Jun 17, 2016
A blistering Senate report on the American Red Cross raises fundamental questions about the integrity of the country's most storied charity and its stewardship of donors' dollars.
The report, which was released today by Sen. Charles Grassley, R-Iowa, and contains nearly 300 pages of supporting documents, found:
- After the 2010 Haiti earthquake, the Red Cross spent tens of millions of dollars more than it has previously acknowledged on internal expenses. The Red Cross told Grassley that the money was largely spent on oversight to make sure the Haiti aid was used properly. But Grassley's office found that the charity "is unable to provide any financial evidence that oversight activities in fact occurred."
- Red Cross CEO Gail McGovern made false statements to Grassley's office about whether the charity cooperated with congressional investigators.
- McGovern and her subordinates have kept the charity's own internal investigations and ethics unit "severely undermanned and underfunded." The charity is "reluctant to support the very unit that is designed to police wrongdoing within the organization."
There are "substantial and fundamental concerns about (the Red Cross) as an organization," the report concludes.
In an interview about the report, Grassley said that even after a year of back-and-forth with the Red Cross, "we did not get satisfactory answers. It was like pulling teeth."
Grassley launched his investigation following stories by ProPublica and NPR on Red Cross failures in providing disaster relief, including after the Haiti earthquake. The group raised nearly half a billion dollars after the disaster, more than any other nonprofit. But our reporting found that, for example, an ambitious plan to build housing resulted in just six permanent homes.
Red Cross officials, including McGovern, have repeatedly told the public that the charity retains 9 percent of donations to cover management and administrative costs. But Grassley found that a full 25 percent of donations -- or around $125 million -- were spent on fundraising and management, a contingency fund, and a vague, catchall category the Red Cross calls "program costs."
On top of that 25 percent, the Red Cross sent the bulk of the donated money to other nonprofits to do the work on the ground. Those other nonprofits then took their own cuts for overhead costs -- as much as 11 percent.
Over a year of written exchanges with Grassley's staff, the Red Cross repeatedly revised its figures for the same projects.
"The most important thing (from the report) is an unwillingness to level with the people about exactly where the money went," Grassley said in the interview. "There's too many questions in regard to how the money was spent in Haiti that it gives me cause to wonder about money being donated for other national disasters."
"One of the reasons they don't want to answer the questions is it's very embarrassing," Grassley added.
In a statement, the Red Cross said that while it has not yet seen the senator's report, the charity and McGovern have been transparent, and donors' money was properly spent. The statement says the costs of the projects are "entirely justifiable given the size and complexity of the Haiti program, the scale of the destruction and the challenging and sometimes dangerous conditions of working in Haiti."
The Red Cross was created by congressional charter more than a century ago, and receives a range of special benefits from the government.
Here are more details from the report:
The Red Cross wasn't able to detail how tens of millions of dollars were spent
On a page recently added to its website, the Red Cross says the so-called program costs for Haiti -- roughly $70 million -- went to "monitoring the use of donations, informing donors about how their money has been spent, paying skilled staff members to carry out the work, renting secure office space, and ensuring that dollars are leveraged as far as possible."
But pressed by Grassley's investigators, the Red Cross could not give an accounting of the oversight it says it did with the money. After repeated requests by Grassley's investigators over the course of months, the Red Cross finally last month produced a document with a narrative description of oversight but no financial details.
In general, the Red Cross itself doesn't know how much money it spent on each project in Haiti because of a "complex, yet inaccurate" accounting system, the report found.
The report echoes confidential findings made by consultants hired by the Red Cross, which were previously reported by ProPublica and NPR. An internal evaluation of one of the group's water and sanitation projects found there was "no correct process for monitoring project spending." Another assessment found that the group's figures on how many people helped in a hygiene project were "fairly meaningless."
In response to Grassley's investigation, the Red Cross for the first time posted online a list of specific projects in Haiti. But the accounting on the list, along with other materials provided to Grassley, raises more questions than it answers.
