Can The Red Cross Survive Another Bad Report?

Hector Retamal/AFP/Getty Images

Hector Retamal/AFP/Getty Images

Every year brings its share of natural disasters, and we’ve witnessed some cataclysmic events over the past decade. Sometimes they hit close to home, as with Hurricane Katrina, and other times half a world away, like with the Nepal earthquake, or the tsunamis in Japan and southeast Asia. One that was particularly devastating, and close to the mainland U.S., was the 2010 earthquake that struck the Caribbean nation of Haiti, killing more than 160,000, and leaving 1.5 million homeless.

Many Americans — a majority of them, in fact — eager to help but constrained due to time and resources, offered up assistance in the form of contributions to non-profits and charities that headed to Haiti to help. One of those groups is a familiar name, The American Red Cross, which reportedly took in half a billion dollars in donations to help the affected Haitians.

Now that some time has passed, an audit of just how much help the Red Cross was actually able to give has shown that the organization managed to build six — yes, six — houses with $500 million. The revelations come as a result of a ProPublica investigation, working with NPR, that found through various channels of mismanagement and failed projects, the Red Cross effectively squandered away most of the money Americans had donated, and as a result, didn’t accomplish much in the wake of the earthquake.

The NPR audio story can be heard here:

The Red Cross defended itself, as expected, with a press release of its own.

“Our objective in all of our humanitarian work is to alleviate suffering of those in need — particularly those most vulnerable. After the 2010 earthquake in Haiti, the needs were great and like other aid groups, we faced difficult choices about where to best spend money as quickly and effectively as possible,” wrote David Meltzer, Chief International Officer for the American Red Cross.

There’s clearly a lot more to come in the wake of the investigation, but the one thing that is likely to happen as a result of these revelations is that the Red Cross’ mismanagement of donations will erode the underlying faith people have in these groups to accomplish their goals.

It’s already happening, as giving to the Red Cross has seen a dramatic drop even as other large-scale events have unfolded, like the Ebola crisis in western Africa. That is due to some other factors, however, including the perception the Red Cross has as being a more natural disaster-oriented organization.

“People associate the American Red Cross with natural disasters, in responding to earthquakes and fires and tornados,” Jana Sweeny, director of international communications for the American Red Cross, told Quartz. “When those things happen, people immediately turn to us with the assumption that we’ll be doing something to assist, and they trust us with their donations to make what they want to see happen, happen.”

The problem is that when people donate to groups like The American Red Cross, they want their money going directly to helping those in need — not to paying administrative staff, buying office supplies, or other things. While those costs are necessary for the organization to stay alive, it’s important that The Red Cross find a way to communicate the fact to people that funding gets shifted around for the long-term good of the organization.

But this is just another example of a non-profit organization, or charity, that is losing the public’s trust. It was just discovered recently that the Susan G. Komen Foundation, a non-profit dedicated to spreading awareness about breast cancer, was found to be recycling almost all the donations they receive by spending it on exorbitant salaries for the foundation’s leadership team, among other things.

In the fallout of the Komen Foundation’s financial reports showing that CEO Nancy Brinker was earning $684,000, NBC News reported that donations dropped considerably, and several of the Foundation’s signature races had to be cancelled.

This is the dangerous line these organizations straddle. They need donations to operate, and continue to strike at their root causes, but people are fragile when it comes to their money, and don’t like to think they’re simply giving money away to an overpaid CEO. That’s not to say that the Red Cross and Komen Foundation don’t do good things — they do. But damning reports of misallocated funds and inflated salaries are only going to turn public perception against these non-profits.

Editor’s note: A dollar figure on the first page was changed from $500,000 to $500 million.

Follow Sam on Twitter @Sliceofginger

More from Business Cheat Sheet:

More Articles About: