Senator Finds 3 Main Issues With Red Cross' Work in Haiti

An earthquake fractured many lives in Haiti in 2010, with 1.5 million losing their homes and 160,000 losing their lives. To help Haitians pick up the pieces, many donated to the American Red Cross (ARC), which received about $487.6 million in donations. Those funds went to the Haiti Assistance Project (HAP), an initiative that projected to build 700 homes in the nation's poor neighborhood of Campeche, according to ProPublica, which, along with NPR, reported that the ARC only had built six permanent homes in the entire country.

While ProPublica acknowledged other aid organizations struggled after Haiti, the site said ARC's failings were its own fault and "part of a larger pattern in which the organization has botched delivery of aid after disasters, such as Superstorm Sandy." One former ARC official in Haiti told ProPublica the organization favored projects that provided good publicity over those that would help the most people while another indicated the nonprofit saw the Haiti disaster as a fundraising opportunity.

The publications' reporting prompted U.S. Sen. Charles Grassley to investigate the nonprofit, starting with writing ARC about the negative press in July 2015—about four months after he previously had met with ARC CEO Gail McGovern.

"She assured me that ARC had made substantial steps forward in improving efficiencies, and reducing waste, fraud and abuse within the organization," Grassley said in his report. "However, in light of the news reports, it seemed as though ARC had failed to live up to its responsibility to be a standard-bearer of transparency, efficiency and good will among the charitable community."

Grassley released his final report on ARC's relief efforts in Haiti earlier this month, with claims that the ARC tried to terminate a Government Accountability Office (GAO) audit; failed to track donor money and properly perform oversight for HAP; and has an inefficient internal governance structure.

The ARC defended its transparency and spending in a press release it put out the day after Grassley released his report.

"The American Red Cross strongly disagrees with the findings in Chairman Charles Grassley’s memo released [June 15]," the organization said in the release. "We have accounted for every penny spent in Haiti and have posted on our website a detailed financial breakdown of how those donor dollars were spent. The publication of this breakdown represents a new level of transparency in the nonprofit sector."

Here are the senator's findings and the ARC's reaction to each point:

1. ARC Tried to Shut Down the Federal Audit

The GAO audit set to dig into the ARC's disaster relief efforts and the nonprofit's oversight of those activities. Since the federal government chartered the ARC in 1900, GAO said it had a right to review its disaster relief activities, based on section 11 of the ARC's congressional charter, which authorized the agency "to review the corporation’s involvement in any federal program or activity the government carries out under law."

"Based upon a plain reading of section 11, GAO oversight of ARC would reasonably extend to the internal process and procedure related to its involvement in federal disaster response," Grassley said in his report. "Further, Congress certainly has an obligation to understand any shortcomings within ARC that could interfere with its mission to assist during disasters."

GAO staff notes of a phone conversation with the ARC indicated that the nonprofit did not want "to open the door to a long, endless GAO review" in regards to internal oversight. The group's resistance to provide GAO-requested information forced GAO to change its scope, ultimately removing interval oversight from its purview, according to the senator.

The ARC continues to be critical of its federal oversight by noting, "we receive more oversight from Congress than any other nonprofit we know," and believes the authority to audit the nonprofit does not exist when federal funds are not involved or a collaboration with the Federal Emergency Management Agency does not exist. McGovern and the ARC, however, often claimed the organization turned over all sought-after information.

"Initially, there were several issues the GAO began to explore but ultimately did not pursue after the Red Cross raised legitimate issues about its scope as going beyond that authorized by Congress," the ARC said in its release. "But at no point did the Red Cross refuse to provide requested information."

2. ARC Doesn't Track Exact Costs of Each Project

Of the approximately $487.6 million in donations, the ARC told investigators it retained about $69.6 million for HAP program costs, such as salaries, contract services and travel expenses; an additional $43.9 million for HAP-related management, general and fundraising expenses; and another $10.4 million in "contingency" costs to cover any potential liabilities throughout HAP's implementation. Those costs equaled $123.9 million, or 25.4 percent of the total donations. The ARC then distributed the remaining funds—about $363.8 million—to 50 partner organizations, which each took as much as 11 percent for overhead costs. Aside from that breakdown, the ARC did not have detailed accounting of how the money was spent—only estimates of how much went to seven sectors of HAP. Grassley described its accounting method as "complex," and sought a breakdown and proof of the organization's oversight of HAP.

“The most important thing [from the report] is an unwillingness to level with the people about exactly where the money went,” Grassley told ProPublica after releasing his report. “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.

The ARC cited its oversight costs are not overhead, but legitimate expenses to implement HAP projects, with public annual audits available to back up those claims. The organization also pointed out its accounting practices follow Financial Accounting Standards Board's guidelines.

"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 in the form of new hospitals, repaired homes, clean water, vaccinations, job training, improved sanitation and other life-altering assistance to millions of Haitians—and spent our donor dollars wisely and well," the ARC said. "Our statement that 91 cents of every dollar donated went to our programs and services in Haiti is absolutely true."

3. ARC Investigations, Compliance and Ethics Office Doesn't Have Independence

The senator noted the ARC has reduced its staff in the Investigations, Compliance and Ethics (ICE) Office from 65 workers after Hurricane Katrina to three current employees, with only two of those being investigators. One of those is the chief investigator, who is based in New York, while the other works in Washington, D.C. Grassley called the unit "severely undermanned and underfunded, and therefore unable to perform its primary function; namely, to perform investigations, ensure compliance and maintain ethical standards." However, it often hires outside firms to conduct this work. The senator's office also found the chief of ICE reporting to general counsel problematic, among other issues within the unit.

"As an investigative unit, it is troubling that even after repeated requests of ICE leadership to supply more investigators, ARC leadership has failed to do so. A more robust ICE unit would serve the interested of ARC and its donors."

The ARC maintains it provides the public, employees and volunteers to report concerns via its website; two 24-hour, confidential hotlines; and an ombudsman's office that Grassley helped to create in 2007.

"The number of whistleblower complaints have been declining over recent years, and we believe this is because we have improved fraud detection and other compliance measures," the nonprofit said in the release. "However, to ensure our investigations unit is adequately resourced, we are combining ICE and the ombudsman’s office to pool those resources so we can more effectively respond to whistleblower and other concerns in a timely manner."