Archive for Sunday, August 7, 2011

Concerns raised about overhead costs of Tonganoxie-based nonprofit Purple Heart Veterans Foundation

August 7, 2011

Fundraisers for the Tonganoxie-based Purple Heart Veterans Foundation have been spotted at booths in front of several local stores recently, collecting donations to “support the troops.”

But for every dollar you might have given them, only 11 cents would actually make it to a veteran or a member of the armed services, according to a Journal-World investigation.

Based on interviews with foundation President Andrew Gruber, as well as an examination of the foundation’s IRS nonprofit tax forms, the investigation revealed:

Where the money goes

If you donate a dollar to the Purple Heart Veterans Foundation, here’s where it goes:

• 78 cents: Paid to a for-profit fundraising business, Independent Promotions.

• 11 cents: Given to veterans organizations and care packages to troops.

• 7 cents: Spent on “other expenses,” including $6,000 spent on a vehicle and nearly $15,000 spent on travel.

• 4 cents: Andrew Gruber’s salary.

*Based on the foundation’s 2010 IRS tax forms.

• Nearly $541,000 was collected by the foundation in 2010, but almost $420,000 of that was paid to Independent Promotions, an Indianapolis-based for-profit fundraising company operated by Scott Gruber, Andrew’s brother. Only $61,000 was actually paid to support organizations for veterans or on care packages for troops.

• Gruber started another nonprofit this year, registered at his home address, named the Kids Vs. Cancer Foundation. Tax forms for this organization were not yet available. The organization is run by Andrew’s other brother, Steven Gruber, in Corpus Christi, Texas.

• Andrew Gruber was paid $20,000 in 2010 as foundation president but will make $48,000 this year, a decision approved by the board of directors, which includes Gruber and two other people.

The Journal-World asked three representatives from organizations that monitor nonprofits to review the foundation’s tax forms. All three representatives expressed concern about the foundations.

“It’s not adding up,” said Lindsay Nichols, a spokeswoman from the nonprofit watchdog group GuideStar.

Is Gruber operating a well-orchestrated, multistate scheme for his and his family’s benefit? Or is his work a well-meaning — but inefficient — attempt to help others?

‘Red flags’

While nothing points to Gruber doing anything illegal, “there are some red flags,” said Laurie Styron, an analyst for the American Institute of Philanthropy. Styron reviewed the foundation’s tax forms and was particularly concerned about the involvement of his brother’s business.

“That looks really bad,” she said.

Perry Schuckman, executive director of the Kansas Nonprofit Chamber of Service, says he also sees some problems with hiring a family member’s business.

“It would be a direct conflict of interest,” Schuckman said.

According to IRS tax code for nonprofits, such organizations “must not operate for the benefit of private interests,” such as those of its founder or the founder’s family. It’s not clear whether paying a family member’s business for fundraising services would break that law. A representative from the IRS declined comment, saying the agency does not discuss particular cases with the media.

Another red flag for Styron was the creation of a second nonprofit that “tugs at the heart strings.”

Support the troops? Help kids with cancer? Who wouldn’t want to help out, she said. Styron cited previous cases across the country where individuals have created multiple nonprofits as way to funnel donation money to themselves.

Then there’s the very low percentage of money that actually supports the work of the nonprofit, which, according to the foundation’s IRS forms, is “to provide support and assistance to veterans of the U.S. armed forces.”

Only 11 percent of the more than $500,000 collected went to members of the armed services — in the form of payments to the veterans hospitals in Topeka and Leavenworth and 200 care packages sent to troops. Schuckman said the nonprofit industry standard is closer to 80 to 90 percent. If that standard were applied to Gruber’s foundation, at least $400,000 of the funds should go to support troops or veterans.

‘On the up and up’

At his home, which doubles as his office, Andrew Gruber showed photos on the walls of veterans and members of the military. Many in his family served in the military, and he started a nonprofit as his way of giving back, he said.

“Everything’s on the up and up,” Gruber said. “I started this to help out.”

Gruber previously worked construction, but as the nonprofit demanded more time, it “kind of turned into a full-time job,” he said.

Gruber rattles off the names of local veterans facilities the foundation has assisted and said the foundation donated $1,000 to the local “Extreme Makeover: Home Edition” house, being built for a wounded veteran in Ottawa.

Gruber also said he didn’t see any problem with hiring his brother’s business to raise money, nor any problems with the high overhead for the foundation.

“You’ve got to spend money to make money,” he said.

And he’s just starting out, so the organization’s efficiency shouldn’t be measured against established nonprofits, he said.

“They’ll look better next year,” said Gruber of the nonprofit’s financial statements. It’s unclear whether Gruber has any previous nonprofit experience.

Styron said it often does take a couple years for nonprofits to get going, and her organization doesn’t even rate groups that haven’t been around for at least three years.

The IRS takes a similar view, she said, and it’s unlikely Gruber’s foundation would be audited — one avenue for revoking a nonprofit’s status.

In addition to being registered with the IRS, the foundation is also registered with the state of Kansas.

The Kansas Attorney General’s Office investigates nonprofits if a complaint is made, but Jeff Wagaman, Attorney General spokesman, said no such complaints have been made against either of Gruber’s foundations.

“As a charity, we operate 100 percent within the laws governing charitable contributions,” Gruber said.

Initially, Gruber answered questions about the foundation. However, he later said he was unwilling to cooperate further for this story. The Journal-World was unable to contact Scott Gruber, owner of the fundraising business. That business is registered with the state of Indiana, but there is not a listed phone number, and the company does not appear to operate a website.

Steven Gruber, who runs the Kids Vs. Cancer Foundation, responded through email but declined a phone interview, and the website for the foundation does not list a phone number.

Little regulation

Gruber’s situation highlights a murky area of the nonprofit world, and distinguishing what’s a legitimate nonprofit and what’s a money-making scheme is difficult, said Nichols of GuideStar.

“There is not a ton of regulation for nonprofits,” she said. All that’s really required is some paperwork, reviewed by an accountant, that’s then filed with the IRS, which then decides whether to grant nonprofit status to groups.

The best thing consumers can do to prevent potential shady practices is be educated about where you donate, Styron said.

“Never give impulsively,” she said.

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