Blood And Money

There are so many things La-Shawn Clark never thought she'd be dealing with right now, least of all the overwhelming weight of her grief. Her husband, Keefe, who courted her with flowers even after they married 11 years ago, was last seen carrying a wheelchair-bound stranger down a smoky stairwell in the World Trade Center. Keefe had been a corporate chef at Fiduciary Trust, and the answer to La-Shawn's prayers. "All of my hopes and dreams went down the drain in the blink of an eye," she recalls sadly.

But the thoughts that have occupied La-Shawn's mind in the three months since that day have been about money, not loss. Keefe's $49,000 salary was the main support for their family of five kids, each continuing to incur life's ordinary expenses. Chaz, the eldest at 17, needs $442 for senior pictures and $50 apiece for college applications. The second youngest, Taj, turns 8 this Friday, and La-Shawn wants to buy what Keefe would have gotten him, a copy of "Shrek." Despite turnoff notices from ConEd, she has been able to survive. But she worries endlessly about how she will manage in the years to come, when tuition bills arrive and the spotlight of September 11 has faded to black.

The Clarks are exactly who most Americans had in mind when they responded with the largest charitable outpouring in history, donating a record $1.4 billion to 240 separate terror-related nonprofits. In just 10 weeks, 60 percent of American adults contributed something, regardless of income--nearly half of everyone earning less than $15,000 gave to the cause.

But despite the good intentions of Americans and the best efforts of the charities, so far only $324 million--23 percent of the total--has made it out of the funds' bloated coffers. Several charities have distributed no money at all. It's no wonder so many people are livid, though perhaps none more flamboyantly than Fox News' Bill O'Reilly, who has become a bullhorn for the feeling that the big charities are tending their enormous bureaucracies rather than passing on the money to victims. It is just the kind of fight he loves. "The top of my head is about to blow off here," says O'Reilly, who has so far devoted nearly 40 segments of "The O'Reilly Factor" to the charities crisis. "Can you imagine the people burying their dead are not getting this money?"

No agency has been under more strain than the American Red Cross, which collected $619 million, almost half of every dollar donated. Although no group has given out more money to more victims, the 120-year-old charity has nonetheless appeared to bungle nearly every effort to help. From the onset Red Cross executives sent confusing messages. In their worst misstep, they announced they would use nearly half the money to build an infrastructure to respond to future terror attacks, rather than passing it directly to the victims' families, as so many donors had assumed. The backlash has been severe, including a stinging congressional hearing last month and the forced resignation of Dr. Bernadine Healy as Red Cross president in October--and it has plunged the agency into its worst crisis in recent history.

What happened? A behind-the-scenes look at the Red Cross crisis, based on hours of interviews with current and former staffers--and the first interview with Healy since her resignation--shows how this extraordinary infusion of cash became a burden to the Red Cross and to the other post-terror charities. Right or wrong, Healy's stewardship seemed seriously out of sync with what her donors and clients wanted. Instead of changing course, she seemed to publicly scold her critics--and nothing looked more awful than watching the agency that Clara Barton founded upbraiding anyone at this terrible time. The PR giant Howard Rubenstein calls it all "a classic case" of PR missteps. Says New York Attorney General Eliot Spitzer: "They seriously diminished the public's confidence."

Now in full retreat, the Red Cross has launched a massive ad campaign aimed at winning back the nation's trust, and announced plans to disburse $275 million, half of what was raised, by the end of this month. That promise doesn't comfort La-Shawn Clark. Even though the Red Cross has so far given her $15,000, the humiliating process and the knowledge that others have gotten more fuels her resentment. "They seem entirely too disorganized and inconsistent," she says. "If something like this ever happens again, no one is going to send them money."

Healy, 57, is a noted cardiologist who was leading the American Heart Association in 1991 when President George H. W. Bush named her the first woman to run the labyrinthine National Institutes of Health. She arrived at the Red Cross in 1999 after Elizabeth Dole left to run for president--with orders to prepare the sprawling, sluggish agency for a time of new perils; to school it, as she has frequently said, in "third-century civil defense." But the Red Cross is a huge and unwieldy corporation, with thousands of employees and 1.2 million trained volunteers--and a notoriously difficult 50-member board of governors. Healy, acclaimed for her forceful and visionary leadership, also has a famously divisive management style. Even her admirers find her a bit prickly. "She's an in-your-face-type person. I got all sorts of static from her," says her friend Dan Goldin, who crossed paths with Healy when he was the director of NASA and she was running the NIH.

