Red Cross Feathers Its Own Nest First

insight ^ | November 16, 2001 | Kelly Patricia O’Meara

[Stand Watch Listen]

Bernadine Healy, the departing American Red Cross (ARC) president and chief executive officer (CEO), testified before Congress the second week in November concerning the stunning decision by the nation's most-recognizable charity to hold back nearly one-half of the $546 million it has received to aid the victims of the Sept. 11 attacks on the World Trade Center and the Pentagon. Healy explained to lawmakers that an estimated $300 million would be required for the "immediate needs" of the victims, but that the remaining $246 million would be put to such unrelated uses as "investments in volunteer mobilization, chapter development for response to weapons of mass destruction, expanded blood security and continuity of operations efforts."

This meant that hundreds of millions of dollars given for victims through the ARC would not go to them but instead be tucked away for other ARC projects and infrastructure. Given the trickle of distribution to date, Healy's testimony caused an immediate stir. For example, critics noted, the ARC announced that $153.8 million of the $546 million donated had been "committed or spent" on relief efforts. The following figures were said by the ARC to account for how that money has been spent:

• Immediate disaster relief: $72.4 million;
  
  
• Family Gift Program: $47.9 million;
  
  
• International family assistance: $0.6 million;
  
  
• Immediate blood readiness and strategic blood reserve: $12 million;
  
  
• Armed forces services: $0.4 million;
  
  
• Community outreach: $14.7 million; and
  
  
• Direct support costs: $5.8 million.

Only two of those categories represent direct family assistance: the Family Gift Program and International Family Assistance, totaling $48.5 million, not $153.8 million. Indeed, while the ARC reports that 25,000 families have received assistance, this $48.5 million breaks down into $1,940 for each of the 25,000 families.

A combative Healy testified that the money wasn't raised to "give $200,000 to every family," something all $546 million collected by the ARC Liberty Fund would not come close to doing. According to an ARC official, "Dr. Healy's reference to the $200,000 per family was based on dividing all of the money collected by each of the charitable organizations, totaling $1.3 billion, among the 25,000 families, not just the amount collected by the American Red Cross."

If the ARC had taken its donations of $546 million and divided it in cash among 25,000 families, which it did not do, each would have received $21,840. However, with the ARC board's decision to hold back nearly one-half of the money, $19,900 was being withheld from each of the families of the victims of the Sept. 11 attacks and pocketed by the ARC, according to Healy, for "threats we are facing" in the future.

According to a financial analyst who spoke to Insight on the condition of anonymity, "What this means to the donors is that the American people sent enough money for each of these families to live for approximately six months and the ARC decided to distribute just two weeks of financial assistance and keep the rest of the money for whatever. The question to be asked is whether this was the intent of the donors." It was not.

While no one found anything dubious about a charitable organization wanting to set aside a nest egg to deal with future catastrophic events, the ARC did not lay all its financial cards on the table. But two congressional hearings failed to address the organization's claimed need for reserves even though it already has more than $1 billion in reserve, including its Endowment Fund.

According to the 1999-2000 financial statement of the ARC, the tax-exempt charitable organization has maintained a national Endowment Fund since 1905. By a 1910 Act of Congress the fund is under the control of a separate board of trustees, which is responsible for overseeing and investing these monies. While principal added to the fund during these many years is never spent, being held in perpetuity, the income from the investments of that principal may (or may not) be used for current purposes. That is, tax-exempt contributions are moved to the ARC Endowment Fund, and invested, and any income derived from the investment may (or may not) be transferred to the General Fund and used for day-to-day purposes.

What is more, the organization's financial statements do not provide detailed information. For instance, the 1999-2000 consolidated financial statement of the ARC lists the investments of the organization, including the Endowment Fund, in millions as:

• U.S. government securities: $272,008;
  
  
• Corporate bonds and notes: $214,005;
  
  
• Common and preferred stocks: $602,394;
  
  
• Mortgage- and asset-backed securities: $254,064;
  
  
• Money market and other: $231,559.

Based on the breakdown, totaling more than $1.57 billion, there is no way to know what companies are benefiting from the ARC investments and therefore no way to know if there may be conflicts of interest among the members of the various boards or whether they may be profiting from those investments.

Additionally, because there is no detailed breakdown of investments, there is no way to know exactly how much money is earned or lost on the $1.57 billion in investments. Furthermore, based on the limited information provided in the consolidated financial statement, there is no way to tell how much money was distributed and for what purpose. Nor is there any way to tell who manages the $1.57 billion investments, how their compensation is determined and what it costs the ARC annually to manage the Endowment Fund.

In theory, the investments are a kind of reservoir. When funds are low in the General Fund, the floodgates are opened and a prudent amount of money is released. But, based on the financial statements, there is no way of knowing how much money is in the reservoir at any given time, how much is added every year from what sources and how much is allowed to trickle out in times of need.

