Charity Scams: Making Big Business Out of Native American Poverty

Donors should be wary of a growing number of charities that purport to alleviate poverty in Native American communities but that instead use donated funds to stuff their own stockings.

By Koren Capozza Dec 15, 2000

As Christmas season approaches, charities are gearing up for a holiday push in fundraising and American households will soon be bombarded with direct mail and telephone solicitations asking them to donate dollars to various causes. But donors should be wary of a growing number of charities that purport to alleviate poverty in Native American communities but that instead use donated funds to stuff their own stockings.

This practice became apparent to Eleanor McMullen, chairwoman of the Port Graham tribe in Northern Alaska, when she learned that 1,000 pounds of beef liver were en route to her tiny coastal village. The donation was made in 1991 by American Indian Heritage Foundation (AIHF), a charity in Falls Church, VA, which had solicited funds on behalf of the Port Graham tribe but had not consulted with the Port Graham people.

McMullen was offended and demanded that the beef be returned to sender. "We weren’t looking for any donations, we were just trying to adjust to being without what we normally have." The Port Graham Aleuts were hard hit by the Alaska oil spill that year. "I found out that this occurred amongst many people and that a lot of that money went to [the AIHF president’s] program, her wage, her staff."

My investigation showed similar dubious practices by the National Relief Charities, the Native American Heritage Association, the Southwest Indian Foundation, and the Southwest Indian Children’s Fund.

For Sale: Native Poverty

The incident at Port Graham is not, unfortunately, an isolated one. "There are many, many non-Indian operations that use Indians as a way of garnering revenue," says Jerry Reynolds, associate director of information services for the First Nations Development Institute, a Fredericksburg, VA-based non-profit organization.

Ken LeDeux, a former business manager for the Rosebud Sioux tribe, says he keeps a close eye on charity activities in the area. "It’s real difficult when you’re dealing with any kind of poverty-stricken area," LeDeux says. "Any kind of assistance is looked at as very beneficial." But charitable organizations are latching on to Native American causes because they are an easy sell, says Daniel Borochoff, director of the American Institute of Philanthropy. Americans feel guilty about their nation’s treatment of Native peoples, he says, and they give money with the intention of correcting history’s wrongdoings.

"These charities exploit the tremendous reservoir of goodwill that exists worldwide for Indian people," agrees Vernon Bellecourt (Ojibwe), an American Indian Movement leader.

Shady operations may also proliferate because government oversight of charities is sorely lacking. The U.S. Supreme Court has forbidden states from setting limits on what percentage of a charity’s funds must be spent on programs. The majority of charities fall into two categories–religious organizations and charities with gross receipts less than $25,000–both of which are exempt from making IRS tax information available to the public. The inner workings of two-thirds of American charities remain a mystery for that reason.

Scandalous in South Dakota

One rogue charity, the American Indian Relief Council (AIRC) in Rapid City, SD, gained notoriety among Sioux activists in the early 1990s when it dumped useless textbooks and outdated seeds on the reservation as part of its relief program. Employees blew the whistle on the organization’s dubious fundraising pitches, which they said were manipulative exaggerations and lies. AIRC workers also complained that the money they raised for Native Americans wasn’t making it to the reservations.

Eventually the Pennsylvania Attorney General’s office sued AIRC in 1993 for lying to donors that certain reservations were hit by catastrophic natural disasters and that funds were needed to prevent famine and death. The lawsuit also charged that AIRC overvalued the price of goods donated to tribes–like the expired seeds–which it listed at market value. AIRC settled in 1999 and paid $350,000 to the state.

AIRC’s president, Brian Brown, had been a private accountant for six large national charities. Four of his clients were sued in 1991 by the Attorneys General of Connecticut and Pennsylvania for willfully conspiring to inflate commodity values and deceive donors.

In 1993, when Brown’s AIRC scam was laid bare by the media, the charity discreetly downsized its South Dakota operations and shifted its focus to the American Southwest. Today the charity has been reborn under a different parent organization, National Relief Charities (NRC), which operates two new subsidiaries, Council of Indian Nations and Southwest Indian Relief, both in Apache Junction, AZ.

Despite its makeover, NRC is still distributing a pitiful portion of its revenues to the constituency it purports to serve. According to NRC’s 1999 federal tax filings, it brought in over $8.3 million in donations last year but only 30 percent were spent on programs. In contrast, Brown’s salary has hovered at about $120,000 for the last two years. The National Charities Information Bureau, a Washington, DC-based watchdog group, suggests charities should spend at least 60 percent of donations on programs and services.

Brown’s tactics are par for the course among a few other large charities like the Native American Heritage Association (NAHA), a sibling of AIRC.

The couple at the helm of NAHA, Dave and Bernice Myers, were co-defendants in the Pennsylvania lawsuit against AIRC. That’s because the Myers actually created AIRC in 1990, then gave it to the board of directors who elected Brown as president. The sweetheart deal guaranteed the Myers a $10,000 "bonus for past services" and a $650,000 award for a contract to deliver future services to Native Americans. No services were ever rendered with that money. Both charities have consistently received failing marks from watchdog groups. One, the American Institute of Philanthropy, gave NRC an "F" grade and NAHA a "D" for its fundraising and service delivery performance.

