
    Mr. Shays. I want an answer to the question.
    Mr. Peters. I don't know how to answer your question 
without----
    Mr. Shays. Because you don't want to.
    Mr. Peters. No, that is not true, Mr. Shays.
    Mr. Shays. Do you have an objection? OK, go ahead.
    Mr. Peters. I recommend to my clients that they put the pie 
chart that shows what percentage of the funds are going to each 
purpose, how much is for fundraising, how much is for 
administration and that they put that in the solicitation, so 
that the donor does in fact receive that information. Because I 
am not a charity, I can't require that.
    Mr. Shays. So the answer to the question I think is that 
you think you would recommend that should happen?
    Mr. Peters. Yes, that is correct.
    Mr. Shays. That is not a hard question to answer. What you 
should have said, it seems to me is, that is what I recommend 
to my clients. It is easy, you wouldn't have wasted so much of 
my time. And that is not a bad answer. How many of them do it?
    Mr. Peters. Most.
    Mr. Shays. How many of the veterans groups do it, that you 
do?
    Mr. Peters. Most.
    Mr. Shays. Name me who.
    Mr. Peters. Wounded Warrior Project.
    Mr. Shays. And they say how much?
    Mr. Peters. There is a pie chart that----
    Mr. Shays. And what does the pie chart say? How much goes 
to the veteran in that pie chart?
    Mr. Peters. It doesn't say to the veteran. What it says is 
how much for programs, how much for fundraising, how much for 
administration. It shows all of the functional categories.
    Mr. Shays. Do they describe what programs mean?
    Mr. Peters. Yes, they do.
    Mr. Shays. What are programs? Going to the veteran?
    Mr. Peters. Many of their programs involve backpacks for 
veterans, they work at Walter Reed, if you have ever been over 
there, you will see them with the tee-shirts and so forth.
    Mr. Shays. Here is what I would like you to do. Please 
submit, and this is, I am well in my right to ask you to submit 
this, please submit to us the fundraising letters that you have 
done or any solicitation that you have done for veterans. I 
want all of them as they relate to veterans. And because you 
are under oath, I want to see those pie charts, and I want to 
know how many of those actually did that.
    But I congratulate you for suggesting that be done.
    Ms. Johns, do you think it makes sense for solicitations to 
actually describe how much goes to the veterans?
    Ms. Johns. It would be a lot easier for donors to make 
decisions about giving.
    Mr. Shays. See, what I know is, when I know a group gives 
90 percent to the call, like certain police associations, when 
they call me up I say, you know, I would like to do it, but I 
don't like 10 cents of my dollar going to the cause and 90 
cents going to you all. You have a right to raise money this 
way, but I know that information, I don't want it to happen. 
But if 90 percent or 80 percent went to the police, I would 
react differently.
    I sincerely believe that most people who are giving money 
don't realize how little goes ultimately to the veteran. And I 
will just end by saying to you, Mr. Viguerie, I believe that 
Congress needs to have better oversight of fundraising, that we 
do. But I will say this to you. We have pretty strong laws. We 
just have an incredibly weak Federal Elections Commission that 
will investigate something months after an election has taken 
place, find someone a year later, and in some cases, just have 
a blind eye and deaf ear to this.
    So believe it or not, you and I are on the same wave 
length. Let's have stronger laws governing how Congress raises 
money and campaigns. It would make good sense, I think.
    Mr. Viguerie. Mr. Shays, my legal counsel, Mark 
Fitzgibbons, has a solution about disclosure that deals with 
the Riley case. And he would be glad to talk to your staff and 
help you address some legislation.
    Mr. Chapin. If we disclose, which I am more than happy to 
do, we will all be out of business and you wouldn't have gotten 
the 23 million arts and crafts kits.
    Mr. Shays. Why would they be out of business?
    Mr. Chapin. Excuse me?
    Mr. Shays. Why would they be out of business?
    Mr. Chapin. Nobody would donate. It would dry up.