Documents provided by the Red Cross to Grassley show that the charity at times spent large sums of money on management even when it appeared to be simply writing a check to other organizations that were doing actual projects.
In 2010, the Red Cross gave $4.3 million to its sister organization, the International Federation of the Red Cross (IFRC) for disaster preparedness work. On top of the $4.3 million, according to budget figures the charity provided Grassley, the American Red Cross spent another $2 million on its own -- to "manage" granting money to another organization.
The IFRC then took out its own overhead and administrative costs before using the money to help Haitians.
When asked why the Red Cross needed $2 million dollars to give money to its sister organization, the group said in its statement the costs were "incurred to ensure accountability, monitoring and evaluation of work performed and ensure our partners meet their contractual requirements."
The Red Cross added that "Implementing a tracking system by project would take a lot of time and would be a waste of donor dollars that could be better spent on delivering services."
CEO Gail McGovern and her aides tried to stymie congressional oversight -- and then made false statements about it
In 2014, Rep. Bennie Thompson, D-Miss., of the House Homeland Security Committee asked the Government Accountability Office to examine the Red Cross' disaster services, in part because of problems in its response to Superstorm Sandy in 2012.
McGovern recently told Grassley's investigators that the Red Cross "gave [the GAO] everything that they asked for."
That statement was untrue, according to the report: "This is contrary to the documentary evidence of communications between GAO and [the Red Cross]."
The Red Cross, the committee found, "failed to provide to GAO a substantial volume of requested material."
The report lists eight examples of things the Red Cross declined to provide to government investigators. They range from descriptions of the charity's internal oversight processes to interviews with chapter officials involved in the response to Superstorm Sandy.
In its statement to ProPublica and NPR, the group doubled-down on McGovern's earlier assertion: "At no point did the Red Cross refuse to provide requested information."
McGovern has publicly portrayed the Red Cross as a beacon of openness. "We made a commitment that we want to lead the effort in transparency," she said at the National Press Club in 2011. But Grassley's report notes that, as ProPublica revealed last year, McGovern had tried outright to kill the GAO investigation.
Grassley's report found that while the Red Cross couldn't kill the investigation, it "was able to limit the scope of the GAO's inquiry."
In meetings and email correspondence over the course of several months, Red Cross General Counsel David Meltzer questioned GAO's legal authority to look at the Red Cross.
The Red Cross argued that investigators' "requests for internal decision-making, internal oversight, and internal funding allocation are outside of GAO's authority," according to a GAO's account included in Grassley's report.
The negotiations reached an almost absurd denouement when the American Red Cross -- or ARC -- presented a hypothetical about why handing out blankets would not be subject to federal oversight.
As Grassley's report puts it:
In a September 26, 2014 follow up phone call with GAO, ARC elaborated on its position and provided an example to provide additional clarity: if ARC is in the coordination tent with FEMA and a need for blankets is identified, and ARC has blankets to dispense, the implementation of the delivery of the blankets is outside the scope of federal involvement, but the conversation in the tent is within the scope of federal involvement. At the end of the September 26, 2014, conversation, GAO notes of that conversation state that ARC did not want "to open the door to a long, endless GAO review," particularly on internal oversight.
As Grassley's report notes, the Red Cross' congressional charter explicitly gives the GAO the authority to scrutinize the group.
The Red Cross undercut its own ethics unit
The Red Cross has about 20,000 employees. But its ethics office, which investigates waste, fraud, and abuse, is composed of just three people, according to the Grassley report. That's down from roughly 65 staffers a decade ago.
One of the three remaining employees, the "compliance coordinator," does intake of phone calls and does not do investigations. Another, the chief investigator, is based in New York, away from Red Cross headquarters in Washington.
Requests by the head of the unit, Teala Brewer, for more staff have gone unfulfilled by the general counsel, Meltzer, according to the report.
The report concludes that the Office of Investigations, Compliance, and Ethics was left so under-resourced that it is "unable to perform its primary function; namely, to perform investigations, ensure compliance, and maintain ethical standards."
Update, Jun. 17, 2016: The Red Cross has released a full response to Grassley's report.
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