Its is unfortunate that the Red Cross has come unstuck with its Bali Appeal, for the cause is worthy and Red Cross is the best non-government organisation (NGO) in the foreign aid business.
Nonetheless, it does highlight serious problems in the sector and if people think that Red Cross is poorly run, you should take a close look at some of the other foreign aid NGOs in this sector that squander people's money.
It is tough to defend Red Cross's performance of the Bali Appeal. The facts speak for themselves. Of the $14.3 million generously given by Australians for the victims of Bali just 54 per cent (or $7.7 million) has to date gone directly to the victims. $6.6 million or 46 per cent being either diverted to other projects not related to the Bali victims or held back for future use.
Understandably the public, the donors and the victims are deeply unhappy with the way the money has been spent. The money was clearly given to help the victims, not to help the other causes of the Red Cross. Given the nature of the victim injuries they expected the money allocated quickly and not to be held back in contingency funds. If Australians were aware that so little of their money would actually get to the victims directly, it is doubtful whether anything like raised $14 million would have been raised.
The truth is that this is the way that foreign aid agencies work. They see a crisis, be it in Iraq, Ethiopia or Bali, they launch an appeal, raise a pile of money with few strings attached and few question asked and spend it how they like. And no one usually checks.
At least, the Red Cross spent the money raised in it Bali Appeal is on reasonable things such as ambulances, burn research and disaster preparedness and not on junkets, talkfests and political activism as is common in the foreign aid industry.
What really got people angry was the amount spent on administration. The Red Cross claims to have spent just less than $400,000 on administration. In reality this is figure at just 3.5 per cent of total funds raised is very low. Indeed, it is unbelievably low.
The foreign aid industry's peak body, the Australian Council for Foreign and Overseas Aid (ACFOA) has set a standard for admin expense at 10 per cent of funds raised and has stated that most aid agencies exceed their guidelines with the average expenditure being closer to 17 per cent. This figure is itself is debatable and may in fact be much higher.
What people don't realise is that Red Cross like CARE, Save the Children, World Vision, Oxfam resemble multinational big businesses than charities. These are enormous organisations whose collective budget is in the billions of dollars and rely on large, highly-paid staffs. Volunteers play a minor role in these organisation mainly related to fundraising. As such, their fundraising and administrative overheads tend to be large.
The Red Cross Bali Appeal has highlighted several problems. First, most people who give money to good causes are unaware of how their money is used. They know the names of various organisations like Red Cross but not much about how they operate.
Second, NGOs are not used to accounting for the monies they receive from the public. This partly explains the Red Cross' rather inept handling of the issue in the media. It was only after the Bali victims and the media starting raising questions that the public got disclosure.
Third, people really have little control over the charities once they get their money. Charities are in many ways "above the law".
Apart from the balance of the money being held by Red Cross being allocated immediately to the victims directly, the next best thing to happen out of the current controversy over the Bali Appeal would be to see that some proper laws and regulations are brought into place that protects people's generosity from being taken advantage of.
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