By Jesse Eisinger and Justin Elliott,
ProPublica, and Laura Sullivan, NPR
This
story was co-produced with NPR.
The American Red Cross regularly touts how responsible it is with donors' money. "We're very proud of the fact that 91 cents of every dollar that's donated goes to our services," Red Cross CEO Gail McGovern said in a speech in Baltimore last year. "That's world class, obviously."
McGovern
has often repeated that
figure, which has also appeared on the charity's website. "I'm really
proud" that overhead expenses are so low, she told a
Cleveland audience in June.
The
problem with that number: It isn't true.
After inquiries by ProPublica and NPR, the Red Cross removed the statement from itswebsite. The Red Cross said the claim was not "as clear as it could have been, and we are clarifying the language."
The
Red Cross declined repeated requests to say the actual percentage of donor
dollars going to humanitarian services.
But
the charity's own financial statements show that
overhead expenses are significantly more than what McGovern and other Red Cross officials have
claimed.
In
recent years, the Red Cross' fundraising expenses alone have been as high as 26
cents of every donated dollar, nearly three times the nine cents in overhead
claimed by McGovern. In the past five years, fundraising expenses have averaged
17 cents per donated dollar.
But
even that understates matters. Once donated dollars are in Red Cross hands, the
charity spends additional money on "management and general" expenses,
which includes things like back office accounting. That means the portion of
donated dollars going to overhead is even higher.
Just
how high is impossible to know because the Red Cross doesn't break down its
spending on overhead and declined ProPublica and NPR's request to do so.
The
difference between the real number and the one the Red Cross has been repeating
"would be very stark," says Daniel Borochoff of the watchdog
group CharityWatch.
"They don't want to be embarrassed."
Charities
are closely scrutinized for how much they spend on overhead rather than
programs that serve the public. Studies show that
donors prefer to give money to organizations that spend more of their money on
services. While there is a debate about
the usefulness of overhead spending as a measure of performance, charities
regularly celebrate having low figures.
The
17 percent the Red Cross has spent on average for fundraising expenses is below
the ceilings set by nonprofit watchdogs. The Better Business Bureau Wise Giving
Alliance, for example, says that
fundraising expenses should not exceed 35 percent of related contributions.
McGovern,
a former Harvard Business School marketing professor, has faced criticismwithin
the Red Cross for a focus on branding over delivery of services. ProPublica and
NPR recently reported that
Red Cross officials on the ground after Superstorm Sandy saw disaster relief
resources diverted for public relations purposes. The charity has also been
facing deficits and layoffs.
As a result, McGovern has been pushing to increase the Red Cross' annual
fundraising.
The
incorrect 91-cent figure has been used by McGovern in at least four speeches
andwritten statements since
last year, and other Red Cross officials have used it repeatedlyto
potential donors around the country.
After
being contacted by ProPublica and NPR, the charity changed the wording on its
website to another formulation it frequently uses: that 91 cents of every
dollar the charity "spends" goes to humanitarian services.
But
that too is misleading to donors.
That
is because of the unusual structure of the Red Cross. Most of what the Red
Cross does is take donated blood and sell it to health care providers. Of the
more than $3 billion that the Red Cross spent last year, two-thirds was spent
not on disaster relief but rather on the group's blood business.
The
charity spent $2.2 billion on the blood business, most of which went to
employee wages and benefits. By contrast, the charity spent $467 million, or 14
percent of total spending, on its famous domestic disaster response programs,
including the expensive Sandy relief effort.
Nonprofit
experts say that in combining the blood business spending with disaster relief
spending, the Red Cross is painting a confusing picture of its operations for
donors.
"It
probably has the effect of making the Red Cross look better than it actually
is," says Jack Siegel, a lawyer who runs the consulting firm Charity
Governance.
If
the Red Cross split its blood business from the rest of the charity,
"their ratios would look worse. So they don't want to do that," says
Borochoff of CharityWatch.
The
Red Cross manages to hit its 91 cents target with remarkable consistency. Year
in and year out, overhead and fundraising costs amount to about nine cents of
every dollar spent. That also raises the eyebrows of experts.
"The
simple-minded question is: how is it possible with different donations,
changing revenues from blood business and different disasters, that every
single year it is an average of 91 cents of every dollar spent?" asks Rob
Reich, a nonprofit expert from Stanford University. "It seems to fly in
the face at the very least of common sense."
Other
figures the Red Cross frequently cites also appear to be unreliable.
The
Red Cross says that it served 17.5 million meals and snacks during the Sandy
relief effort. It has used that number in
responses to inquiries from New York State Attorney General Eric Schneiderman.
But
multiple current and former staffers and volunteers raise questions about the accuracy
of those numbers.
During
major disasters, the Red Cross often counts meals that are prepared as meals
served, according to 11 people ProPublica spoke with. (Most spoke to ProPublica
on the condition of anonymity because they still worked for the Red Cross or
feared alienating the charity.)
That difference is important because large
volumes of meals that are prepared are ultimately not served, but rather thrown
out because of poor planning and the chaotic nature of disasters.
One
former staffer, from a chapter in Massachusetts says, "The idea that the
numbers are based on people getting the meals is ludicrous," adding that
"there's no mechanism to report how much is actually served."
The
Red Cross told ProPublica and NPR that it stands by its public "meals
served" numbers and says it has a policy in place to count them. It
provided us with forms volunteers are required to fill out to track meals.
"If
we become aware of anyone who failed to follow written Red Cross policies and
procedures, we retrain them," the charity said.
But
Richard Rieckenberg, a top Red Cross official during the relief effort, says,
"The issue is whether or not they were carrying out this policy during
Sandy."
"Sandy
was different," he says. "I was only asked how many meals were prepared
each day and so I began to think that [headquarters was] not interested in the
actual meal count." He says that in the early days of Sandy, the wasted
meals amounted to 30 percent.
Others
were even more blunt. "They just want to know how many meals are made.
Whatever they make is the number that gets reported," says an official
involved in the Sandy effort to feed, house and shelter people. This official
said this had been "business normal" for years.
Red
Cross volunteers and staffers say over-counting meals served is commonplace
partly because disaster responders are less experienced than in the past.
An
internal Red Cross "Lessons Learned" presentation previously reported
on by ProPublica and NPR notes that the charity's efforts after Sandy and Isaac
were hindered by
"lack of trained managers and leaders."
The
presentation also says that food waste was " excessive"
because of "kitchen manager inexperience," "political
pressures," and "poor communication."
One
volunteer during the Sandy response says he was "instructed to count every
snack set out as served, and we just opened a box, and that was how many were
served that day."
"The
problem is that it is so hard to count waste. They probably never got an
accurate count so they went with what they ordered," says Sharon Hawa, a
former Red Cross staffer who worked on feeding Sandy victims.
Hawa
says that she still loves the Red Cross, which she described as indispensable.
"Whether it's 17 million or 17,000 [meals served], I think as a country we
should be proud that there's an organization that can provide that level of
care."
Read
about how the Red Cross botched key elements of its mission after Superstorm
Sandy and Hurricane Isaac in PR Over People:
The Red Cross' Secret Disaster.
