Is the American Red Cross worthy of our donations?

By Allan Chernoff, CNN senior correspondent


NEW YORK (CNNMoney.com) -- Haiti's catastrophe has triggered an outpouring of support for the American Red Cross, which has raised more than $203 million for its Haiti Relief and Development fund in just three weeks, far more than any other charitable organization.

But, is the American Red Cross worthy of such generosity given its mixed record of performance during the past decade?

After the attack on the World Trade Center, the Red Cross confronted public outrage when the media learned of plans to divert donations to the Red Cross Liberty Disaster Fund for other purposes, forcing the Red Cross to backtrack. During the aftermath of Hurricane Katrina the Red Cross was blamed for poor coordination of relief efforts.

Local Red Cross chapters have been victims of embezzlement. And two years ago the Red Cross had to turn to Congress for a $100 million infusion after its emergency response fund was depleted. (The Red Cross has a Congressional charter and counts the president of the United States as its honorary chairman.)

"American philanthropy is built on trust," said Kathleen McCarthy, director of the City University of New York Center on Philanthropy. "If you undermine that, you don't just jeopardize the Red Cross, you jeopardize the whole infrastructure of philanthropy and charity in the United States."

Gail McGovern, a former Harvard Business School professor and executive with AT&T and Fidelity Investments, has been president and chief executive officer of the American Red Cross since June 2008. She pledges the charity will use donations wisely.

"I am 100% committed to lead this organization in such a way that we help the people of Haiti and that we are excellent stewards of every single dollar that we raise," McGovern told CNN.

Of the $203 million raised for Haiti, the Red Cross says it has spent or committed $67 million thus far:

  • $53 million for food and water
  • $12 million for shelter
  • $2 million for health and family services.

The figures include the cost of coordination, transportation and distribution of aid.

Of every dollar donated, the American Red Cross says 91 cents goes toward aid, while nine cents covers the cost of running the non-profit, including salaries, administration, and fundraising.

"We're really proud of that number," said McGovern.

Indeed, the Red Cross has been cutting expenses so its efficiency ratio ranks among the best performing non-profits: McGovern has imposed a salary freeze and employees saving for retirement in the organization's 401(k) plan no longer get a matching contribution.

"The Red Cross, due to its size, has had issues with efficiency in the past," said Ken Berger, president and CEO of Charity Navigator, which evaluates non-profit organizations.

The American Red Cross receives a three-star rating from Charity Navigator, up from two stars in 2008, but still one star shy of the top ranking. Berger says that's primarily because the Red Cross does not have an ample financial cushion to carry the organization through lean times.

The American Red Cross has debt of $613 million, more than $100 million of which is due to be repaid to lenders this year. Its annual deficit of $33.5 million in fiscal year 2009, was a vast improvement from a deficit of $209 million in fiscal 2008.

The Red Cross needs to get out of running deficits to improve their Charity Navigator rankings. "They aren't quite there, but they are getting closer," said Berger.

While improving efficiency, Red Cross executives say they are also intent on ensuring that donor funds to Haiti are not lost to fraud. So, financial auditors are on the ground in Haiti, tracking expenditures.

"Fraud is certainly at the top of our minds," said David Meltzer, senior vice president American Red Cross International Services. "I don't want our dollars of assistance to end up in sticky fingers. I want it to get to the people who need it."  To top of page

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