By Jeff Jones

The American Red Cross (ARC) and its hundreds of chapters serve as a microcosm of struggles, financial and otherwise, that have afflicted nonprofits in general in recent years.

At a local level, a small sampling shows some chapters have had to overcome fundraising struggles, tragedy, debt and theft. Nationally, the American Red Cross is shrinking its chapters, from some 1,350 in fiscal year 2000 to approximately 950 in 2003. The trend appeared to continue in 2004 as the number of chapters stood at 882.

“Most of these are voluntary give-ups of the local chapters’ charter because they are merged into other units that are more economic to run,” said Bob McDonald, chief financial officer at the American Red Cross headquarters in Washington, D.C. “Many of these are a consolidation into large economic (in a humanitarian sense) units. Former chapters do not disappear from those local communities but become administrative offices.”

Nationally in fiscal 2003, ARC chapters showed a deficit of $27.8 million that was largely offset by Biomedical Division performance of $25.7 million driven by an increase in the price of a unit of blood and plasma derivative sales, McDonald said.

Earlier this year the Red Cross established eight regional service areas. In each area there were roughly 100 chapters, McDonald said. The concept is to have the chapters work through their service area first if they need something, such as being short of money, Red Cross officials said.

There’s no final number of chapters the national office is trying to get to, McDonald said. “We will continue this process based on the health of the chapters and the ability to serve the communities,” he added.

The mergers won’t affect the national organization’s bottom line in money it receives from chapters, McDonald said. “Some of these chapters did face financial problems, but the answer wasn’t to close them off,” Devorah Goldburg, a Red Cross spokeswoman said. “The answer was to take a closer chapter that was really strong and have that be a service area so delivery of service could still occur.”

For example, the Western West Virginia Chapter in Huntington, W.Va., agreed to forfeit its chapter charter this past August and join forces with the Charleston, W.Va., chapter after financial struggles and the death of its executive director.

The Charleston chapter will take over back-office functions, such as marketing and accounting, according to Lawrence Shao, former chairman of the Huntington chapter.

“Nationwide, it’s just like a lot of companies in various industry sectors, there’s been a lot of mergers. The nonprofit organization is not exempt to that phenomenon,” Shao said. “Fact is, after 9-11 a lot of nonprofits have had problems raising funds and capital. To be a more efficient organization the trend has been to consolidate resources.”

The chapter’s annual budget was roughly $400,000, Shao said. It ran a slight operating deficit in fiscal year 2004 but received a good rating the previous fiscal year, he added.

“It has been a challenging task,” Shao said of fundraising.

To complicate matters, the chapter also experienced human misfortune. “It was a tragic loss to lose our executive director,” Shao said. “He was a very talented person. Soon after that there was discussion about the annexation.”

The consolidation and a more centralized system made sense, Shao said. “It’s a natural progression,” he said. “All of the back door activities are now handled by a few larger chapters.” The Huntington location will continue to provide local disaster and emergency services, he said.

As of mid-September, a disaster service coordinator and a health and safety coordinator staffed the Huntington office after recent departures of the accountant and volunteer coordinator, Shao said. Two local board members will sit on the Charleston board, he said.

In Rocky Mount, N.C., the Twin Rivers chapter has carried an average deficit of $35,000 across the past five years, and remains $40,000 in the hole.

There were several contributing factors to the situation. In 2002, the chapter merged and absorbed two other chapters. “As a result, we increased our service demands,” said Lynwood Roberson, the chapter’s executive director. “We did not increase the revenue to meet those demands. From 2002 to the current times we used up every bit of reserves we had. Once the reserve was depleted we continued to do the job and build up the deficit we currently operate under.”

During the past four years, the number of house fires tripled to 130, with average costs of $1,200 per fire. Military family assistance has increased 400 percent to 600 cases, given the war on terror and military personnel spread across the world, he said.

A second factor in the cash crunch is the lagging economy. “When times are hard individuals cut back on their contributions, and businesses cut back on their contributions and training,” Roberson said.

The latter hurt the Red Cross because one of its revenue sources is First Aid and CPR programs, he said. “Nobody ever tried to stop the bleeding,” said Roberson, who arrived at the chapter this past February. “The bleeding has stopped here.”

The chapter is cutting back on some expenses and has reduced staff, Roberson said. It has restructured the board and recently developed its first-ever strategic plan, he said. Roberson is also eyeing better marketing of the chapter.

The community responded to recent appeals, and the recent spate of hurricanes raised awareness that the Red Cross needs money and led to more local donations, he said. “I don’t yet see the light at the end of tunnel, but I know one’s down there,” Roberson said. “Before, I wasn’t sure if there was a light at the end of the tunnel.”

The Western Colorado Chapter of the American Red Cross in Grand Junction, Colo., is still working to regain donors’ trust after a former executive director pleaded guilty and was sentenced in early 2004 for stealing donations soon after Sept. 11, 2001 to purchase an SUV for himself, according to published reports and Red Cross officials.

Jean Hermanson, executive director of the Western Colorado Chapter, arrived this past August from a Red Cross chapter in Washington state. Hermanson confirmed that a former executive director, John A. Drenth, had been convicted of stealing from the organization. Drenth’s attorney did not return telephone messages seeking comment.

“We’re certainly a chapter that has been impacted significantly in the past by actions of its former director,” Hermanson said. Another director served between Drenth’s departure and Hermanson’s arrival.

The post-September 11 period and weak economy was difficult for many nonprofits, Hermanson said. “We’ve been challenged,” Hermanson said. “We’ve really scaled down. I’ve got minimal staff providing as much as we can with volunteer help.”

The chapter and community have worked hard and are making headway in bringing the chapter back to a respectable place in the community and being held accountable for donor funds, Hermanson said.

Lately, Hermanson said, the group is seeing an increase in giving, perhaps due to an increase in discretionary income, although she was still getting a sense of the local economy.

Now Hermanson’s biggest challenge is getting the community familiar with her. “It makes a lot of difference when you have a reputation and continuity in the community,” she said. “People don’t know me, and they’ve had a bad experience with a previous director. Even under the best of circumstances contributions were down primarily (because of) the economy and the volume of giving following the events of September 11.”

Still, there seems to be an underlying hope as Red Cross chapters and its national system deal with the financial storms familiar to many nonprofits. “The Red Cross is going to be here forever,” Roberson said. “We’re a needed community service.”

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