“One of the reasons they don’t want to answer
the questions is it’s very embarrassing,” says Sen. Charles Grassley,
who just finished a yearlong investigation of the Red Cross.
By: Justin Elliott and Laura Sullivan
WASHINGTON (Propublica)
- 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.
More of Our Red Cross Reporting
The Red Cross’ Secret Disaster
After
Superstorm Sandy, Americans opened their wallets to the Red Cross. They
trusted the charity and believed it was up to the job. They were wrong.
Read the story.
How the Red Cross Raised Half a Billion Dollars for Haiti and Built Six Homes
The Corporate Takeover of the Red Cross
Red
Cross CEO Gail McGovern, who was hired to revitalize the charity, has
cut hundreds of chapters and thousands of employees. Read the story.
See the full series.
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.”
Sen. Charles Grassley. (Andrew Harrer/Bloomberg via Getty Images)
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.”