Red Cross Under Scrutiny
The Red Cross is drawing some bad press following a joint report by ProPublica and NPR concerning the organization’s accounting. An oft-cited statistic – peddled by Red Cross CEO Gail McGovern, among other executives – that the group uses 91 cents of each dollar it raises to provide humanitarian services is false. In 2013, overhead costs comprised 17.5 percent of contributed dollars, or nearly twice as much implied by the claim.
Senator Charles Grassley has called for the Red Cross to “elaborate on how it calculates the facts and figures given to the donating public.” Following the report, the Red Cross altered it’s language to state that 91 cents of each dollar it spends goes into humanitarian services – a statement that ProPublica also labels “misleading.”
The Red Cross is a unique entity. While technically an independent nonprofit organization, the group operates formally as a “federal instrumentality,” which requires the Red Cross to follow congressional mandates for humanitarian assistance. While the organization is not a federal agency, it nonetheless occasionally receives government funding when publicly-raised money is insufficient for particular humanitarian services.
Another idiosyncratic side to the Red Cross is its business structure. The group’s well-known blood drives actually provide it with a salable product from which it profits immensely. The Red Cross sells donated blood to medical providers, often at a lower price than private competitors (as evidenced this year when the Indiana Blood Center lost one-third of its revenue as clients flocked to the Red Cross’ cheaper blood supply).
As pointed out by ProPublica, the Red Cross conflates its blood business with disaster relief. If the two services are separated, actual operating costs show that the organization spends two-thirds of its budget on its blood services. For this reason, the altered claim that 91 cents on the dollar go to humanitarian services is rather spacious. Notwithstanding the value of cheap and abundant blood supplies, its difficult to equate disaster relief with profitable blood drives.
McGovern’s less-than-truthful claim does not match up to the standards of transparency and forthrightness that nonprofit institutions should hold themselves to. Nonetheless, there is nothing remarkably off about the group’s services-to-overhead ratio. Indeed, the Better Business Bureau Wise Giving Alliance states that nonprofit overhead costs should not exceed 35 percent of budget, a ceiling that the Red Cross does not even approach.
Furthermore, the business practices of the Red Cross should not obfuscate the organization’s financial needs. While selling blood is no doubt a profitable enterprise, the organization cannot afford to appear completely self-sufficient. If donors perceive a nonprofit to have a diverse revenue stream that adequately provides the funding necessary for operations, essential fundraising efforts can consequently have worse returns. This threatens the organization with budget shortfalls, as well as a tarnished image for its efficacy and social impact.
The Red Cross should rectify its false statements. But instead of entrenching the value of a humanitarian organization exclusively in dollars and cents, the public should consider the greater impact resultant from the organization’s efforts as the chief inducement for philanthropic giving.