Ruining it for the Good Guys – Another Story of Gross Inefficiency in International Development

By: Jayson Morris

A month has passed since my emotional blog response to the earthquake in Nepal, and much has been done to respond. In my world, the Peery Foundation was able to turn around an immediate $35k grant for Medic Mobile’s relief & rebuilding efforts. On top of this, I was humbled to personally lead a $10k flash-fundraising campaign on Facebook to help former Nepal colleague who is working with a local NGO to build homes for hundreds of people still living in tents.

On the heels of this Facebook campaign, a friend asked my opinion on one of the larger well-known nonprofits that has teamed up with a corporation for a lucrative matching grant opportunity for Nepal. We emailed back and forth about the pros and cons of funding the ‘usual suspects’ – i.e., the American Red Cross, Salvation Army, Oxfam, Mercy Corps, Unicef, Save the Children, etc. – in response a disaster.  I tried to stay somewhat diplomatic and neutral, but my inherent bias came out:  

I would rather support the little guy punching above his weight who is already deploying funds a few days after the disaster, the organization that is not going to waste money (and don’t quote me an overhead number in defense), and the organization that shows its gratitude through transparency and accountability early and often.  

So it was somewhat timely to see the scathing article published last week by NPR and Pro Publica, who did an investigative piece on where the $500 million that the American Red Cross (ARC) raised for Haiti relief went (hint: not very far).  “Five hundred million in Haiti is a lot of money," says Jean-Max Bellerive, the Haiti prime minister until 2011. "I'm not a big mathematician, but I can make some additions. It doesn't add up for me." 

ARC has since released a response countering the investigation, but still will not provide a list of specific programs it ran, how much they cost or what their expenses were – though they claim to be transparent. They merely stick by their claim that “91 cents of every dollar Red Cross spends goes to our humanitarian programs and services.”


Rather than go into a he-said, she-said, I decided to look into their 990 filing myself. Here are a few nuggets I found (mind you, I am no forensic accountant and lack a CSI team to back me up):

·       Annual revenue of $3 billion - wow!

·       President & CEO, Gail McGovern makes $598k -- more than the President Obama;

·       16 people make $250k+ including the Chief Audit Executive (which I find a bit ironic);

·       Spent $102 million in office expenses, and report 93% of this being programmatically related;

·       Spent $9.4 million just in auto rental and maintenance. 

These are some eyebrow raising numbers, but it didn’t feel fair to draw sweeping conclusions off them. Maybe they are just THAT big and programmatically efficient. Maybe the huge numbers could be justified, so I decided to spend a few minutes in their audited financials to learn more (2013 were the most recent I could find). Unfortunately, there were no more details on their various expenses, but I did notice these clauses in the notes:

·       The Retirement System of the American National Red Cross: Before July 1, 2009, employees of the American Red Cross, including the employees of participating local chapters, were covered by the Retirement System of the American National Red Cross (the Plan) after one year of employment and completion of 1,000 hours of service during any consecutive 12 month period. Effective July 1, 2009, the Plan was closed to employees hired after June 30, 2009. Subject to provisions contained in collective bargaining agreements where applicable, the Retirement System was ‘frozen’ on December 31, 2012 (the freeze date)…

·       The Organization also provides medical and dental benefits to eligible retirees and their eligible dependents. Generally, retirees and the Organization each pay a portion of the premium costs. The medical and dental plans pay a stated percentage of expenses reduced by deductibles and other coverages…. The Organization’s postretirement benefit plans are unfunded. However, the Board of Governors has designated $101 million of unrestricted net assets to fund a portion of premiums for retirees’ postretirement medical benefits. 

·       The Organization is a defendant in a number of lawsuits incidental to its operations. In the opinion of management, the outcome of such lawsuits will not have a materially adverse effect on the Organization’s financial position.

Collective bargaining agreements? Medical and dental for retirees amounting to $100 million? A number of lawsuits? Again, I claim no expertise on these matters nor do I have the time to conduct a full investigation., so I cannot unequivocally say they are superfluous. However, this feels more like a government or a large multi-national corporation than a nonprofit designed to serve humanitarian needs… and it certainly doesn’t scream efficient spending on programs! I worked at a $50 million per year international nonprofit, and while we debated the economic viability of buying vs. renting vehicles, we certainly did not have collective bargaining agreements, retirement benefits and lawsuits pulling at our organizational efficiency.

 So here’s my question: With the scathing investigations, an apparent bureaucracy, some questionable numbers –why do individual donors still give millions to the American Red Cross rather than to smaller, dare I say more efficient, and more nimble organizations? ARC is not the only organization that has faced similar accusations.
 

So who’s at fault?

 We, the general public, are of course. The fact that the ARC has raised $26+ million for Nepal relief & rebuilding continues to amaze me (note that overall contributions for Nepal are waaaay smaller than Haiti – in part due to disaster fatigue and in part due to the media over reporting Everest and under reporting the sheer devastation for locals). The fact that The New York Times and the Better Business Bureau listed the Red Cross on their short-list of who to contribute to for Nepal relief baffles me.  

What can we do about it?

Sadly, in response to the article many people will write off the entire sector as being inefficient. 

Instead, I would advocate the following for disaster response (much of which applies to annual philanthropic efforts as well):

As donors:

·       We can choose to support the little guy, or the medium sized guy. It takes a bit more effort to ask around, to do research on Charity Navigator, or to see to whom some of the smart money (i.e., foundations like Mulago, Skoll, etc) is investing in. However, with that work, donors will be more confident that contributions being used efficiently and effectively. Here are some additional tips: Look for immediate action and accountability. Look for passion and raison’ d’etre from the founders and leadership. Look for organizations that have been working there previously that have teams and partners on the ground.

·       Don’t get lured in by matching grants. Not all matching grants are created equally: What would 2x your contribution to the American Red Cross’s Haiti efforts have gotten you? Sure a matching grant can create leverage, but look at the underlying organization too.

As foundations :

·       We need to get better at coming up with our own internal short list of organizations we like, particularly post-disaster, and share this on our websites, Facebook pages, and blogs so that the general audience has good options.

·       More research intelligence needs to be put into thinking about and communicating what the most efficient end-game looks like for nonprofits and truly how efficient are the larger organizations. Not all organizations should strive to become big and foundations can help ensure that the smaller ones get the support and coverage they deserve.

As media:

·       Do your homework! I was pleasantly surprised to see CNN recommend many of the same organizations as Charity Navigator. All media should put some effort and quality control into their list rather than rattling off the usual suspects.

What else do you think would help?

Finally – Nepal has dropped out of the news almost entirely and there is still a lot of rebuilding to be done. Here are several social entrepreneurial organizations already doing great work in Nepal that will be key to rebuilding:

·       Medic Mobile – Creating and disseminating mobile technology solutions to improve efficiency and effectiveness of community health workers in rural areas.

·       One Heart Worldwide – Providing quality maternal health outcomes amidst the massive loss of health infrastructure.

·       Room to Read – Rebuilding schools and providing literacy materials and instruction for the 1 million children unable to return to school after the earthquake(full disclosure –I worked at Room to Read for 7 years)

·       Build Change – Rebuiding  & retrofitting structures in Nepal to be safe and more earthquake resistant