USO’s Deal With a Fund Raiser Comes Under Scrutiny

Donations to the USO have risen quickly during the war in Iraq, and it has become one of the most successful

organizations now raising money to help the troops. The charity, which provides a range of services to troops abroad, raised $30.9-million last year, double the amount it collected in 2001.

But now questions are being raised about the process the charity uses to raise money. Critics say the charity’s direct-marketing consultant has too much control over the charity’s list of 967,000 donors, and they believe the consultant got the job in part because he has family ties to the president of the USO, Edward A. Powell Jr.

The New York Times reported last week that several of the charity’s current and former employees have expressed concern about the amount of authority given to the consultant, Worth Linen. They charged that Mr. Linen has exclusive control over the charity’s donor list, which hampers staff members who want to get in touch with donors on their own. What’s more, they say, the consulting arrangement is open to charges of conflict of interest. Nonprofit groups can get into legal trouble if they cede too much control over their management and operations to for-profit companies or help for-profit companies gain undue financial benefits.

USO officials say the fund-raising consultant does not have exclusive control over the list and chalk up the criticism to disgruntled employees.

Mr. Linen “has no tight control over the list,” says John Hanson, senior vice president for marketing and communications at the USO, who said he was speaking on behalf of both the charity and Mr. Powell. “He has helped us build something we never had before: a reliable database.”

Mr. Linen, who has more than two decades of experience in the direct-mail business, says he has done nothing wrong. “I had met Ned three times before he hired us,” says Mr. Linen, whose brother was married to the woman who is now Mr. Powell’s wife. “We were not friends and were not acquaintances, and we had no relationship.” He adds, “The USO owns their list.”

Cost of Appeals

Shortly after Mr. Powell joined the USO in 2002, says Mr. Hanson, he discovered the group was paying 72 cents for every $1 it raised from direct mail.

Unhappy with that finding, he hired Mr. Linen’s company, Worth Linen Associates, in New York, to recommend ways to cut costs and raise more money. When Mr. Powell met Mr. Linen, in the early 1990s, he learned Mr. Linen was in the direct mail-business, Mr. Hanson says, and that is the person he thought to turn to when he joined the USO.

Pleased with Mr. Linen’s work, the charity’s board hired his company in 2003 to conduct the charity’s mail appeals. Since hiring Mr. Linen, the charity’s net revenue from direct mail has risen from $2.3-million in 2002 to $13-million in 2004. (The rest of the organization’s money comes from grants and big gifts.) The group now spends 51 cents to raise each dollar through direct mail, Mr. Hanson says.

While that is an improvement, at least one charity watchdog group recommends charities spend no more than 35 cents to raise a dollar.

“Most donors get concerned when they see it go beyond that point,” says Daniel Borochoff, president of the American Institute of Philanthropy, in Chicago. “They like to see more of their money go to the cause.”

The USO board awarded Mr. Linen’s company a four-year contract in 2003 and did not seek competitive bids from other direct-marketing companies.

The Iraq war had started, and the charity was in a rush to secure donations for its work, says Mr. Hanson. “We couldn’t take the time it would take” to get other bids, he says. “We could not lose six months of viability.”

When the contract expires in 2007, other companies will be allowed to bid for the direct-mail job, says Mr. Hanson.

Trent Stamp, executive director of Charity Navigator, a watchdog group in Mahwah, N.J., questions the process the group used. Most groups have rules that forbid someone with family ties from seeking a lucrative contract without a competitive bidding process, he said.

The USO does have a conflict-of-interest policy. Its board felt comfortable awarding the contract to Mr. Linen, says Mr. Hanson, because the two men had no relationship before Mr. Powell called Mr. Linen for his advice on the USO’s direct-mail operation.

Mr. Linen’s company was paid $1.34-million by the USO in 2003, says Mr. Hanson.

One reason charity employees were upset about Mr. Linen’s role, according to The New York Times, is that Mr. Powell in June sent the charity’s managers an e-mail message saying that they would need Mr. Linen’s permission if they wanted to gain access to the donor files. Mr. Hanson says the message was sent to coordinate mailings and was not a sign that the consulting company had exclusive control.

Employees still have access to the charity’s donor names and histories, he says. Mr. Hanson says Mr. Linen’s contract stipulates that the charity’s donor list is to be used exclusively for USO fund raising and that its list of donors “remains our property.”

The changes in oversight of the direct-mail process have rankled some USO employees, says Mr. Hanson. Of the five people who worked in the charity’s direct-mail division, three have left and one was fired.

Mr. Stamp, of Charity Navigator, says the USO should have been prepared for fallout over its activities. “This kind of thing probably happens a lot,” he says. “But because it’s the USO, which, like it or not, is closely aligned with the president of the United States, who is their honorary chairman, and formally endorsed by the Defense Department on their Web site, they have a higher obligation to make sure what they are doing is aboveboard at all times and to recognize that they are going to receive greater scrutiny.”