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appointees Dr Healy had served as head of the National Institute of Health Her hardcharging management style and persistent questioning of board inaction were the catalyst for a fractious relationship Immediately prior to the September 11th crisis, Dr Healy had uncovered a $1 million fraud at a large chapter in New Jersey She wanted to prosecute, but the board showed no interest in pursuing the matter A more detailed discussion of the financial mismanagement that Dr Healy uncovered will be addressed in 9 How Did They Get Caught This was a crisis that was covered step by step in the media The destruction of the blood was broadcast around the world, the families of the victims aired their complaints in the media, and Congressional inquiries were the headlines of cable and network news The clues to the dysfunction were more carefully hidden The composition of the board, and the fractious relationship between the board and Dr Healy did not become apparent until she was forced to resign as President During the televised press conference when the President of the ARC Board of Governors announced that Dr Healy had resigned on her own, she shook her head no and then announced that the board forced her to resign as the world watched Other clues to the dysfunction were even more difficult for outsiders to discern The workings of the ARC Disaster Services, particularly at National Headquarters, have traditionally been intricate Insiders in this division generally begin their Red Cross careers at local chapters, and because of the 19th Century Congressional mandate are viewed as having an exceptional skill set Anyone outside of this division is an outsider even other Red Cross staffers and volunteers The Disaster Services leadership has traditionally been permitted to raise and spend funds without oversight from ARC senior management or the board Who Discovered the Fraud What Happened to the Person(s) Who Discovered the Fraud The complaints of the September 11th victims families raised public awareness that 1) the funds from the Liberty Fund were not being distributed as advertised, and 2) pressure was being put on Dr Healy by Disaster Services to integrate the money into the overall Disaster Services funds Victims families went to the media and to Congress Eventually, some of the families did receive cash gifts, but only after Congressional inquiry and continuing media coverage A CBS news story reported that some at Red Cross headquarters were afraid the National Disaster Fund was becoming a leaky piggy bank for chapters (Atkinson, 2002) The traditional arm s-length relationship between Red Cross National Headquarters and its chapters ensured that National would be actively discouraged from providing the level of aggressive oversight that chapter financial matters required Red
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Root Cause Analysis Part I: Three Nonprofit Crises
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Cross auditors were also stymied CBS news reported that money given to the Boston chapter was not easily traceable, according to a Red Cross audit report (Atkinson, 2002) Rampant chapter mismanagement of donations was probably a factor in Dr Healy s decision to establish the Liberty Fund to segregate the September 11th funds from the National Disaster Fund The local chapters were incensed and began lobbying their associates on the Red Cross Board of Governors The Board members from the chapters were growing impatient with Dr Healy s relentless exposing of rampant fraud within the chapters, and the Liberty Fund appeared to be the last straw Dr Healy was terminated several weeks later During the news conference, David McLaughlin, Chair of the Red Cross Board of Governors, told employees, I don t say it s the best thing for the Red Cross, but I think Dr Healy thinks it s the best thing Healy shakes her head no, and when she tries to speak, McLaughlin cuts off the news conference (Atkinson, 2002) Where Was the Board in All of This The actions leading up to Dr Healy s departure suggest that the Board of Governors took the opportunity to rid itself of Dr Healy and her persistent pressure to address fiscal mismanagement problems in the chapters The Board supported Disaster Services traditional fundraising approach, but in the face of mounting public and Congressional pressure, gave in to the demands to release all of the Liberty Fund monies to the victims families Organizational Culture What Aspects of the Nonprofit s Culture Contributed to the Events Surrounding the Scandal The American Red Cross organizational culture reflects the dichotomy of a national headquarters and local chapters spread out across the United States The chapters have traditionally believed that they are the owners of the Red Cross name They look at National Headquarters as meddlesome bureaucrats The configuration of the Board of Governors has facilitated this viewpoint because the chapter representatives on the Board of Governors have considerable influence National Headquarters does not appear to have the power or the support to provide the aggressive supervision that chapter operations require It should come as no surprise that Dr Healy uncovered rampant financial malfeasance at the chapter level Because Disaster Services was one of two Congressionally mandated services, there appears to be a culture of preeminence within the ranks Individuals who were longtime members of Disaster Services, whether as staff or volunteers, generally had years of experience working in primitive conditions Those common experiences further promoted the selectivity upon which this division prided itself Dr Healy s forging
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