49 People Accused of Bilking Red Cross
By OLIVIA MUNOZ, Associated Press Writer

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The number of people indicted in a scheme that bilked thousands of dollars from a Red Cross fund designated for Hurricane Katrina victims has risen to 49, federal authorities said.

At least 14 suspects worked at a Red Cross call center in Bakersfield and are accused of helping family and friends file false claims for aid money, said Mary Wenger, a spokeswoman for U.S. Attorney McGregor Scott in Sacramento.

Six have pleaded guilty to federal wire fraud charges since the first indictments were announced in October, she said Tuesday.

The fake claims drained at least $200,000 from the fund, with an average payout of about $1,000, Red Cross spokeswoman Devorah Goldburg said. The total could rise as the investigation continues, she said.

The Bakersfield site is the largest of three Red Cross centers set up to handle hurricane calls. Others are in Niagara Falls, N.Y., and Falls Church, Va. Operators provided qualifying victims with a personal identification number they then presented to receive aid funds from Western Union, authorities said.

The Red Cross contacted the FBI after it performed an audit of the call center and discovered an unusually high number of claims were being paid out at Western Union outlets in the Bakersfield area.

"It was the Red Cross that found this problem," Jack McGuire, the national group's interim president, said Wednesday on NBC's "Today." "We put into effect these call centers to speed up delivery of support to people that needed it. As part of that, we put into place mechanisms to look for fraud up front and to find fraud after the fact."

None of the indicted employees worked directly for the Red Cross.

Officials of Fort Lauderdale, Fla.-based Spherion, which operates the call center, have said the company didn't have time to run background checks on its 1,200 workers.

The indicted employees were providing PIN numbers to their friends and family who would then go to Western Union to collect the funds, Scott said in October.

"Sometimes they'd give a victim a PIN number and turn around and call a buddy with the same PIN, and there'd be a race to Western Union," he said.

McGuire said $200,000 was a small percentage of the approximately $1.4 billion Red Cross provided to Katrina victims. And he said Red Cross was working to improve its delivery and anti-fraud systems for the future.

McGuire, executive vice president of the charity's Biomedical Services, was named to serve as interim leader after President Marsha Evans announced her resignation Dec. 13.

Fraud Alleged at Red Cross Call Centers
Contract Workers in Calif. Stole From Katrina Aid Program, Indictments Say
By Jacqueline L. Salmon, Washington Post Staff Writer
Tuesday, December 27, 2005; A02

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Nearly 50 people have been indicted in connection with a scheme that bilked hundreds of thousands of dollars from a Red Cross program to put cash into the hands of Hurricane Katrina victims, according to federal authorities.

Seventeen of the accused worked at the Red Cross claim center in Bakersfield, Calif., which handled calls from storm victims across the country and authorized cash payments to them. The others were the workers' relatives and friends, prosecutors said last week.

The scam came to light when Red Cross officials noticed that a suspiciously high number of people were picking up Red Cross money at Western Union outlets near the Bakersfield center, even though few evacuees were in the area.

The Red Cross called law enforcement authorities. Forty-nine people in the Bakersfield area have been indicted in the past three months for filing false claims with the center.

More indictments are expected soon, said Stanley A. Boone, an assistant U.S. attorney in Bakersfield.

The incident reveals a sometimes chaotic system that the Red Cross cobbled together after the devastating storm get cash to desperate evacuees. Many had fled their homes with only the clothing they wore and what they could carry.

Before winding up the program two weeks ago, the Red Cross gave out $1.3 billion to evacuees in more than 1.4 million households. It was the charity's largest cash-assistance program ever -- double the amount of cash it distributed after the Sept. 11, 2001, terrorist attacks, according to financial statements.

"We went in knowing that we had a great need, almost an incomprehensible need," said Michael Brackney, manager of the Red Cross's client services program.

But charity experts say that in this era, when a highly visible disaster can trigger an outpouring of hundreds of millions of dollars, relief groups are under enormous pressure to disburse the money as quickly as possible or risk the ire of donors.

In the wake of the Sept. 11 attacks, when the Red Cross was criticized for attempting to use some of the money to prepare for future disasters, donors have little tolerance for diverting funds to other causes, say those who study charitable giving. But that presents challenges to charities that usually are careful to parcel out aid based on need.

"Sometimes they have so much money, there is no obvious, easy way to give it out," said C. Eugene Steuerle, a senior fellow at the Urban Institute who conducted studies of the money donated to charities after Sept. 11.

