FINANCIAL MANAGEMENT PRACTICES AT AMERICAN RED CROSS 1

Financial Management Practices at the American Red Cross

Shaniece Jefferson

Roger Mortan

Capella Unversity

Date
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Financial Management Practices at the American Red Cross

Financial management is how an organization handles its finances for its success and the

compliance of rules and regulations governing the firm. The primary purpose of financial

management is to boost optimal profit and performance. Financial management practices affect

an organization significantly (Jain & Yadav, 2013). The American Red Cross is a non-profit

organization with one of the best financial management practices that a non-profit firm can have.

This paper examines the specific practices and strategies that the American Red Cross uses in

managing its finances.

Revenue Portfolio of the American Red Cross.

Portfolio revenue is an organization's resources from investments, dividends, interests,

and capital gains. Portfolio income, alongside active and passive income, forms the three main

income categories. However, the American Red Cross does not invest but gets its revenue from

different sources.

The American Red Cross has a unique relationship with the federal government. The

organization is tax exempted and operates but does not operate as a federal entity. The American

Red Cross gets its revenue from contributions from individuals, institutional contributions,

donations, and cost recovery charges for some of the organizations' charges like safety training

courses. The organization also gets support from the federal and national governments to help it
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tackle emergencies. The government provides both resources and money to help tackle such

community challenges (Chang & Tuckman, 2010).

The American Red Cross makes a considerable amount of revenue for its sole purpose of

aid. Some of the historical revenues generated by the organization are; in 2019, the organization

raised a total of $2,868,800 as of its revenue through donations and other means. The revenue,

however, fluctuates depending on the contributions and donations made. 

Strategies for Performance Management used by American Red Cross.

Performance management strategies are those that a firm's management uses to monitor

and evaluate the efficiency and employees' work. For any organization to realize better

performance, profits, efficiency, and general improvement, they must adopt viable and workable

strategies to enhance their primary goal and performance (TINA, 2017). 

Some of the strategies for performance management used by the American Red Cross include; 

 Communicating company objectives.

The American Red Cross realizes that it is crucial to communicate company goals,

objectives, and visions to its employees and the public. When employees in an organization are

well communicated of the purpose of the firm and expectations of what is required of them, they

tend to work with the set mind of attaining the goal.

 Providing feedback

Providing feedback to employees about their duties, roles, and performance is crucial.

Feedback enables an individual to gauge their performance and effectiveness in an organization.

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The American Red Cross provides feedback to its employees to correct and improve their areas

of weakness or keep up with the excellent work. Feedback helps the organization realize the

effectiveness of their employees and performance. Good performance feedback reinforces strong

skill sets and positive behaviors while showing opportunity areas with a clear path for

improvement.

 Regular meetings

The American Red Cross sets several meetings between the management and the

employees. The meetings are held to discuss outcomes and results after a set period and when

needed. The meetings also help raise issues and solve them, which improves the performance of

the employees and guarantees a positive environment in the organization.

 Utilizing performance Management Software

Performance management software saves time for the American Red Cross organization

and improves the efficiency of the firm. The American Red Cross uses performance management

software to allow for quick and actionable reporting, fosters employee development, and shapes

employees' work effectively.

Capital Budgeting and Financing used by American Red Cross.

Capital budgeting can be defined as an organization's process to determine its investment

decisions. Capital budgeting makes decisions about the long-term investments of a company's

capital. Capital budgeting is crucial to the America Red Cross since it creates accountability and

measurability.
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The process of capital budgeting begins by exploring viable opportunities, estimating the

costs, estimating the cashflows, assessing risk, and implementing (H Décaire, 2021). American

Red Cross is a non-profit organization that has simplified capital budgeting. For every dollar

donated or contributed to the organization's revenue, American Red Cross designates an average

of 90 cents or charity and aid. The data below shows the percentage of American red cross

donations for various purposes.

  Element  percentage per $

Program 90.2

Fundraising 6.2

Administrative   3.4 

 There is no defined revenue for the American Red Cross since donations vary with contributors'

willingness and ability, including individuals, private and public institutions, and the

government.