Victims of the Sept. 11 attacks may find it even more difficult to accept the organization's penurious behavior with much-needed financial assistance when they learn of the salaries of the organization's leaders. For instance, the direct compensation of president/CEO Healy is $377,700 per year. The other board members collect compensation totaling nearly $1.2 million. The compensation of the five highest-paid employees (other than officers) comes to slightly more than $1.2 million, with a grand total for the 15 top executives and employees coming to more than $2.5 million per year.

Healy did not return Insight's calls about these numbers. But John D. Campbell, the ARC's chief financial officer, confirms that there is $1.5 billion in invested reserves, with one-third of it in the Endowment Fund and $1 billion or so in loose change in unnamed investments handled by the general board without oversight. He declined to give details, but this did not appear to embarrass him.

Despite the serious questions surrounding the decision of the ARC to hold back several hundred million dollars from the Liberty Fund, little or no attention was given to the issue during hearings held by either the House Ways and Means subcommittee on Oversight or the House Energy and Commerce subcommittee on Oversight and Investigations.

Rep. Amory Houghton (R-N.Y.), chairman of the House Ways and Means subcommittee on Oversight, who spent years as an executive officer at Corning Glass and holds a master's degree in business administration from Harvard Business School, tells Insight that the subcommittee didn't ask about this because it just wasn't focused on the Endowment Fund. "We were trying," Houghton explains, "to get the proportions of the situation. The question is how much should the ARC keep in reserve for future needs and how much should they release." You see, Houghton says, "There is nothing wrong with building up a reserve, but the problem comes when they have to decide how much is used for immediate needs and how much should be kept for assistance down the road. If you or I were in charge we may have done this differently. It's a never-ending argument, but they've done a pretty good job. Our job is to take a look at the issues and, if there are problems, to shed some light on it."

With none of the lawmakers on either the House Ways and Means or Energy and Commerce subcommittees asking any specific questions (or even raising the issue) about the Endowment Fund or the $1.5 billion in investments, it is hard to imagine how any light can be shed on the issue. Nor did anyone ask why the ARC might need to move Liberty Fund monies to a reserve fund when, according to Campbell, there was $1.5 billion in invested reserves, not a cent of which was spent to assist the victims of Sept. 11.

It is being reported in the national media that Healy will leave her position at the end of the year under a cloud because of a scrap with the board about the manner in which the Liberty Fund was managed. But an insider at the ARC tells Insight that Healy "is being forced out because the board didn't like her management style and she had found out a lot of bad things the board was doing."

The spin has been cyclonic. Although her departure date is scheduled for Dec. 31, Healy quickly was shoved aside by interim CEO Harold Decker, former general counsel of the organization. Healy had said in the hearings that the situation was under control and therefore no more money would be collected for the Liberty Fund, again raising questions about what would be done with the hundreds of millions withheld from the victims. Decker explained coolly that the ARC "has enough [money] to cover the anticipated needs" and any donations received after Oct. 31 would be placed in the Disaster Relief Fund used to cover the expenses of all domestic disasters, sticking with the decision of the board to withhold more than $200 million from the victims.

Closer to ground zero, however, the way in which the Liberty Fund was to be distributed had New York Attorney General Eliot Spitzer threatening legal action. He had testified before the House Ways and Means subcommittee on Oversight that a case could be made that the Liberty Fund violated consumer-protection laws, charitable-giving regulations and its own charter. Spitzer told lawmakers that the decision by the American Red Cross to withhold funds for other purposes "amounts to a violation of the trust that the American public gave them."

The legal threat associated with the mishandling of the Liberty Fund and reports first made by Insight that the ARC was playing fast and loose with blood collection (see "Too Much Blood on Their Hands," Oct. 15), turned into a public-relations nightmare. Apparently trying to reverse the spin, the ARC suddenly announced it would offer to refund donations to contributors who complain and would reverse its decision to skim a few hundred million dollars from the Liberty Fund. According to interim CEO Decker, "Americans have spoken loudly and clearly that they want our relief efforts directed at the people affected by the Sept. 11 tragedies. We deeply regret that our activities over the past eight weeks have not been as sharply focused as America wants, nor as focused as the victims of this tragedy deserve."

David McLaughlin, chairman of the ARC Board of Governors, added further unction. "The people of this country have given the ARC their hard-earned dollars, their trust and very clear direction for our Sept. 11 relief efforts. Regrettably, it took us too long to hear their message. Now we must change course to restore the faith of our donors and the trust of Americans and, most importantly, to devote 100 percent of our energy and resources to helping the victims of the terrorist attacks."