Critics and defenders alike give her high marks for the early response on September 11. Within minutes, Red Cross disaster experts were tending the wounded at the three crash sites, a massive mobilization unmatched since World War II. Their work was extraordinary. They managed to distribute food and disaster supplies, set up emergency shelters and counsel the people who escaped the attacks--and the loved ones of those who didn't. "We had people moving around the country in two or three hours," says Bob Bender of Red Cross's Greater New York chapter. In the weeks since, the Red Cross has served 11 million meals, mobilized 49,452 volunteers and counseled nearly 190,000 Americans through their anxious reckonings.

That Tuesday, Healy calculated the relief efforts would cost $100 million. This worried her, as she only had $28 million on hand. But almost instantly, a tremendous wave of donations began arriving from across America--three per second over the Internet alone. Minutes after seeing the Twin Towers fall, Vince Soulsby, a 27-year-old construction executive from Roseville, Mich., called WWJ Newsradio to announce he was heading to New York City. "If you want to give me a box of macaroni or a quarter for the Red Cross," he remembers saying, "I'll be in the Meijer's parking lot tomorrow at 1 o'clock." People swamped his card table with 100 brand-new pillows, 200 fleece blankets, crates of flashlights and two-way radios and thousands of water bottles, pickaxes and goggles. A 7-year-old boy took off his sneakers and dropped them in a bin. A toddler donated his teddy bear. By the time Soulsby headed east, he had collected 400 tons of supplies in 30 tractor-trailer trucks--including cash donations of $65,000--all bound for the American Red Cross. A day later, Soulsby and his convoy parked their trucks and walked through the silent chaos of lower Manhattan to give a backpack of cash to the first Red Cross representative they could find (he turned out to be Frank Donaghue, a corporate executive who safely deposited it).

Exactly what the donors intended her to do with their money became Healy's lasting headache. Charities always pay special attention to what they call "donor intent," which they try to discern from the smallest clues (like scribbled memos on the faces of checks). For some of the terror funds, this was plain. The Twin Towers Fund, for instance, clearly defined itself as being for uniformed-services workers. In three public-service ads recorded on Sept. 12, Healy promised donations would go toward "a long period of uncertainty and recovery." It turns out to be a phrase open to interpretation. To Healy, it meant not only the immediate disasters, but any future terror assault in this new domestic war, such as the unprecedented anthrax scare that followed. What's more, the Red Cross's congressional charter requires it to keep an ample blood supply on hand. At last count there was only enough blood banked to meet three days' needs; Healy felt the prospects of a domestic war required a 10-day supply. This is what she meant by "uncertainty," she says. "If tomorrow there is a nuclear hit or a high-yield explosive hit, and there is a desperate need for blood, we must be sure it's there. If this indeed is a new kind of war, we knew the American Red Cross had unique obligations." (The blood drive became her second headache, as tens of thousands of units went unused and later expired on the shelf.)

To comply with what she felt was the donors' intent, Healy determined the cash donations should not be mingled with the Red Cross's longstanding Disaster Relief Fund, which typically uses excess donations from major disasters like hurricanes to help with local ones, like the household fires the Red Cross responds to 67,000 times a year. She placed all post-September 11 donations in a new account called the Liberty Fund, and hired outside "forensic accountants" to assure that the "resources marshaled are spent wisely and caringly," as she later told Congress. Ironically, Healy's good intentions rankled her board members, with whom she had frequently clashed. Some felt the money should be available for ordinary use, according to internal memos reviewed by NEWSWEEK. "I think it's fair to say the board of governors was disappointed they were not consulted," admits Harold Decker, the Red Cross's interim CEO.

At first, none of the Liberty Fund was earmarked to reach victims or their families at all. Traditionally the Red Cross offers food and clothing vouchers and emergency shelter, not cash, to Americans in need. Besides, Congress has set aside the Victim Compensation Fund, part of the federal airline bailout package, to see to survivors' long-term needs. But on Sept. 19 Bud Flanagan, senior managing director of Cantor Fitzgerald, the bond firm that lost nearly 700 employees when the towers collapsed, pleaded with Healy for cash grants. Even the well-paid victims were overextended financially, with staggering mortgages and young children at home, he said.

Healy was moved. "We could not have met with a more humanitarian audience," Flanagan says. Healy pledged up to $20,000 over three months to each family of a deceased person. The Family Gift Program, as she called it, would be distributed through the Liberty Fund and cost another $100 million, thus doubling her projections.

Finding the money was no problem. In a matter of weeks, the Liberty Fund balance raced well past $500 million. So much money flowed to the fund in Washington that soon local Red Cross chapters feared there would be nothing left for them. Unrelated charities complained that by taking so much money out of the charity stream, the Red Cross was crippling the entire nonprofit world for years to come.