In the days after Katrina tore through the Gulf Coast, Red Cross officials realized they faced a gargantuan task. Hundreds of thousands of evacuees fleeing the storm would need money quickly. Some left their homes with no identification, no cash and no access to their local banks.

Red Cross workers usually meet individually with victims of disaster -- whether a house fire or a hurricane -- to determine how much money will be needed to get through the first few days. But with more than 1 million evacuees headed to 47 states, Brackney said, "the scope became apparent, and we realized we had to enact nontraditional means for getting assistance to people." Otherwise, Red Cross officials calculated, it might have taken until March to get all the cash to those who needed it.

Red Cross officials decided to give aid to those who lived in Zip codes designated by the Federal Emergency Management Agency as the most severely damaged areas. They also set up call centers to field most of the claims -- the first time in its history it had done so.

Regardless of the damage suffered or individual needs, payments to evacuees were the same: $360 for a single-person household to a maximum of $1,565 for households with more than four people.

To run the call centers, the charity contracted with a North Carolina company, 2XCL, which in turn subcontracted with a Florida staffing company, Spherion Corp., to hire hundreds of temporary workers to handle calls to the Bakersfield center and smaller call centers in Falls Church and Niagara Falls, N.Y. Red Cross also arranged with Western Union to issue cash to evacuees after they had been approved for assistance through the call centers.

The call centers, however, soon became overwhelmed. Up to 16,000 calls a day flooded the Bakersfield center, where 450 Spherion employees and Red Cross volunteers were on duty.

A Red Cross volunteer from Bowie who worked in the Bakersfield call center said the facility's call agents had to use three or four awkward database systems to determine eligibility. It made it relatively easy to cheat by filing multiple claims, said the woman, who asked that her name not be used because she is an active volunteer.

Some evacuees remained on hold as long as eight hours while waiting for an available call center agent. Sometimes they fell asleep.

"We would have to get on the phone and yell: 'Hello! Hello! Hello!' " said Jen Elliott of Bowling Green, Ohio, a volunteer who worked in the Bakersfield call center in September. If they were unable to wake up callers, they would have to hang up, she said.

The work was stressful, workers said. Some frustrated evacuees who had spent days trying to get through cursed and shouted at the workers.

Some Spherion employees, according to criminal complaints filed in the cases, found ways to manipulate the system to their advantage.

Information provided by victims -- such as names, addresses and birthdates -- was supposed to be verified by call center agents before evacuees were issued a claim number that they could submit to a Western Union office to receive payment.

But word spread through the center, prosecutors said, that the system's security could be circumvented. Some Spherion call center workers started creating files for themselves and for others, obtaining claim numbers and picking up cash at Western Unions, prosecutors said.

In one fairly typical case, according to the indictments, three Spherion workers -- 23-year-old Robert Johnson, 19-year-old Aminah Randle and 20-year-old Candice Brown -- allegedly set up false accounts for one another and for several relatives and friends. All have been charged with wire fraud.

Johnson's sister, Nashima Johnson, was arrested after she picked up relief funds at a Western Union outlet in a check-cashing store in Bakersfield. The store manager recognized her as a regular who had lived in Bakersfield for several years and called the FBI.

Among those indicted, six people have pleaded guilty.

Red Cross officials emphasize that no Red Cross workers have been accused in the fraud and that the amount stolen was a tiny fraction of their cash program. They plan to seek restitution.

But they say they have learned from the experience. They are testing systems for the next hurricane season that offer more security but also speed up the process for victims.

"We knew we ran the risk of putting assistance in the hands of potentially unscrupulous individuals not affected by the hurricanes," Joe Becker, a Red Cross official, told a congressional Ways and Means subcommittee at a hearing this month on the charity response to Katrina. "We concluded that it was a reasonable business risk and mitigated the risks as possible."

© 2005 The Washington Post Company

Network For Good

Red Cross Chief Announces Resignation
by Howard Berkes

All Things Considered, December 13, 2005 American Red Cross President Marsha Evans announces she is stepping down from her post, effective at the end of December. During her tenure, the charity faced criticism over its response to Hurricane Katrina. Evans characterizes her departure as a long-planned retirement, though others at the agency cite problems with communication and coordination.

American Red Cross President Resigns
By DAVID CRARY, AP National Writer
Wed Dec 14, 3:41 AM ET

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American Red Cross President Marsha Evans announced her resignation Tuesday because of friction with the board of governors, shortly before witnesses and lawmakers at a congressional hearing assailed the charity's response to Hurricane Katrina.

