Over the last several months, NPR and ProPublica have been investigating the Red Cross. The Red Cross is one of the most important disaster relief organizations in terms of size, services, reputation, and fund raising capacity, so the investigation’s findings are quite disturbing. I think the investigation is best summed up by the following statistic:
Here are 5 lessons we can learn from the information being revealed that will help us make better donations in the future.
1. Fundraising For Fundraising’s Sake
The Problem: NPR reports that when the Haiti earthquake hit, the Red Cross “out-raised other charities by hundreds of millions of dollars — and kept raising money well after it had enough for its emergency relief.”
The Takeaway: Disasters are excellent fundraising opportunities, and often the charity with the best marketing strategy gets the most money. Obviously, the ability to raise money has nothing to do with their ability to use that money. During our next disaster donation, we will look at how much the disaster will likely cost to address, how much money the organization can reasonably spend, and compare that to how much they’ve already raised or anticipate raising.
2. Incorrectly Represented Expenses
The Problem: Nonprofits are under a lot of public pressure to spend their money appropriately. That’s a good thing. Unfortunately, the public doesn’t often understand the complexity of charitable work, and as a result, they simplify this value of “spend our donations appropriately” to the question, “How much of my money goes to directly to helping people?” As a result, the metric many people in the public use to evaluate a charity revolves around how much is spent on the programs vs. how much is spent on salaries and marketing. You may have heard this referred to as “Overhead Ratios” or “Admin Ratios”. The Red Cross felt this pressure and communicated often and without the possibility of misinterpretation that “Ninety-one cents of every dollar that’s donated goes to our services.”
This is patently untrue and easily debunked. A quick review of their financial records shows that they spent 26% of their funds on fundraising.
Part of the problem is that the Red Cross is a complicated organization. Their primary focus is actually on selling blood. You donate it, but they sell it. They earn $2 billion a year through these services. In a future blog post, I’ll look at the economics and ethics behind the “we donate blood, they sell it model”, but right now, the important thing to know is that they are a large organization with many expensive programs and many significant streams of revenue. However, their financial documents do not break down income and expenses by each program. Outside parties cannot possibly identify what went where, which makes it very easy for the Red Cross to present the story that makes them looks the best.
The Takeaway 1: I’ve written about how the focus on admin ratios distracts us from what’s really important. A donation to a charity with 0 expenses and 100% going to the program can be 100% wasted, because the charity does not have the technology, training, etc. to direct their donations efficiently. We will continue to focus on the results the program is having while checking that their expenses appear reasonable considering the work they are doing.
The Takeaway 2: In addition, I will look to see how the charity is representing their expenses to the general public. If it appears to be misleading, I will note this in the new “Red Flags” section of our report (I’ll talk more about this new field at the end).
The Takeaway 3: I will continue reviewing the financial documents, but add a more thorough look at what their financial documents say they are doing compared to what their annual reports say they’re doing.
3. Excessive Focus on Public Image
The Problem: NPR’s investigation reveals internal documents and reports from former employees that empty food trucks were instructed to drive around neighborhoods to give the appearance of their presence and activity in a community, extra meals were prepared to boost reporting numbers even though that food would go to waste, delivery trucks were scheduled to appear as back drops at news conferences.
The Takeaway: The Red Cross clearly understands that we are a media and appearance driven society, and they took great care to project an image of accomplishment and professionalism. It is very hard to fight this kind of concerted facade, but I will redouble the “Reputation Research” portion of my report and include phrases such as “former employee” and “complaints”. If you have any suggestions for uncovering blog posts, blog comments, rants, and other material that might reveal problems within a charity, please let me know. I’d love to add them to my process.
4. Numbers That Don’t Make Sense
The Problem: Like many charities, the Red Cross is under pressure to produce results, but the Red Cross moved into very gray area when it claimed it provided homes for more than 130,000 Haitians. To be very clear, they built 6 homes. 6. Under pressure, the Red Cross admitted that the 130,000 figure is made up of “people who went to a seminar on how to fix their own homes, people who received temporary rental assistance, and thousands of people who received temporary shelters — which start to disintegrate after three to five years.”
The Takeaway: When looking at the numbers that charities report, we will take extra care to evaluate if the numbers make sense. Does the number include the results of smaller programs? We’ll ask more in-depth questions like, “What exactly is meant by ‘provided homes’. Similar to the reputation problem above, a concerted effort to misrepresent their results may be difficult to discover.
5. Not In Their Field Of Expertise
The Problem: Like I mentioned earlier, The Red Cross is one of the most important disaster relief organizations in the world. They provide emergency shelter and food to people who have been displaced by disasters. Yet, their plan with all the money they raised for Haiti involved building houses. Did they know what it took to get building permits and projects approved in Haiti? No. Did they hire locals to navigate land rights and community objections? No. In fact, their staffers (working in Haiti with allowances for housing, food and other expenses, home leave trips, R&R four times a year, and relocation expenses which could total up to a $140,0000 per year) repeatedly missed meetings, because without being able to speak the language, there was nothing they could do anyway. Could they adapt their plan to what they met on the ground? No. In some cases, they provided training on how to wash one’s hands with water and soap to people who had neither water nor soap.
As they began to run into trouble, they started to give money to other groups to do the hands-on work. But this is expensive. The Red Cross took an administrative cut to transfer the funds and set aside additional funds to monitor those projects. According to NPR, these costs ate up to a third of the donations that were supposed to go help Haitians.
The Takeaway: We want to donate to charities who are doing what they know how to do. If we want to accomplish something outside of their expertise, we are better off finding a different charity.
The Takeaway Takeaway.
What we do here at Change Gangs: Virtual Giving Circles is more important than ever. We donate because we care. Our hearts tell us to help, but we must care enough to use our heads. We may not be able to avoid bad donation, but our due diligence goes a long away to making sure that we make a difference with our hard earned donation dollars.
Our reports will include a new field called “Red Flags” where I will notate any discrepancies in their financial documents, misrepresentation of their work to the public, and articles reflecting problems with the charity’s ability to do their work in the field. The “Red Flags” may or may not be a problem. We can’t always know. But enough red flags or the right red flags may give us reason to pause and direct our donation to a different charity.
You Can, Too
If you’re not already a member of a Virtual Giving Circle, now is a great time to join. Find your donation team here.