Critics see this new turn of events as a day late and a dollar short to restore the trust the ARC enjoyed before the Sept. 11 attacks. But, say friends of this important American charity, confession of wrongdoing and assurance that all the donations raised by the Liberty Fund now will be used for victims of the attacks is a step in the right direction.

Kelly Patricia O'Meara is an investigative reporter for Insight.

[AlaskaErik]

My Marine Corps drill instructors told our platoon what a slimy, worthless organization the Red Cross was. That was confirmed by the personal friend (a real WWII hero with 50 missions over Europe) who swore me in. How right they were. Based on their guidance, I have never given the Red Cross one red cent. The Salvation Army is my choice at the national level.

[holyscroller]

David McLaughlin, chairman of the ARC Board of Governors, added,...."now we must change course to restore the faith of our donors and the trust of Americans and, most importantly, to devote 100 percent of our energy and resources to helping the victims of the terrorist attacks."

How about giving out 100% of the MONEY? ARC now rightfully deserves the title, "the most dishonest, thieving charitable organization in the country."

[StPaulieGirl]

Or anyone who knows about this. I was told that people who had death benefits such as the police and firefighters families would not be elligible to receive donations. That there is actually a law regarding this? I have never heard of this before.

[Fulbright]

As they say, charity begins at (gag) home.

[GoreNoMore]

Ever noticed how they ask for "donations" and "Give blood"?? The Red Cross SELLS the very blood that is DONATED! Not only that, they are always asking for volunteers as if it is your duty. All the while these cheesy ARC employees are making Porche payments. Somethings very, very wrong. Slimy, misrepresentation, and pitiful do not begin to tell accuratly what the ARC is all about.

My only hope is that the American people will wake up and smell the stench emited by the American Red Cross.

[ao98]

My local Red Cross in SC took an ad in the local Greenville News. Here is the first paragraph of this ad.

On September 11, the American Red Cross was the first to arrive. The Greenville County Chapter of the American Red Cross wants to reassure our local supporters that your donations are indeed reaching the victims, contrary to some incorrect media reports. In fact, more than $500 million was contributed to the American Red Cross Liberty Disaster Relief Fund by individuals, corporations and foundations. All of these funds will be spent on the September 11 tragedy, not on other disasters. Any money not spent in the short term will be held fo the victims long term needs.

They have never even admitted that the Red Cross was originally going to put $200 million into the general fund until the press caught them on it.

[AeWingnut]

What does Liddy Dole know about all of this

[rockfish59]

they burn the blood and hoard the green.
jesse jackson should sue them! (two peas in a pod)

[Diogenesis]

[Stand Watch Listen]

bttt

[Stand Watch Listen]

bttt

[Askel5]

What does Liddy Dole know about all of this

Liddy knows about tainted blood, suspiciously lopsided relief efforts in the Balkans and the lifting of injunctions against some of the Red Cross's "worst case scenario" donor sites in an attempt to "revamp" the nation's blood system (or simply clean up what loose ends the most litigious charity on the planet hadn't been able to fix).

We have to assume she DIDN'T know that Louisiana and Arkansas were pumping prisoner plasma thruogh 1994.

[Askel5]

Tried to link "Bob Dole & Yugoslavia" in here. (My version, with all exhibits, posted well after Fakta's still extant version of May, 1999). That's now disappeared too even though I was in it to copy the Liddy Dole paragraph within the last month or so.

Are we being purged or what?

I'd link the Gilbert Gaul series in here but haven't the heart to see they've gone dead as well.

[nicmarlo]

Out of utter sympathy for the victims of 9/11, I was almost moved to donate money to either the Red Cross or United Way. Until a youthful memory returned. While working at Bank of America in Los Angeles, we were regularly pushed into "donating" 2 - 5% from our bi-monthly paychecks. At the end of the year we got a statement showing where the money went (guess what, most of it to administration). I could understand the pie chart well enough at 19 to realize thievery was involved. I got a back bone after this and told my Operations Office no way no more.

[T'wit]

> For instance, the 1999-2000 consolidated financial statement of the ARC lists the investments of the organization, including the Endowment Fund, in millions as: U.S. government securities: $272,008; Corporate bonds and notes: $214,005; Common and preferred stocks: $602,394; Mortgage- and asset-backed securities: $254,064; Money market and other: $231,559.

Something like $1.5 trillion dollars. Not bad :-)

[adanaC]

Grrrr Has the world gone mad? At least they're consistently corrupt.

[T'wit]

> At least they're consistently corrupt.

Yes! The blood trade went far to corrupt the Red Cross organizations in both Canada and the U.S. I think it has a lot to do with deception. The Red Cross plays bleeding heart to get people to donate (free) blood. Then it turns around and sells the blood at full retail prices :-) It does not tell its donors that blood is a valuable and salable commodity, and that the Red Cross itself is a huge dealer.