Investment Strategies by American Red Cross.

An investment strategy is a way of thinking that shapes how an individual or an

organization invests. Management and board of directors of a non-profit organization are

responsible for protecting the assets and resources of the organization. One of the best ways for

any non-profit organization to invest in vehicles, stocks, and bonds. The American Red Cross

invests in shares where its stakeholders can buy the shares and donate them to help those in

need.  
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Internal Controls used by American Red Cross to Manage its Funds and Resources.

Internal controls are plans and procedures implemented by an organization to safeguard

funds and resources from fraud and misuse (Hermanson et al. 2012). The American Red Cross is

an organization that receives a considerable amount of funds in donations. The funds are not

received or contributed as a unit but come in at different times. Given the complexities of the

transactions and the vast number of the transactions, the chances for fraud in American Red

Cross are high.

Internal controls in place used by the American Red Cross:

 Control Environment

Despite being an intangible factor, the control environment is one of the most essential

and effective internal control used in the American Red Cross. It can be defined as the set of

actions that management takes to set the pace of how employees should engage in an

organization. The American red cross uses a controlled environment comprised of policies and

procedures expected to be followed by both the management and employees. These procedures

play an essential role in preventing fraud and misusing the organizations' resources.

 Risk Assessment

Risk assessment is the process of identifying hazards and risk factors with the potential to

cause harm. The American Red Cross uses risk assessment to identify risks and the likelihood of

a risk. The organization uses the control to determine possible gaps. This control is desirable

because it prevents faults from occurring in the first place.

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 Control Activities

Control activities help an organization ensure that risk responses are effectively carried

out. The American Red Cross uses policies, procedures, and techniques to ensure that the

organization's response reduces risk effectively.

Opportunities to Develop and Secure Capital and Financial Resources.

           The American Red Cross is part of the worlds' largest humanitarian network. The

organization has more than 13.5 million volunteers around the world. The organization works

together with individual volunteers or even the state to respond to emergencies, disasters, and

better communities. The organization reaches an average of more than 100 million people

globally each year. Given its importance and outreach, the American Red Cross has notable

opportunities to develop and secure revenue through donations, contributions, and government

grants and support.

Investment Philosophies and Policies Adopted in conjunction with Investors.

An investment philosophy is a set of beliefs and procedures that an investor uses to guide

investment in an organization. An investment philosophy is not a narrow set of rules but

guidelines that take into account their goals, risk tolerance, and expectations. For-profit

organizations have the following investment strategies;

 Momentum Investment

 Growth investing

 Value Investing
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 Dividend growth investing

For a not-for-profit organization like the American Red Cross, the organizational

stakeholders have their predetermined investment philosophies and policies. The stakeholders in

the American Red Cross expect the organization to use the revenue attained exclusively for the

purpose meant. American Red Cross uses about 91 percent of the revenue attained for its primary

purpose and only about 3 percent for administration expenses. The American red cross has put it

clear that its primary intention is to make the world a better place by coming through during

crises and emergencies. Investors (revenue providers) in the organization use such data to help

the organization attain its goals.  

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References

Chang, C. F., & Tuckman, H. P. (2010). Income diversification. Handbook of research on

nonprofit economics and management, 5-17.

https://www.elgaronline.com/downloadpdf/edcoll/9781847203588/9781847203588.0001

0.pdf

H Décaire, P. (2021). Capital budgeting and idiosyncratic risk.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3496358

Hermanson, D. R., Smith, J. L., & Stephens, N. M. (2012). How effective are organizations'

internal controls? Insights into specific internal control elements. Current Issues in

Auditing, 6(1), A31-A50.

https://meridian.allenpress.com/cia/article-abstract/6/1/A31/170658

Jain, P. K., & Yadav, S. (2013). Financial management practices. In An empirical study of

Indian corporates (Vol. 3, pp. 265-278). Springer New Delhi.

https://link.springer.com/content/pdf/10.1007/978-81-322-0990-4.pdf

TINA ASANGO, O. U. M. A. (2017). THE ROLE OF TIME MANAGEMENT STRATEGIES

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