Almost as soon as the Family Gift Program was announced, it got bogged down in the details. The Red Cross simply did not have the infrastructure to become a kind of welfare office for so many victims. The program began reviewing applications from a booth at Pier 94 in Manhattan, the temporary clearinghouse for victims' services. Everyone who has ever gone to the crowded, drafty pier has complained about a lack of coordination among the agencies. (Now that the Red Cross has agreed to share in a joint database, which goes online this week, this aspect may soon improve.) And there has been no open discussion among relief officials on key policy questions, such as how to assure the money is equitably distributed. As a result, the experience grieving families have faced is chaotic, arbitrary and enervating.

Liz McLaughlin, a 34-year-old stay-at-home mother, first encountered the confusion on the Friday after her husband, Rob, a Cantor Fitzgerald vice president, perished in the collapse. Although she lives in a five-bedroom home in affluent Pelham, N.Y., McLaughlin and her year-old son, Nicholas, were left in grave financial straits. Their mortgage and car payments are substantial; Rob had minimal life insurance and little in the bank. To keep track of her often-futile applications to some 40 distinct charities, McLaughlin created a 22-page spreadsheet. So far she has received 20 checks, including nearly $30,000 from the Red Cross. "I'm lucky," she says. "I'm educated, I have a lot of energy." In contrast, firefighters' spouses like Martha Butler will be seen after by a broad system of programs that are just open to that profession. The disparities make her uncomfortable, she says, adding: "There are so many heroes we don't know about."

La-Shawn Clark's husband was one of those. His company--Sodexho, which ran the kitchen where Keefe cooked--has bent over backward to help her out. It has continued to pay Keefe's salary until a small insurance policy comes through. At Pier 94 she received $34,500 in grants, including $15,000 from the Red Cross. She and her five children got just over half what the Red Cross gave McLaughlin, because the agency's policy is to cover actual expenses. As a result, poorer people get less. The inequities make Clark extremely angry. "I'm insulted," she says, "they're telling me that my husband was worth nothing." Frustration like hers reached reporters, op-ed writers, even congressmen, who on Nov. 6 held an acrimonious hearing accusing the Red Cross of deceitful fund-raising. Nobody could imagine why, with so much money sitting in Washington, grieving family members were made to grovel in New York. Eventually, Red Cross chapters across the country came under fire. "People were very angry," a Red Cross spokesman admits.

Even Vince Soulsby took offense. He visualized the spouses and orphans as the sole beneficiaries of his aid drive. "I wanted to make sure it got to New York," he says. "I'm not saying anything about the Red Cross in Michigan, but I wanted to make sure it didn't stay here." Instead, it went to headquarters.

To this day Healy believes that her fund-raising message was clear, and her goals appropriate. "You know, we were almost working without reflection, working to get everything done we had to do. I was at each of the three attack sites, in the Pentagon several times. I was focusing on the Armed Forces Emergency Services Center, visiting all the blood sites and having discussions about the strategic blood supply. We were working with chapters on grieving and healing programs for communities and neighborhoods across the country. I stepped back to ask myself if we were doing it right. But never if we were controlling the spin. I just don't think that way."

But Healy's board did and, after clashing with her in October over an unrelated issue involving the Israeli Red Cross equivalent, they gave her a vote of no confidence. Mannie Jackson, the owner of the Harlem Globetrotters and one of Healy's fiercest supporters on the board, believes she was made a scapegoat for the entire conflict. "It was a rush to judgment," he says. "There may be a moment where they look back [at Healy's dismissal] and go, 'Oops, we did that?'" Indeed, confusion at the Red Cross didn't immediately subside. At Healy's formal resignation press conference, board chairman David McLaughlin insisted she left on her own volition. Looking stunned before the C-Span cameras, she seethed, "I had no choice." And then she cried, something even her daughter has seen only twice.

Despite the enduring confusion about what really happened there, outside experts believe the Red Cross has begun to climb back into the public's favor. Last month the agency promised the entire Liberty Fund to victims' families, and by last week 3,200 families had received grants averaging $38,000 each, the Red Cross says. (Another 497 families have turned down the aid, declaring it is not needed.) "The Red Cross handled all of this poorly, but they are improving," says Vartan Gregorian, president of Carnegie Corporation. "You have to have glass pockets in this business." Still, it remains to be seen whether the damage at the Red Cross--and among charities in general--is so profound that donors will be slow to forgive them.