The American Red Cross came under a barrage of criticism last week regarding its stewardship of resources used in connection with its Hurricane Katrina relief operations. New York Times reporter Stephanie Strom fronted the Friday, March 24, 2006 edition with an article entitled Red Cross Sifting Internal Charges Over Katrina Relief. The accusations in question include “improper diversion of relief supplies, failure to follow required Red Cross procedures in tracking and distributing supplies, and use of felons as volunteers in the disaster area in violation of Red Cross rules.” Strom reported that interviews with over a dozen volunteers suggested that the Red Cross had “virtually no...
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cost controls, little oversight of its inventory and no mechanism for basic background checks on volunteers given substantial responsibility.”
Not surprisingly, Senator Charles Grassley, Chairman of the Senate Finance Committee, was quick to weigh in, issuing a press release the same day Strom’s article appeared. Grassley said:
The allegations from Red Cross volunteers are wide-ranging and include possible criminal misconduct. I’m worried that it appears the Red Cross didn’t take these concerns seriously until I drew attention to them. The Red Cross needs to change its mindset so it addresses volunteers’ concerns swiftly and appropriately, regardless of whether a Senate committee chairman is asking questions.
Weekend articles in the Washington Posts report that Louisiana Attorney General Charles Foti has begun his own investigation of the Red Cross. See, Associated Press, LA Investigates Red Cross Complaints, March 26, 2006, and J. Salmon, Red Cross, Humane Society Under Investigation, March 26, 2006.
We agree that the allegations are very troubling, that whistleblowers need to be taken seriously, and that the Red Cross should address these issues. At the same time, we believe that there are not sufficient facts to make judgments regarding the Red Cross’ stewardship of the just under $2 billion in Hurricane Katrina contributions that it received. Nothing we have seen goes beyond anecdotal evidence; albeit some very serious anecdotal evidence. There needs to be a full investigation.
Once again, we are somewhat sympathetic to the dilemma policy makers such as Senator Grassley place the Red Cross in. On the one hand, these folks demand tight financial controls over the Red Cross, which is a perfectly appropriate demand. However, they also demand an instantaneous response from the Red Cross when disaster strikes. Recall that following the Hurricane Katrina, the Red Cross came under criticism for imposing too much red tape on the relief process. For example, the New York Times’ Strom reported:
Some victims have complained that the Red Cross is reluctant to dispense cash; the organization maintains that tight control of cash helps foster accountability.
See Storm and Crisis; Charities; As Its Coffers Swell, Red Cross is Criticized on Gulf Coast Response, Sept. 20, 2005. Several days later, Strom reported:
Bill Reynolds, a spokesman for the Red Cross's Metropolitan Atlanta Chapter, said the dispute with the county was over money.
''During the course of those negotiations, we were asked for some financial encumbrances that we considered an inappropriate use of the donated dollar,'' Mr. Reynolds said, declining to be more specific.
See Storm and Crisis; Charities; Citing Problems, Georgia County Asks Red Cross an Aid Center for Evacuees, Sept. 24, 2005
As regular readers of this column know, we are strong advocates of financial controls. However, that advocacy must be tempered with some realism. It is one thing to demand tight controls over any organization with a fixed location, 9 to 5 workdays, and regular employees. It is quite another to demand the same level of control of an organization that must respond instantaneously to a disaster that does not have a predetermined geographic location, and to do so with mostly volunteers. So we will await the results of the internal investigation before reaching a final judgment on the Red Cross and its controls.
Where we can fault the Red Cross is with its inadequate response to the allegations. Crisis management demands that an organization get out in front of the story. Spokespersons for the Red Cross have been responding to newspaper inquiries, but in a reactive fashion that puts the Red Cross on the defensive. Take a look at the Red Cross’ Web site. The home page contains lots of articles, but not one of those articles addresses what people have been reading in their newspapers or seeing on television (last Friday night, ABC News ran with the story; this morning CNN). It is necessary to follow the press release link. And even then, there is only one short press release which adds nothing to the story. The Red Cross writes:
WASHINGTON, Friday, March 24, 2006 — The American Red Cross is already investigating allegations of mismanagement and other possible wrongdoing by some Red Cross volunteers, which were referenced in a New York Times article, entitled “Red Cross Sifting Internal Charges over Katrina Aid,” published March 24, 2006.
“The first and foremost obligation of the Red Cross is to the American public, which turns to us in times of need every day and entrusts us with contributions of time, blood and money,” said Chuck Connor, senior vice president of communication and marketing for the American Red Cross.
For more than three years, the Red Cross has maintained a toll-free and confidential hotline to collect reports of any such allegations. Reports of fraud, waste and misappropriation are taken seriously and every allegation is investigated. The Red Cross Office of Investigations, Compliance and Ethics leads these investigative efforts for the organization.
“The Red Cross is aggressively investigating certain recent allegations that have been brought to us by concerned volunteers,” said Connor. “We take seriously our obligation to deter and detect fraud or abuse, and are assisting in several prosecutions now in progress.”
Any evidence of criminal activity is routinely turned over to law enforcement. The Red Cross works with every level of law enforcement—from local police departments to the FBI—to aggressively prosecute offenders. To date, our efforts have recovered more than $2 million in illegally received assistance.
While departures from standard procedures after a huge catastrophe like Hurricane Katrina are inevitable and often necessary to provide faster aid to people who need it, any conduct that violates either the law or Red Cross Code of Conduct is not tolerated.
For more information, please contact Carrie Martin at 202-303-4459 or martinc@usa.redcross.org.
Once again, we can be somewhat sympathetic. Any organization engaged in an internal investigation that could involve criminal activity must proceed with care. It must make sure that the investigation is conducted fairly, that all involved receive due process, and that statements by the organization don’t open it up to claims of defamation. At the same time, the Red Cross could have put more facts out, placing the reported problems in some context. Moreover, instead of responding to reports in the press sourced to Red Cross volunteers, the Red Cross could have led the disclosure process, getting the bad news out in a much more controlled fashion. That news was going to come out so why not put it out on the organization's terms? Recall that several weeks ago, the international relief organization, Oxfam, voluntarily disclosed that an audit may have uncovered some missing funds in its tsunamis relief operations in Indonesia. See Strom, Charity Delays Tsunami Work as Audit Finds Irregularities, NY Times, Mar. 15, 2006.
To date, we have only read about internal investigations. This is a case where the Red Cross should probably retain an independent accounting firm to conduct the investigation. That would give the ultimate findings a lot more credibility. In selecting the firm, the Red Cross should use a firm that does not currently provide services to the Red Cross in an effort to assure independence. Whatever the specific steps, the Red Cross must gain some control over this story.
LESSON: When confronted with bad news, nonprofits must lead the disclosure. They should also recognize that the more facts that they can put forth, the better. The organization should look like it is on top of the problem. How an organization manages the press will greatly influence how the public views the organization. The public is likely to remember the stories about poor inventory controls. Had the Red Cross contacted the New York Times before its volunteers did and reported that only X of XXXXXXX warehouses experienced problems (assuming that is true), the public might have come away with a completely different view of the Red Cross, particularly if the Red Cross had disclosed the steps it was taking to make sure the problem would not reoccur. As it is, the public is now left with what may be a lasting impression that there was widespread fraud and abuse involving the dollars the public contributed. The internal investigation may exonerate the Red Cross, but the damage may be beyond repair by then.
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