Under Pressure

Charities jolted by mounting scrutiny and criticism of their response to September attacks

Two months after the terrorist attacks on the World Trade Center and the Pentagon, the dozens of

charities that raised more than $1.19-billion in disaster-relief donations are facing tough questions from Congress, news commentators, and the public over how they are distributing the money.

Most of the funds raised by the country’s charities have yet to be spent. As of last week, charities had funneled more than $204-million to victims, their families, people who lost jobs because of the attacks, and other nonprofit groups that are providing relief services. Much of that — $153.8-million — has been spent by the American Red Cross, which received almost half of the money donated.

While charities have struggled to explain that much of their relief efforts take time to carry out, critics were expressing frustration with the humanitarian organizations’ response to the September 11 disasters.

Accusations included charges that charities have been slow to provide aid, disorganized, and uncooperative with one another. Others worried that nonprofit organizations were forcing victims to use cumbersome applications to seek assistance, or were showing a lack of candor with donors about how much of their money was getting to people affected by the attacks. Speculation even swirled that state regulators or donors might take charities to court if they felt that contributions were not being spent for the purposes for which they were solicited.

The implications for all charities, regardless of whether they are involved in recovery efforts, could be significant. Many charities now think they had “better prepare themselves if there are more hearings and investigations,” says Daniel Kurtz, a New York lawyer who is former head of the Charities Bureau in the New York State Attorney General’s office. “If people start saying, what are you doing lately, how are you accountable for your money, they should be in a position to respond constructively.”

In addition to disputes over donor intent, other questions were emerging, including:

• How much say should the federal government or the State of New York have over how charities spend the money they raise?
• Is greater government oversight needed, and if so, how could it be structured without infringing on charities’ abilities to operate as independent organizations?
• How should charities and the federal government divide up the role of compensating victims of the attacks? The Bush administration is currently weighing whether to provide less government aid to people who receive large payments from charities.

All American charities have a stake in how the charges — and questions — are ultimately resolved.

As New York State Attorney General Eliot L. Spitzer warned in testimony before Congress last week: “The funds should be distributed in an equitable manner, ensuring that no victim is left unassisted. Indeed, if this singularly important task is not performed well — with dignity, fairness, equity, and justice for all of the victims — then the public could lose faith in the entire not-for-profit sector.”

Before and during two hearings on Capitol Hill last week, members of Congress increased the pressure on charities, expressing exasperation with many nonprofit efforts to date.

One member of the House of Representatives, J.D. Hayworth, an Arizona Republican, has called on the House Ways and Means Committee to assume “an oversight role” in the charity relief effort. “The potential is very real that this never-before-seen charitable outpouring by the American people will become bogged down or worse by bureaucratic inertia, overhead costs, and, in some cases, outright fraud,” said Mr. Hayworth, who is a member of the Ways and Means Committee.

Meanwhile, Sen. Charles Grassley, an Iowa Republican who is the ranking member on the Senate Finance Committee, urged six federal and state regulators “to work together to oversee the fair and expeditious distribution” of donations.

The focus of much of the controversy was the American Red Cross, which has pulled in $564-million for its Liberty Disaster Fund, which was created in response to the September 11 attacks.

Members of Congress last week condemned the Red Cross’s plans to spend hundreds of millions of donated dollars on programs that did not involve direct aid to victims or families of those harmed or killed in the attacks. The Red Cross has said it expected to put in reserve more than $260-million of the money it has received to cope with future terrorist acts and prepare for other “emerging” needs.

At a hearing, members of a subcommittee of the House Committee on Energy and Commerce said that the charity had lost sight of its mission and was ignoring the intent of its donors.

Rep. Charles F. Bass, a New Hampshire Republican, said he worried that the Red Cross and other charities might be taking advantage of the avalanche of gifts to pay for other programs with tenuous ties to the disaster. The Red Cross “and perhaps other organizations are trying to work out of a very embarrassing situation,” Representative Bass told Dr. Healy. “The Red Cross and other charities are going to have, over the coming months, a lot of explaining to do.”

Defending herself and her charity, Dr. Healy said that the Red Cross had repeatedly told donors and the public in television ads and other solicitations that contributions would be used to meet needs beyond those that resulted from the September 11 attacks. Members of the House subcommittee asked to see transcripts of public-service announcements and radio shows in which Dr. Healy asked for funds, and other donor solicitations to verify her statements.

Waiting to Distribute Aid

Meanwhile, some charities that established funds in the aftermath of the September 11 terrorist attacks still have not awarded any of the money they have raised.

A Chronicle review of 29 of the new funds found that 11 had held off making any grants, including two of the biggest: the September 11th Telethon Fund, which was started by the United Way of New York City with pledges from a celebrity telethon, and the Twin Towers Fund, which was set up by the New York City Mayor’s Office. New York Mayor Rudolph W. Giuliani said that the Twin Towers Fund plans to distribute about half of the money raised — $40-million — to families before Thanksgiving.

Lawmakers have urged Mr. Spitzer to speed up his coordination of the roughly 200 charities helping families and victims of the terrorist attack.

He told a Congressional subcommittee last week that his office oversees charities to make sure that they use their assets “in ways that fulfill the intent of the donors and further the public interest,” and to ensure that charitable solicitations are truthful, that organizations invest their funds carefully, and that those people who manage charities do their jobs properly. But, said Mr. Spitzer, “my office does not and cannot tell the charities how to spend money, and most Americans probably agree that the government should not control this private-giving process.”