Winner of 2003 Emmy Award for Investigative Reporting, Sharyl Attkisson, CBS News
Transcripts below the links.
Part 1: Alleged waste, fraud or abuse of 9/11 donated funds July 29, 2002
Part 2: Red faces at the Red Cross after internal 9/11 donation audit July 30, 2002
Part 3: Battle inside the Red Cross July 31, 2002
FDA Inspection Report of the Greater Chesapeake & Potomac Blood Service Region
Letter to Congress from Public Citizen
Group asks for an inquiry into the safety of the U.S. blood supply.
Letter to the FDA from Public Citizen
Regarding “dangerous practices by the American Red Cross and safety of U.S. blood supply”
Grassley’s Follow-Up Letter, 08/12/02:
Senator raises new issues after Red Cross’ response.
Red Cross Internal Audit memo, August 2001:
Report cites many “critical” and “major” issues in Red Cross accounting practices.
Internal memo from Dr. Bernadine Healy, 04/16/0l:
Healy warns about accounting problems at local chapters.
Letter from Dr. Bernadine Healy, 04/03/01:
Then-president Healy talks about “festering” issues at local chapters.
The Response:
The Red Cross’ response to Senator Grassley’s questions.
Letter To The Red Cross:
Sen. Chuck Grassley, R-Iowa, questions the organization regarding auditing procedures and Sept. 11 relief.
Interview Transcript:
Partial text of Attkisson’s interview with Red Cross CFO Jack Campbell
Part 1:
Disaster Strikes In Red Cross Backyard
(CBS)Â In part one of her report on the American Red Cross, CBS News Correspondent Sharyl Attkisson looks at how the charity is responding to its biggest criminal scandal.
The American Red Cross may be expert at responding to public disasters, but for years it has failed to get a grip on financial disasters at its local chapters.
There’s the fundraiser in Louisiana caught padding her own bank account with donations, the manager in Pennsylvania who embezzled to support her crack cocaine habit and the executive in Maryland who forged signatures on purchase orders meant for disaster victims, to name a few.
But the biggest criminal scandal inside the Red Cross surfaced in New Jersey last year. And though it’s been kept off the front pages, it ranks among the biggest charity frauds ever.
At the center of the scandal is Joseph Lecowitch, chief executive of the Hudson County Chapter, and his bookkeeper Catalina Escoto.
Escoto allegedly gave herself at least $75,000 in bonuses. All told, prosecutors say the duo stole well over $1 million in Red Cross funds, squandering it on gambling and each other. Escoto pleaded not guilty. Lecowitch died after he was indicted.
“The bookkeeping methods of Mr. Lecowitch and Ms. Escoto leave a lot to be desired,” says prosecutor Michael D’Andrea.
The New Jersey fiasco, in which donations and government grants were all stolen, happened right under the nose of Red Cross headquarters. Critics say the reason the Red Cross has so little control over its chapters is that the chapters are pulling the strings: they collect most of the donations, dominate the national board and resist tighter controls by headquarters.
In 1999, Dr. Bernadine Healy was chosen to head the organization. Said to be stunned by what she saw as a cavalier attitude in New Jersey, she wrote a scathing confidential memo to the Red Cross audit committee.
“Many of the controls presumed by you and senior management to be in place are not there,” she wrote in a memo dated April 3, 2001. “A routine audit of the Hudson County Chapter … identified financial mismanagement of a potentially criminal nature.”
She called reviews by external auditor KPMG “inadequate” because chapters often don’t give details of their finances to headquarters.
And in the most telling statement of all: “We cannot assure the accuracy of … (financial statements) provided to the IRS … This appears to be a major business and legal risk and would impact many of KPMG’s certifications.”
KPMG wouldn’t comment, but the Red Cross now says the criticism from its then president was way off the mark.
Jack Campbell, the chief financial officer for the Red Cross, denies there have been any problems and says he is satisfied with the financial accountability of chapters over the past three years.
“I think we have an extremely solid system of accountability for our chapters,” he says. “Both in terms of financial reporting, internal audits and local guidance and governance.”
Regarding the fraud in Hudson Country that allegedly went undetected for years, Campbell says “no control system is perfect.”
Dr. Healy, clearly the odd man out in wanting stronger chapter accountability, left the Red Cross last fall. A CBS News contributor, she wouldn’t be interviewed for this report. But not long after she raised questions about the chapters’ actions, her grave concerns were confirmed; surprisingly by the Red Cross’ own auditors.
A report obtained by CBS News highlights some of the trends at local chapters:
- “Payroll … inappropriate or incorrect”
- “Financial reports … are not prepared … or are not accurate”
- “Blank checks are accessible …”
- “National disaster contributions are not remitted to national headquarters …”
Weeks later, the terrorists struck, and the Red Cross rushed special investigative auditors to see what the chapters were doing with the millions in donations pouring in.
Part 2
Red Faces at Red Cross
In part two of her report on the American Red Cross, CBS News Correspondent Sharyl Attkisson looks at what investigative auditors found when they visited the charity’s local chapters to see what they were doing with the millions in donations pouring in.
In the hours after the Sept. 11 attacks, a record-breaking amount of donations started pouring into more than 1,000 local American Red Cross chapters.
What donors didn’t know was that some of the chapters entrusted with all that money had been identified by Red Cross headquarters just a few weeks before for having poor accounting procedures, inaccurate financial reports and for keeping national disaster contributions that should have been sent to headquarters in Washington. That according to internal documents obtained by CBS news.
The Red Cross isn’t known for keeping a tight rein on its chapters. But now, it was suddenly crucial for headquarters to find out what chapters were doing with the millions in Sept. 11 donations. So the Red Cross leadership rushed special investigative auditors out to conduct surprise inspections. The results were startling.
