San Diego Distributor of GI ‘Gift Pacs’ Under Fire for How It Spends Donations : Charity: National watchdog groups say the nonprofit firm devotes more than half of receipts to advertising, overhead.

WASHINGTON —  As packages for GIs flood into Saudi Arabia, the largest supplier of gifts--a Southern California nonprofit group--has set off a debate in charitable circles because it spends more than half the contributions it receives on advertising and other costs.

The San Diego group, Help Hospitalized Veterans, has used a national advertising campaign to collect $4.5 million for 325,000 individual “gift pacs” that contain candy, nuts, dried fruit, cookies and other treats.

Of this number, 172,000 packages have been delivered or “are on the high seas,” said Roger Chapin, president of the organization. The remaining 153,000 packages are being prepared.

The packages are among thousands prepared by charitable, civic and corporate organizations, schools, churches, American Legion posts and National Guard units. These groups are sending such diverse items as pretzels, fruit, lip balm, books, shampoo, nonalcoholic beer and boomerangs. The gifts are delivered via military sea-lift by the Defense Logistics Agency, a Pentagon branch.

Chapin’s group collects $15 for packages that cost only $7 to make. The rest of the money goes for national newspaper and magazine advertising, direct-mail expenses and administrative costs.

“Please send a GI Gift Pac. Tell a GI in Saudi Arabia you care!” say the ads, which run in The Times and other newspapers.

Because Help Hospitalized Veterans spends less than 50% of its donations on the packages it sends, the organization has been criticized by national charity officials.

Another big participant in the Persian Gulf morale effort, the well-established United Service Organizations, is keeping its distance. Although Chapin declared that “USO is assisting us,” a USO official, Amy Adler, said: “We are not involved with them.”

Adler added that USO, by contrast, spends 77% of its contributions directly on services. With help from the Pentagon, USO--the second-largest gift supplier--has shipped more than 100,000 of its own “oasis packages” to troops deployed in the gulf, Adler said. These are blue duffel bags filled with corporate-donated goods including snack foods, books and music cassettes.

Following its tradition, USO also has established centers in the region where military personnel can go to relax or call home.

Two organizations that act as clearinghouses and watchdog units for national charities say Help Hospitalized Veterans appears to be violating traditional standards that call for at least 50% of all charitable donations to be applied directly to the causes being supported.

For example, officials of the National Charities Information Bureau of New York said the San Diego-based group repeatedly has fallen below the 50% level over the last 18 years, long before it began its “gift pac” program this year as a sidelight to helping hospitalized veterans.

“They have been providing us with their financial statements for years, and they do not spend an adequate amount on hospitalized veterans,” said Dan Langan, a representative of National Charities.

“Last year they raised over $10 million, and more than half went for fund-raising costs.”

Langan added that of 300 charities monitored by his organization, 80% adhere to the 50% guidelines, with the vast majority spending more than 60% of all collections on their primary objective.

Failure to do so, however, does not violate any federal law, he said.

Margaret Bower, an assistant director of the Council of Better Business Bureaus in Washington, made similar assertions but said: “We’re still evaluating the ‘gift pac’ program.”

“Their main effort is distributing arts-and-crafts kits to veterans in U.S. hospitals,” she said of the organization. “In the year that ended last July 31, their total income was approximately $10.2 million, of which they spent only $3.4 million on the kits.”

Internal Revenue Service officials, while withholding comment on a specific case, said they have the power to seek revocation of a charitable organization’s tax exemption if a group is not spending “a substantial portion” of its income according to its charter. The amount of that “portion” is not clearly spelled out.

In response to the criticism, Chapin declared that he was proud of his organization’s long record of helping veterans, noting that his group had distributed 11 million arts-and-crafts kits to veterans in 260 hospitals. The criticism, he said, has resulted from “ignorant” people who do not understand all the figures.

“Some people are trying to discredit us,” he said. “We have a marvelous program that is subject to audit every year.”

Chapin insisted that although the nationally advertised donation for each “gift pac” is $15, most donors use the option of contributing $25 for two packages. This has brought down the average donation per package to $13.50, so that the $7-per-package cost amounts to more than 50%, he said.

Chapin added that he has pledged to donate any surplus funds to USO, or to ship additional gift packages, so that his nonprofit organization will not show any profit.

Former television host Art Linkletter, whose photo appears in the “gift pac” ads, said in a telephone interview that he first met Chapin about 18 months ago “and I was impressed by his desire to help others.”

Linkletter said he first supported Chapin in an effort to raise money to combat drug abuse. But this program relied on “an elaborate marketing system involving shoppers coupons, and it never worked out very well,” he said.

Earlier this fall, Chapin approached him with the “gift pac” notion, “and it sounded like a wonderful idea to me. I think they’re doing some good,” Linkletter said.

He added: “I’ve been associated with a lot of charity drives. You know, many people just don’t understand there are advertising and other costs that have to be paid out of contributions.”

Military officials have no complaints about the organization.

“People are encouraged to support our troops in the gulf any way they please,” one said.