A former NAHA employee, Dennis Running Shield, told the newspaper Indian Country Today in 1997 that the charity only donated used goods to tribes and that Meyers asked employees to do personal errands for him, like paint his house. A closer look at the organization’s federal tax filings for 1999 shows that barely 43 percent of its funds were spent on programs and services. But even this figure is a liberal one–a considerable portion of this amount is spent on salaries, compensation and benefits for NAHA fundraisers and staff. Last year, Meyers took a salary of over $143,000 as president.

Surprisingly, although NAHA and NRC’s policies may seem unethical, they’re not illegal. That’s because charities that distribute donated goods–surplus food, used clothes, textbooks–can count them as a program expense at up to market value according to current regulations. Accounting rules are unclear about how these "gifts-in-kind" should be appraised. Moreover tucking money back into charity operations by shifting fundraising overhead costs into program expenditures is a common practice and does not violate any accounting guidelines. And a 1998 statement of position from the American Institute of Certified Public Accountants allows charities to account for part of their fundraising costs as a program expense if the fundraising material has an educational bent. In this case, some charities say their solicitation pitch educates the public about the situation of poor Native Americans.

Impostors At the Helm

Princess Pale Moon is the personality behind the American Indian Heritage Foundation (AIHF), the charity that sent the unwanted beef liver to Alaska. Pale Moon claims Native ancestry and says she created the organization so that young American Indians wouldn’t have to feel ashamed–the way she supposedly did–about their heritage. The only problem is that no records support Pale Moon’s claim to be Native American. She’s not registered with any federally recognized tribe and was actually asked to leave the 1992 World Expo in Spain by U.S. intelligence when it discovered she was a fraud.

"We remind her that we don’t have any royalty," says Vernon Bellecourt. "They’ve always got to be ‘princesses’ or something or other. It’s a white woman masquerading as an Indian and, of course, she has some Indians on her board to give her a cover."

Pale Moon has nonetheless had a great deal of success as a Native American spokesperson. She sang the national anthem at two Republican conventions and has raised millions of dollars for Native causes. Unfortunately, those causes are often aimed at her own self-promotion. Of the $197,000 AIHF spent on programs in 1998, $24,566 was spent on "TV and public appearances to present cultural values and to educate the non-Indian public of the aspirations and needs of Indian people," according to the charity’s 1998 IRS filings.

Religious Charities: The Great Unknown

The inner workings of some Native American charities are a mystery because of federal laws that protect church-related organizations from government meddling. Southwest Indian Foundation (SWIF), a charity in Gallup, NM, is not a church but still doesn’t have to make its financial statements available because it was founded by a Catholic priest.

The SWIF raises funds through its mail order catalog, which it says features the arts and crafts of Native artists. In fact, SWIF gives as little as one quarter of the funds it raises to programs, says Borochoff of the American Philanthropy Institute (AIP). The charity received an "F" rating from AIP this year. In 1999, the charity made $12.3 million and says it distributed $7.4 million to charitable causes, but Borochoff says those figures should be taken with a grain of salt.

"They’re spending only 33 percent on bonafide charitable programs," says Borochoff, who was able to obtain the charity’s 1997 tax information. "They’re making a claim that, by selling this jewelry, this is an employment program. They make a claim that they’re improving the economy of a poor area that Indians live in by increasing volume at the post office."

Another charity enjoying similar anonymity is the Don Stewart Foundation, an evangelist group that runs several charities including the Southwest Indian Children’s Fund (SWICF). A SWICF representative says the charity works primarily with the Gila River tribe near Phoenix, AZ, which is by most accounts an unusual pick for a relief recipient. The tribe is flush with money after it developed two gaming operations, a golf course and a five-star resort hotel. But even more strange is the fact that the Gila River tribal government office doesn’t know of the charity. "I haven’t heard of that group at all," says Gary Bohnee, executive assistant to the tribal lieutenant governor.

SWICF representatives in the charity’s Phoenix headquarters admit that only 15 percent of donations go to programs. So, what happens to the other 85 percent? The IRS wondered the same thing and revoked the charity’s tax-exempt status in 1997, citing misuse of funds. Investigators listed a down payment on Don Stewart’s house, costs associated with his wedding reception, and expenses to visit former girlfriends as examples of ways Stewart bilked charity funds for personal use. Stewart petitioned the IRS decision and is currently still accepting contributions to the charity.

Give, But Give Wisely

Given the track record of these not-so-charitable organizations, it’s easy to become cynical and simply withhold support for charities in general. But before donors turn a cold shoulder to solicitors that come knocking this season, they should remember there are plenty of charitable operations doing important and much needed work on reservations, says Bellecourt. One of the first things to look for is whether the charity makes outlandish claims about the dire situation of Native peoples. "If they’re claiming that Indian people and Indian kids are starving or without food, they’re probably not legitimate," says Reynolds of the First Nations Development Institute. "There’s a great deal of dignity on reservations, and I can’t think of a single Native American-controlled organization that would be able to retain the support of its constituents by making claims like these." Donors can also weed out suspect charities by looking at their spending habits, which are listed online by a number of charity watchdogs (see below).

In fact, it’s precisely because some charities don’t serve the interests of Native Americans that bonafide programs need all the more help. Says Donna Chavis, executive director of Native Americans in Philanthropy, "There’s a tremendous need out there and I’m reminded of that constantly by Native people."