Is the American Red Cross Hurting Your Fundraising Efforts?

The American Red Cross regularly touts how responsible it is with donors’ money. ‘We’re very proud of the fact that 91 cents of every dollar that’s donated goes to our services,’ Red Cross CEO Gail McGovern said in a speech in Baltimore last year. ‘That’s world class, obviously.’

“McGovern has often repeated that figure, which has also appeared on the charity’s website.

“The problem with that number: It isn’t true.”

That stunning revelation was made in a recently released investigative report by ProPublica and NPR.

National Red Cross HQ by NCinDC via Flickr

American Red Cross National Headquarters

The Red Cross is a great organization. My wife and I have been donors. I even did a blog post highlighting the effective stewardship practices at the Red Cross and encouraging readers to support the organization. The American Red Cross does not have to “serially mislead” the public.

Yet, that’s exactly what it has been doing according to the reporters. While the organization has told the public that 91 cents of every donated dollar goes to services, its fundraising cost to raise a dollar has been 17 cents on average. And that does not include organization overhead expenses. Clearly, the Red Cross has not been as efficient as its leader has claimed.

When reporters contacted Red Cross officials for more information, those officials were uncooperative. However, the organization did change the claim on its “website to another formulation it frequently uses: that 91 cents of every dollar the charity ‘spends’ goes to humanitarian services. But that too is misleading to donors,” states the investigative report.

Sadly, this is not the first time that the Red Cross has been accused by the media of misleading the public.

As a Red Cross supporter and a fundraising professional, I’m alarmed and disappointed by the behavior of the Red Cross. Misleading the public, either through lies or the clever manipulation of language, is unnecessary, unethical, and unacceptable.

Such inappropriate behavior erodes public trust, which makes fundraising more difficult. Perhaps this is one reason that the Red Cross has had trouble consistently raising more money. In 2009-10, the Red Cross raised $1.1 billion. In 2012-13, the Red Cross again raised $1.1 billion.

In a study that examined the relationship between trust and philanthropy, researchers Adrian Sargeant and Stephen Lee found, “there would appear to be a relationship between trust and a propensity to donate.” In addition, “there is some indication here that a relationship does exist between trust and amount donated, comparatively little increases in the former having a marked impact on the latter.”

In other words, public trust level affects both propensity for giving and the amount given.

If an organization desires to raise more money, it should strive to be completely honest and thoroughly transparent.

By its own behavior, the Red Cross is hurting itself. That’s certainly bad enough. Unfortunately, the Red Cross is likely making it more difficult for all charities to raise money. As its behavior erodes trust in the Red Cross, it might also erode public confidence in the entire nonprofit sector. In addition, by setting a false standard for cost per dollar raised, the Red Cross is potentially making life more difficult for organizations that honestly report their numbers.

Think I’m overstating the danger? Consider what happened in Scotland a number of years ago. The Sunday Mail newspaper published a report highly critical of the professional fundraising company Solutions RMC and its work for a breast cancer research charity. The controversy had an impact throughout the charity sector in Scotland, even affecting charities that never worked with Solutions RMC. Some cancer charities saw a downturn in contributions as high as 30 percent in the months following the controversy, according to Andrew Watt, now President and CEO of the Association of Fundraising Professionals.

Nonprofit professionals that erode the public trust not only harm their own organizations, they potentially harm the entire charity sector.

Everyone who works within the nonprofit sector has an obligation to themselves, their organizations, and the entire sector to behave in accordance with the highest ethical standards. Maintaining the public’s trust is not always a simple matter. However, it’s far easier to maintain trust than regain it once it’s lost.

I invite you to take a moment to express your views by voting in the following poll and commenting below.

That’s what Michael Rosen says… What do you say?

 

UPDATE (Jan. 13, 2015): Sen. Charles Grassley (R-IA) has asked the American Red Cross to explain how it calculates figures showing how much of a donated dollar goes to services. He told The Chronicle of Philanthropy, “The public’s expectation for an important, well-known organization like the Red Cross is complete, accurate fundraising and spending information. In reaction to the news reports on this topic, I’m asking the Red Cross to elaborate on how it calculates the facts and figures given to the donating public.” You can read more by clicking here.

UPDATE (Feb. 23, 2015): The American Red Cross has demanded that ProPublica and NPR make a series of corrections in their report about the disaster-relief agency’s activities. ProPublica and NPR have both declined citing the accuracy of their reporting and the opportunities they previously gave the Red Cross to respond to allegations. You can read more by clicking here.

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11 Responses to “Is the American Red Cross Hurting Your Fundraising Efforts?”

