Publications

Time to Account
By Henry Goldstein
September 2005

As of September 19th, almost $700 million had been donated to the American Red Cross in the aftermath of Hurricane Katrina, about 80% of the money donated to all charities. In my opinion, the Red Cross should tell the American people in detail exactly how that's being spent..

How much is allocated for relief, how much for rebuilding, how much to be held in reserve? The Red Cross web site is complete in almost every detail - but not that one. Spokesperson Kara Bunte reports that $388.7 million has been spent on “financial assistance for over 236,000 clients, covering food, shelter, counseling, and getting volunteers to the affected areas.” She also said that “it takes time to get accurate numbers out. Right now, our number one priority is to provide aid.”

Much to its credit, the Red Cross set up a six-month accounting of the funds given for Tsunami: the web site reports that of $556 million it booked, $77 million is in reserve for “future needs.” Is that another way of saying more was given than could be spent? The Red Cross is a first responder, focusing on relief.

Holding 14% of the donations in reserve does not strike me as unreasonable. But given the epic proportions of the Katrina hurricane, the needs of over a million displaced people, and the fact that the Red Cross may be getting more money than it can possibly spend on disaster relief, it is just as reasonable to expect an immediate and ongoing public accounting of Katrina funds. That is essential for three reasons:

• The Red Cross has been doing an outstanding job under horrific conditions. The American people know that, and have entrusted it with over $668 million so far - a record amount of money in a record amount of time. Nothing like this has occurred before; it took many more weeks for 9-11 to reach that level, and Tsunami donations were $100 million less. The total given just to the Red Cross for Katrina could exceed a billion dollars if money keeps coming in at this rate. And that may or may not include gifts-in kind. Right now, there is $280 million available to be spent. With the immediate relief operation beginning to tail off, will more money be raised than can be well spent just on Katrina relief operations? Also, I am especially puzzled by the relationship between the Red Cross's role and the federal government's. The federal dollar commitment to relief already dwarfs the Red Cross number by ten-fold and is mounting. Where does the Red Cross spending end and the government's step in - or is there duplication of effort and services? For sure, the Red Cross had volunteers and staff on the ground well before FEMA woke up. Is FEMA now giving money to the Red Cross? If so, where is that accounted for? Bottom line: donors should know that the money is truly needed or that it could now do more good directed elsewhere - perhaps to the long term rebuilding that will cost far more than anything spent on relief, or perhaps to the ongoing day-in-day-out needs of all the nonprofit organizations that rely on donor support.
• Everyone knows there have been problems with the Red Cross in the past. They first came to wide exposure in the Oakland bridge collapse in 1989, when it turned out that funds given in the name of the Oakland relief effort went into a general fund, to be used for any disaster. Something similar happened again during the 9-11 fund raising, so profoundly undermining public confidence that there was a change of command at the top. This is the biggest crisis and opportunity the new CEO, Adm. Marsha Evans, has faced. If I were she, I'd sure want to be ahead of the curve. It seems to me the Red Cross is making a good faith effort to be open but it may still be a bit short of setting the example this unique situation demands.
• In the past few years, the world has learned that charities may be noble in purpose but all too human in practice: as a result, demands for transparency, accountability and fiduciary awareness on the part of trustees are ascendant. The Sarbanes-Oxley law toughened rules and regulations affecting public corporations. Because corporate executives often sit as trustees of nonprofit boards, they have helped bring the standards of Sarbanes-Oxley into the charity boardroom. Moreover, the threat of copy-cat legislation is now on the docket in several states, most notably New York and California where charity regulation is well established. These vigorous attempts to enact new state and regulations, as well as aggressive attention in congress may or may not go anywhere. But the Red Cross is a very big target. Put another way, the stewardship of this money presents both a unique opportunity - if it is managed well - and a profound peril to the rest of the charitable sector if it isn't.