According to documents obtained by CBS News, a dozen of the Red Cross chapters audited were marking, or “coding”, donations as local funds. This means chapters like San Diego, Southwest Florida, and Gateway Area, Iowa would keep the money instead of sending it in for Sept. 11 victims.
What’s more, the Savannah chapter “could not provide information regarding cash (and) checks collected.” In Pine Tree, Maine “cash (and) checks (were) unlocked at all times,” and in Los Angeles the chapter there had “no accurate accounting for funds received after Sept. 11,” believed then to total “at least one-half $1 million.”
The fact that the San Diego chapter was coding donations as local was no surprise to county supervisor Diane Jacobs, who’d been fighting the chapter for a year over lack of accountability for fire donations and issuing a doctored audit.
“The local chapters are operating independently,” says Jacobs. “They’re on their own. There’s lack of oversight. There’s lack of accountability.”
Sources tell CBS News the national Red Cross singled out nearly 30 chapters for surprise audits because of their recent financial problems from sloppy accounting to worse. They were even nicknamed by some inside the organization as the “Dirty Thirty.” But when the charity recently answered questions from Congress, it made it seem like there were no problems.
The Red Cross actually defended the chapters, saying they had discretion to keep the money because headquarters hadn’t yet issued guidance. Also, they might have thought the money was in response to other local fundraising efforts.
Jack Campbell, the chief financial officer for the Red Cross, says he wasn’t troubled by the results of the audit. Campbell says the chapters were right to think that some of the money that began rolling in on Sept. 12 was not meant for Sept. 11.
After the audits, he says, the Red Cross did require chapters to send in all the money that they received after Sept. 11, so he claims no harm was done.
The Red Cross also says it imposed a “rigorous set of additional procedures … and more national oversight” of chapters after the audits.
Daniel Borochoff, president of the American Institute of Philanthropy, a charity watchdog group, says it just shows that the Red Cross should be subject to state oversight just like other charities. The Red Cross is currently subject to federal oversight, and that, it says, is enough vigilance.
“It just doesn’t make sense for them to not want to be accountable to the state attorney generals and also to their own national office,” says Borochoff.
The stresses of Sept. 11 brought to a head an internal power struggle that had long been festering inside the Red Cross.
Part 3
Inside Battles at Red Cross
(CBS)Â In part three of her report on the American Red Cross, CBS News Correspondent Sharyl Attkisson looks at the festering power struggle inside the charity that ultimately forced out its president.
The tragic events of Sept.11 heightened a bitter power struggle inside the Red Cross, centering on the millions in donations pouring in for terror victims.
Ordinarily, national disaster donations go into the charity’s National Disaster Fund. Though chapters are supposed to be self-sufficient, they can dip into the fund when they need a little help. Sometimes, apparently, they need a lot. Last year alone, chapters dipped into the National Disaster Fund more than 3,000 times.
Some at Red Cross headquarters were afraid the National Disaster Fund was becoming a “leaky piggy bank” for chapters. And there’s no routine follow-up to make sure they’re spending the money the way they say they are. Even the Red Cross’ own auditors can’t always tell.
For example, money given to the Boston chapter was “not easily traceable,” according to a Red Cross audit report. And National Disaster funds were allegedly stolen in a million-dollar embezzlement at the Hudson County, New Jersey chapter.
All reasons why, when the terrorists struck, then-president of the Red Cross, Dr. Bernadine Healy, moved quickly to keep Sept. 11 donations separate from the National Disaster Fund, and put them in a new account the chapters couldn’t touch called the Liberty Fund.
In a September 2001 news conference, Healy said “this will not be commingled with moneys in our other disaster relief funds.”
That may have been her downfall. Chapters that felt the Sept. 11 money should’ve gone into the National Disaster Fund, where they’d have access to any leftovers, went ballistic. They complained to the chapter-dominated Red Cross board.
Healy’s decision prompted one board member to fire off a blistering memo.
“My phone has been ringing off the hook with chapters” angry about the Liberty Fund. Creating a separate fund “is unacceptable … I have no intention of ignoring this.”
A few weeks later, Healy was forced out. The Red Cross said leaving was her idea, but her face told the story.
In October 2001, David McLaughlin, chairman of the Red Cross board, announced Healy’s resignation during a news conference at Red Cross headquarters in Washington.
During the news conference McLaughlin tells 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.
A CBS News consultant, Healy wouldn’t be interviewed for this report.
Today, the Red Cross’s chief financial officer says there’s no danger that chapters will misspend money from the National Disaster Fund because they have policies in place proving they are trustworthy. And he denies there have been any internal concerns.
“There has never been any high-level of concern at all about the disaster relief fund,” Campbell says. “That disaster relief fund is there as a vehicle to fund major disaster operations and to assist chapters in funding local operations.”
The Red Cross pledges “complete transparency.”
“Our records are an open book,” says Campbell.
However, they wouldn’t let CBS News see which chapters get how much money from the National Disaster Fund. They did say it’s mostly small amounts going to small chapters and totaled $5 million last year.
But information obtained by CBS News shows that chapters actually pulled more than twice that amount from the National Disaster Fund; many of them big chapters getting from $10,000 to more than $100,000.
Sen. Charles Grassley, R-Iowa, is investigating the Red Cross.
“The inability and unwillingness of them to give you that information, it kind of leaves the impression that maybe there’s something there to cover up,” Grassley says.
The behind-the-scenes power struggles are one reason some in Congress are pushing for more oversight of the Red Cross and its chapters. They say the charity that’s done so much good on the outside risks bleeding to death fighting its own internal battles.