  1. Michael,

    Sadly, The American Red Cross is just one of many organizations whose choice to fudge their numbers to enhance its credibility has come back to haunt it. As I wrote in my past post, “Dispel the Overhead Myth with Honesty’, http://wp.me/p3Lk3H-ul organizations need to be honest about their overhead costs. Donors understand that fair salaries need to be paid to employees that run their programs, rent or mortgages and utilities need to be paid, and yes, fundraising expenses need to be paid. By obfuscating the reality, they have done themselves and other nonprofit organizations a true disservice.

    • Richard, thank you for sharing your thoughts and the link to your own post. The amazing thing about the Red Cross situation is that the real numbers are not bad. So, I’m not sure why the organization felt the need to mislead the public. At this point, I’d like to hear the CEO and/or Board Chair make a public statement committing the organization to honesty and transparency. Instead, the Red Cross seems to be adopting a duck-and-cover strategy hoping the scandal will just go away. As a donor, I want to hear that the Red Cross is committing to doing better rather than just doing business as usual.

  2. You know there is a huge difference between fixed and variable costs associated with any product. Fundraising and management costs are fixed and, therefore, they are shared by all the different programs and areas of the organization. I would like to invite you to get the audited financial statements of the Red Cross and to allocate and calculate the percentages of overhead based on those numbers.

    Anybody can have an opinion, but not false facts. In the case of ProPublica and NPR, it seems to me that they are trying to discredit the Red Cross by all means possible, giving a lot of “hints” but without any consistent proof. As a fellow profesional fundraiser I think that it is pretty sad when we all jump into the discredit-the-organization wagon. Too easy to do, and too tasteless.

    • CM, thank you for sharing your thoughts. I agree that there is a “huge difference between fixed and variable costs.” However, I need to point out that some fundraising costs will be fixed while others are definitely variable. I also must point out that the issue of fixed v. variable expenses is not the issue in the case of the Red Cross controversy. The issue is quite simply: Is the efficiency number shared by the Red Cross accurate or not?

      The CEO of the Red Cross stated that 91 cents of every donated dollar goes to services. That means that nine cents of every donated dollar goes to expenses. As ProPublica and NPR reported, that’s false. In an average recent year, the cost of fundraising alone was 17 cents of every donated dollar. This data was gathered from the Red Cross’s own 990s. The reporters did not make this up. Furthermore, the Red Cross itself recognized the problem with the figures when confronted by the reporters and, therefore, took the misleading statement off of its website.

      By the way, when the reporters attempted to get more detailed financial information from the Red Cross, as you suggested should be done, the Red Cross stonewalled instead of choosing to be transparent and cooperative.

      I’m not sure what evidence you need in order to believe that the Red Cross has been misleading and less than transparent. If you have not read the full PoPublica/NPR report, I encourage you to do so. As a former newspaper editor, I found the reporting compelling.

  3. I am very proud to represent the American Red Cross as a fundraiser, and I wish there was more transparency and fact-checking within the journalism field. Our audited 990s are publicly available on our public-facing website.

    Here is the exact response we provided to ProPublica on this matter, clearly indicating that we do not track our costs in the way they requested, not that we refused to provide the information:

    “We are not declining to say what percentage of a dollar is accurate. The Red Cross receives contributions from many different sources –not just fundraising — so whether you support the Red Cross through a financial contribution, or a donation of blood, or an in-kind donation of clothing or other goods, an average of 91 cents of those donations are invested in our humanitarian programs and services. All of these are important donations to the Red Cross, and we do not track management, general and fundraising to each separately.”

    See more at: http://redcrosschat.org/2014/12/04/red-cross-counters-recent-media-stories-regarding-spending/#sthash.n0soiQQW.ZGG6KhrZ.dpuf

    • Barbara, thank you for responding to my post and for sharing the link to the official response from the American Red Cross. I also want to thank you for the work you do as Regional Chief Development Officer at the Red Cross.

      The official Red Cross statement does little to make me feel more comfortable. The investigative report accused the Red Cross of misleading the public by stating, “91 cents of every dollar that’s donated goes to our services.” As the organization’s own 990s demonstrate, that Red Cross claim is false. The official Red Cross response to the report attempts to confuse two different ratios: 1) the cost per dollar raised ratio v. 2) the percentage of overall spending that goes to provide services. These are two different measures that the Red Cross is attempting to use interchangeably in its defense. While the Red Cross may now have some regrets about previous statements, the fact remains that it painted a misleading picture regarding the cost of fundraising. Regarding how much of its overall spending goes to services, it’s difficult to know what the truth is as the investigative report pointed out.

      The official Red Cross response states, “There have been cases in which we could have been clearer about this and we have worked to correct that.” As a past donor and Red Cross booster, I hope that the organization is indeed working to provide greater clarity when communicating with the public. As the official Red Cross response demonstrates, there’s still plenty of room for improvement.

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