Red Cross spokesman Charles Connor said the board was not unhappy with Evans' handling of the hurricane crisis, "but had concerns about her management approach, and coordination and communication with the board." It was the second time in three years that such feuding led to a leadership change after a national disaster.

At the hearing in Washington, lawmakers said the Red Cross's uneven response to Katrina calls for major changes in how the charity coordinates with local groups, handles its finances and distributes aid to the disabled. A Louisiana congressman even suggested the possibility of stripping the Red Cross of its dominant role in major relief campaigns.

Jack McGuire, executive vice president of the charity's Biomedical Services, was named to serve as interim president while a search for Evans' permanent successor is conducted.

A former Navy rear admiral who previously ran the Girl Scouts of the USA, Evans took over at the Red Cross in August 2002 as the organization was shaking off criticism of how it handled some donations sent in response to the Sept. 11, 2001, terror attacks.

Evans's predecessor, Dr. Bernadine Healy, said she was forced to resign partly because of disagreements with the board over whether money coming in after Sept. 11 should be placed in a separate fund or a general disaster fund. Some donors were upset that $200 million was set aside for future terrorist incidents.

Healy, now a health columnist with U.S. News & World Report, said in a telephone interview that her departure and Evans' removal reflected serious problems in how the 50-member Red Cross board addresses its internal conflicts and clashes with its top executives.

"You can't have 50 people making decisions," Healy said. "The Red Cross is a public treasure that belongs to America and must serve America. Until these governance problems can be sorted out, it won't be able to do so effectively."

She noted that the Red Cross is chartered by Congress, and the U.S. president is its honorary chairman. "The only people who can fix it are at that level," she said.

After the Sept. 11 donation dispute, the Red Cross promised greater accountability. But the unprecedented challenges posed by this year's hurricanes raised new problems.

Critics said the Red Cross failed to respond quickly enough in some low-income, minority areas; others faulted it for balking at cooperation with grass-roots organizations even as it collected the bulk of hurricane relief funds  more than $1.8 billion to date.

On the positive side, the group mobilized roughly 220,000 volunteers in response to the hurricanes, accommodated hundreds of thousands of evacuees in shelters, and provided financial aid to about 1.2 million families.

Evans, 58, acknowledged in September that the organization's response to Katrina and Hurricane Rita had been uneven, saying the destructive power of the storms "eclipsed even our direst, worst-case scenarios."

In recent weeks, the organization has vowed to address some of the criticisms by seeking greater diversity within its ranks and establishing partnerships with local groups.

At the congressional hearing, Rep. Jim McCrery (news, bio, voting record), a Louisiana Republican, called on Congress to reconsider whether to continue giving the Red Cross a lead role in responding to natural disasters. Having such a designation gave the organization a substantial boost in fundraising, absorbing about 60 percent of all donations, he said.

"If it is not the responsibility of the National Red Cross to step in when a Category 4 hurricane decimates a major metropolitan area and overwhelms one of their local chapters, whose responsibility is it?" asked McCrery.

Joseph C. Becker, senior vice president for response and preparedness for the Red Cross, said the group did its best. "We chose to help those whom we could without delay, while striving to serve all who needed us," he said.

Evans said in a message to her colleagues that she had been thinking about leaving the Red Cross earlier, but stayed on after Katrina struck to "lead our pivotal response to that epic tragedy."

Bonnie McElveen-Hunter, who chairs the Red Cross board, praised Evans' performance, including a reorganization at the Washington headquarters and a strengthening of local disaster response practices. Her statement did not elaborate on the board's friction with Evans.

Paul Light, a professor of public service at New York University, said the rapid turnover at the helm of the Red Cross raised serious questions about the board of governors, which he described as too large and disjointed. "Sacking the president isn't the panacea for what ails the Red Cross," he said.

He said the group needs to upgrade its technology and organization, and recruit new volunteers "who are representative of the communities hit hardest by disasters."

McGuire, the interim leader, has been with the Red Cross since March 2004; he previously was president of Whatman, PLC North America, a British-based manufacturer.

As head of Biomedical Services for the Red Cross, he has sought to improve relations with the Food and Drug Administration, which has charged the Red Cross with repeatedly violating federal safety rules in its handling of blood collection.

On the Net:

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Gulf Hurricanes' Aftermath -- Accountability

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