Criticism of the American Red Cross’ management of 2010 Haitian earthquake response continues to fall on the organization. A blistering 309-page report by U.S. Sen. Chuck Grassley, R-Iowa, concluded that there “are substantial and fundamental concerns about [American Red Cross] as an organization.” Much of the criticism centers on the fact that more than one-quarter of all money was spent on administrative costs and that the Red Cross struggled to account for how all of the money was spent.
“The Red Cross documented good works to help the Haitian people, but the accounting for how much it spent on each program in Haiti and the amount of money spent on management and administrative expenses were hard to come by,” Grassley said in a statement upon the release of the report. “When the information was forthcoming, it became clear that the Red Cross does not know how much each project in Haiti cost.”
The Red Cross said it cooperated with the Senate investigation. Grassley disagreed, telling NPR that “we did not get satisfactory answers – like pulling teeth, it was very difficult.” The report shows contradictory statements made by the Red Cross in its correspondences with Grassley and raises serious doubts about whether it can account for its own spending and that of its partner organizations.
According to Grassley’s report, $123.9 million out of the $487.6 million donated to the Red Cross for its Haiti response was spent on administration, fundraising and a contingency fund. That does not include the administrative money spent by partner organizations that received a portion of the remaining $363.7 million. For example, a $6.3 million contribution made by the Red Cross to the International Federation of Red Cross and Red Crescent Societies saw $4.3 million go to programs; the remaining $2 million went to administrative costs.
The Red Cross rebutted the claims saying that it can and does account for all of its spending. It pointed to a spreadsheet showing how much money was sent to partner organizations and the status of the individual projects. And called attention to the high rating from nonprofit watchdog Charity Navigator as evidence of its excellence when it comes to accountability and transparency.
“Chairman Grassley’s memo does not note a single finding of fraud or abuse in the Haiti Assistance Program,” according to a Red Cross statement in response to the Grassley report. “The story of Haiti is a very positive story that shows the American Red Cross and our partners have and continue to deliver close to half a billion dollars of humanitarian assistance. … Our statement that 91 cents of every dollar donated went to our programs and services in Haiti is absolutely true.”
Grassley does not agree. His report shows that only three people work in the Red Cross’ internal investigations unit, and they are not entirely independent. While the Red Cross provides its spending information, the report noted that the Red Cross “does not track costs on a project-by-project basis; instead it uses a complex, yet inaccurate, process to track its spending.” The Red Cross could neither tell Grassley the exact cost of projects nor show how money meant for project oversight was actually used.
The Grassley report is the result of a year-long investigation following the publication of a 2015 investigative report by ProPublica and NPR detailing money wasted by the Red Cross in Haiti. The two news organizations focused on the failure of the Red Cross to deliver on its goal of building housing for people displaced by the earthquake. It raised serious questions about how the Red Cross spent nearly $500 million in donations.
There is not strong evidence showing that money spent on administration and fundraising, or overhead costs, are tied to effectiveness of charities. The roughly 25 percent spent on overhead by the Red Cross in Haiti is well within the usual bounds of charitable work. But it is much higher than the 9 percent rate the Red Cross maintains.
Overhead spending has become a contentious point within the nonprofit industry. For years, organizations championed statistics showing that the majority of money donated went to help people. But in the past five years more people are arguing that overhead isn’t a good indicator for whether a program is good and that its a necessary part of any organization or business – you need to pay people salaries to do full-time work.
Charity watchdogs and raters banded together in 2013 to say that they would no longer consider overhead as a major way to evaluate charities. In the same year, charity fundraiser Dan Pallotta delivered a TED talk and published an open letter decrying what he called the “overhead myth.” A year later he and other nonprofit leaders created the Charity Defense Council with the objective of moving past the overhead conversation.
“Congress is investigating and the Red Cross – otherwise famous for its on-the-ground response to disasters – is playing defense. What a joke. Because the report’s conclusions are entirely false,” according to a Charity Defense Council email following the publication of the initial report on the Red Cross in Haiti. “The overhead in this case was perfectly reasonable, outsourcing and local partners included. Claims of over-the-top overhead are now – unfortunately – de rigueur when it comes to evaluating charities. They are also silly.”
While the overhead number catches early attention, it is the lack of accountability that has the Red Cross in trouble with Grassley.