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November 21, 2017

Where does $1 to the American Red Cross Go?

by Anne Paddock

When most people think of the American Red Cross (ARC), they often think of blood collection, testing, and distribution and/or disaster services – both domestic and international and in the most simplistic terms, this is what the ARC is about.  Formally known as the American National Red Cross (the organization is the designated affiliate of the International Federation of Red Cross and Red Crescent Societies), ARC was established by Clara Barton in 1881 and given a charter by Congress in 1900 and again in 1905 to carry out humanitarian services. Since that time, the charter has been amended nine times, with the most recent in 2009 to address reforms to the organization.

ARC receives widespread public support having raised $2.6 billion (for the year ending June 30, 2016) compared to $2.7 billion in 2015 and nearly $3 billion in 2014. Most of the organization’s revenue ($1.9 billion or 73% of revenue) came from the sale of biomedical services (i.e. blood and plasma collected through donations and sold) with the remaining revenue obtained primarily through contributions, gifts, and grants ($600 million or 23% of revenue) and investment and other income ($100 million or 4% of revenue).

Although contributions, gifts, and grants only comprise 23% of total revenue (or $600 million), it is still important to remember the revenue stream of biomedical services is dependent upon donations (i.e. blood and plasma) so although one donation is tax-deductible (revenue) and the other isn’t (blood),  donors and potential donors still need to understand where revenue dollars are spent.

Expenses are best understood by looking at the big picture where costs are grouped into four categories: program, management, fundraising, and grants; or by line-item (i.e. salaries, office, advertising, etc) which provides a more detailed explanation of how revenue was spent. Both are important although the detailed line-item approach provides a better understanding of where revenue is spent.

Expenses by Category (Program, Management, Fundraising, and Grants)

Expenses totaled $2.6 billion (for the year ending June 30, 2016) not including depreciation – a non-cash expense, broken down as follows:

$2.176 billion or 84% of revenue:  Program Expenses

$0.111 billion or $111 million or 4% of revenue:  Management Expenses

$0.2 billion or $165 million or 6% of revenue:  Fundraising Expenses

$0.2 billion or $165 million or 6% of revenue:  Grants

$2.6 billion:  Total Expenses

Based on the above information, a $1 donation was spent a follows:

$1.00:  Revenue

-$0.84: Program Expenses

-$0.06: Fundraising Expenses

-$0.04: Management Expenses

-$-.06:  Grants

$0.00:  Amount Remaining

Expenses by Line Item

Expenses totaled $2.6 billion (rounded) for the year ending June 30, 2016 not including depreciation broken down in the following line items:

$1.414 billion (or 54% of revenue):  Salaries, Pension, Benefits, Payroll Taxes

$415 million (or 16% of revenue):  Biomedical Supplies

$254 million (or 10% of revenue):  Other Fees for Services and Program Supplies (no detail provided)

$238 million (or 9% of revenue):  Office, IT, Occupancy, Insurance

$165 million (or 6% of revenue):  Grants

$65 million (or 2% of revenue):  Travel, Meetings and Conferences

$40 million (or 2% of revenue):  Interest

$25 million (or 1% of revenue): Advertising and Fees for Services (management, legal, accounting, lobbying)

$2.616 billion:  Total Expenses

Based on the above information, $1 in revenue was spent as follows:

$1.00:  Revenue

-$0.54:  Salaries, Pensions, Benefits, Payroll Taxes

-$0.16:  Biomedical Supplies

-$0.10:  Other Fees for Services and Program Supplies (no detail provided)

-$0.09:  Office, IT, Occupancy, Insurance

-$0.06:  Grants

-$0.02:  Travel, Meetings and Conferences

-$0.02:  Interest

-$0.01:  Advertising and Fees for Services (management, legal, accounting, lobbying)

$0.00:  Amount Remaining

As illustrated above. more than half of the revenue reported was for salaries, benefits, pensions, and payroll taxes for the 21,435 employees (which equates to about $70,000 per employee). Given that the organization is primarily collecting, testing, and distributing biomedical supplies (i.e. blood and plasma), high staff expenses are to be expected. Most revenue is going to support the staff and office costs associated with collecting, testing, and distributing biomedical supplies.

The IRS Form 990 also reports the 17 most highly compensated employees were paid $7.4 million (an average of $435,000) and that four staff received approximately $600,000 in severance packages:

  • Chief Investment Officer, Christina Samson was paid a severance of $140,538
  • CEO of Delta Blood Bank (ARC operates 36 blood banks) wa given a severance of $306,281;
  • Highly Compensated Employee, Margaret Dyer was given a severance of $124,789; and
  • Deputy Chief Investment Officer received a severance of $11,769.

It is important to note 10 cents of every dollar (or $254 million) was spent on other fees for services with no detail provided.

And, finally it is very important to note that ARC had $1.6 billion in net fund assets at the beginning of the year. At the end of the year, net fund assets were reduced to just under $1 billion – a $600 million dollar decrease which is very substantial given that the organization raised $2.6 billion and spent $2.6 billion.  How did this happen?

The balance sheet indicates ARC had a $400 million increase in pensions and post retirement benefits from $683 million to $1.1 billion), which appears to be related primarily to the pension and retirement plan for employees that were hired before 2009 (the plan was terminated for future employees in 2009) although there are other obligations for the subsequent plan for retirement benefits. The rest of the decrease in net fund assets appears to be attributable to a decrease in the value of securities.

To read the IRS Form 990, click here.

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