Wounded Vet Charity Accuses Own Executive of Fraud

Foundation's executive director fired for allegedly misusing donation money.


August 21, 2008— -- The executive director of a charity for wounded veterans that pulls in more than ten million dollars per year in donations has allegedly spent tens of thousands of dollars of the charity's funds inappropriately to benefit foundation executives and given out hundreds of thousands of dollars of donated funds in exchange for family favors, according to current and former executive board members of the Military Order of the Purple Heart (MOPH).

Richard (Dick) Esau was fired from the MOPH Service Foundation after it brought in a forensic auditor to investigate Esau and the charity's finances, according to Henry Cook, outgoing national commander of the MOPH, and Ray Funderburk, former national public relations director for the MOPH.

"This investigation is ongoing and it's going to get bigger," said Cook. "It is outrageous and unfair to those who donate their hard earned money to help veterans."

The findings of the audit by a forensic independent accounting firm thus far warranted Esau's termination, according to Foundation President James Blaylock. The Foundation's Executive Committee "authorized a continued auditing process into any and all areas that the forensic auditor felt were appropriate," Blaylock wrote in the letter to MOPH members alerting them that Esau was fired.

Cook said that there appeared to be a conflict of interest with regards to several hundred thousand dollars that the Foundation allocated under Esau.

The Foundation gave $500,000 to the Intrepid Museum in New York right before the daughter of a member of the Foundation's board of directors was hired by the museum, according to Cook.

It gave another $100,000 to the Marine Corps Reserve Officers Association where Esau worked prior to joining the Foundation and where his wife worked at the time the money was given, according to Cook, who says Esau told him that $50,000 of that money went to a personal friend who was contracted to teach anti-terrorism classes to deploying National Guard troops.

And last year the Foundation's tax forms show it paid the Washington Redskins $685,000 in signage for radio and television advertisements, which Cook said was completely inappropriate and should have gone to needy veterans.

Cook said that while Foundation executive board members enjoyed box seats at the football games, he could not even get the funds from the Foundation to buy tickets for veterans.

Executives also enjoyed lavish parties, according to Cook, including one black-tie dinner for a retiring official costing an estimated $40,000. Esau has defended the Foundation's spending choices.

"I'm not sure that the guy who is living on an limited budget and sends his money to help wounded vets would want it to go to that," said Cook, who was voted off the Foundation board in April after telling ABC News Good Morning America that he was "outraged" that the donations of generous Americans were not going to needy veterans.

Cook said that all the MOPH board members who sat on the board of the Foundation had been kicked off with him, leaving control of the $32 million worth of donated funds solely to the Foundation, with no influence from the MOPH itself.

ABC News reported in November 2007 that the Foundation received an "F" rating from the charity watchdog group American Institute of Philanthropy (AIP) for their extremely high fundraising costs and relatively small percentage of donations that actually went to help wounded veterans and their families.

The Foundation hid millions of fundraising expenses, according to Daniel Borochoff, President of AIP by netting them from their contributions in 2007: The Foundation's reported fundraising expenses of $14.8 million for the fiscal year of 2006-2007 is actually $22.9 million when the fundraising costs of a "donate your vehicle" campaign in fiscal 2007 are added, according to Borochoff.

The Foundation could not immediately be reached for comment in response to Borochoff's allegation.

Borochoff says the scandal surrounding Esau and the Foundation points to a broader accountability problem for the non-profit field that allows for this type of alleged manipulation: "Charities can massage their numbers to appear better which makes it difficult for the donating public to know whether or not their money is actually reaching the cause they intended to help."

Congressman Henry Waxman, D-Calif, held a hearing on veterans charities shortly after the initial ABC News report last fall.

Esau told MOPH members at a meeting two weeks ago for the National Purple Heart Hall of Honor museum in New York that he had been wrongfully terminated and asked the board to consider him to serve as their president for another year, according to Cook who was at the meeting.

Esau told ABC News that he would not comment on this story at this time because he is "negotiating [his] severance package."

Calls from ABC News to the Foundation requesting comment were not returned.

Cook said the financial scandal has driven a wedge between the Foundation and the MOPH and has affected MOPH at the local level, seriously hindering their fundraising.

"The MOPH local chapters have unfairly become the objects of ridicule and scorn, because the organization has been branded as one that doesn't help veterans," said Cook, who said that local chapters of the MOPH provide important services to wounded veterans and their families.

Click Here for the Investigative Homepage.

ABC News Live

ABC News Live

24/7 coverage of breaking news and live events