    Mr. Shays. Because they would then know that only 25 cents 
goes to the veteran.
    Mr. Chapin. That is right. And nobody would give to the 
American Cancer Society or the Boy Scouts or YMCA.
    Mr. Shays. What a wonderful----
    Mr. Chapin. And $50 billion worth of direct mail would 
evaporate. I would take my $300,000 retirement and walk off 
into the sunset.
    Mr. Shays. Mr. Chapin. I think your words are a wonderful 
way to end this hearing. Because you are basically saying if 
the public knew they wouldn't contribute.
    Mr. Chapin. Yes. Hey, I am trying to be straight with you 
guys. I am----
    Chairman Waxman. You have been very straight with us. Ms. 
Johns, I want to ask you a question. We have heard over and 
over that high fundraising costs are not a problem. Do you 
think they are a problem and why?
    Ms. Johns. Our job is to make sure that charitable assets 
are used for charitable purposes. We talk about it in terms of 
efficiency. There are reasons for high fundraising costs, and 
then there are other times there are not good reasons.
    The board of directors of each organization is required to 
assess what is reasonable and where they can get the best deal 
in fundraising. It really falls to the board. It isn't the only 
criteria we use in deciding whether there are ways.
    Chairman Waxman. Well, I would say, in conclusion in this 
hearing, and I've been sitting listening to the responses to 
many of the questions, Mr. Chapin, you said just now what you 
said to our staff, nobody would give any money if they knew how 
much was going to overhead. I think people understand that 
there are fundraising costs.
    But if they knew that they were giving money to a country 
club membership for $17,000, a personal loan to your executive 
director to settle his divorce at $135,000, reimbursement for 
your personal forfeited condo deal of $43,000, loans to Mr. 
Viguerie because he didn't have the capital to execute his 
contracts, nearly a million dollars, payments to you and your 
wife over the past 3 years of $1.5 million, payments to Mr. 
Viguerie's for-profit company since 2000 of $14 million, I 
don't think they would give any donations to you.
    But I think people have a right to know where some of this 
money is doing. It sounds to me that you have a real close-knit 
club there, and you're all self-dealing with each other and 
then you don't want it disclosed. You don't want it disclosed 
because nobody will give you any money. I think if you had to 
disclose there would be things like market forces, there would 
be a lot of pressure on you to lower your costs. There would be 
more pressure on you to do more for veterans. People would say, 
I don't want to give money to that veterans group, I want to 
give money to another one that is giving more to the veterans. 
I thought that is what conservatives like, honesty, fairness 
and market forces. And I don't think you have any of those 
things in the operations that----
    Mr. Chapin. I would totally disagree. I think I am the most 
honest person in this room based upon my performance. I have 
loaned over half of my after-tax compensation back in order to 
enable the charity. I did not take in a million and a half 
dollars. That is totally inaccurate. I took in $750,000, over 
the half of what you are talking about, plus some bonuses.
    Chairman Waxman. Well, I accept that you are very sincere. 
And you genuinely believe what you have told us. And I just 
have to tell you, I don't agree with you, and I don't think the 
veterans are getting the deal that they should have out of this 
whole operation.
    Mr. Shays, did you have something else?
    Mr. Shays. Mr. Chapin, I want to explain why I laughed when 
you spoke, because I do think you have been brutally honest.
    Mr. Chapin. Sir?
    Mr. Shays. I think you have been brutally honest, I think 
all of you have, and that is to your credit, to be honest. But 
I listened to what you said, and we have our disagreements.
    Let me, Mr. Chairman, make a request. The organization 
Independent Sector has asked to submit a letter and booklet on 
charity standards for the record. I ask that this be placed in 
the record.
    Chairman Waxman. Without objection, that will be the order.
    [The information referred to follows:]

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    Chairman Waxman. I thank all of you for coming today. That 
concludes our hearing. We stand adjourned.
    [Whereupon, at 1:05 p.m., the hearing was concluded.]
    [Additional information submitted for the hearing record 
follows:]

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