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Red Cross Probes Post-Katrina Fraud

The Red Cross said Friday it is "aggressively investigating" allegations brought by volunteers of outright criminal activity during Katrina, reports CBS correspondent Sharyl Attkisson.

Former Red Cross volunteer and attorney Jerome Nickerson wrote a blistering investigative report made public Friday. In an exclusive interview with CBS News, Nickerson said he found widespread evidence of theft and fraud — including a veritable black market of disaster relief goods operating out of New Orleans with the knowledge of some Red Cross supervisors.

Red Cross managers, Nickerson said, "...were definitely protecting individuals that were engaged in diverting Red Cross supplies, it was absolutely unmistakable. I mean we reported it to the FBI, I reported it to the FBI, I reported it to homeland security."

Nickerson uncovered what he called rogue operations — including warehouses with millions of dollars worth of off-the-books Red Cross inventory. On a tip, Nickerson also seized Red Cross laptops and other equipment allegedly used to steal tens of millions in disaster funds. Along the way, Nickerson says, Red Cross personnel fabricated documents, impeded his investigation, and even threatened him.

After Nickerson turned his report in to Red Cross headquarters, he says he was treated like a pariah and pulled off the job.

His findings counter what the charity told the public earlier this month in an open letter — that there were no serious fraud or criminal issues at play.

"It's a flat-out lie," Nickerson said. "The fact of the matter is we found numerous individuals that were committing criminal acts and were committing fraud against the Red Cross, and National Headquarters knows it to be a fact."

The Red Cross declined an interview with CBS News. But officials say they investigate all allegations, prosecute criminals, and have already recovered more than $2 million. They say this shows that their tough-on-fraud policy is a deterrent.

"Any conduct that violates either the law or Red Cross code of conduct is not tolerated," Red Cross spokesman Chuck Connor said Friday, adding that any criminal wrongdoing uncovered by the group's conduct and ethics office will be turned over to law enforcement officials.

Allegations of wrongdoing go far beyond what the statement said were "inevitable ... departures from standard procedures" after such a catastrophe, according to the chairman of the Senate Finance Committee.

The charity's public promise that it is investigating claims comes under increasing pressure from congress.

Sen. Charles Grassley, R-Iowa, has said volunteers may have committed criminal fraud. The accusations include improperly diverting relief supplies and violating Red Cross rules by using felons as volunteers in the disaster area. Grassley has threatened to rewrite or revoke the organization's charter if it does not overhaul its operations.

In a statement Friday, Grassley said he hopes the Red Cross' investigation will embrace whistleblowers and provide a top-to-bottom review of the group's leadership, oversight and openness.

Especially worrying, Grassley said, was the Red Cross' failure to take seriously the concerns of volunteers reporting the thefts "until I drew attention to them."

"The Red Cross needs to change its mind-set so it addresses volunteers' concerns swiftly and appropriately, regardless of whether a Senate committee chairman is asking questions," Grassley said.

The New York Times reported Friday that more than a dozen Red Cross volunteers described an organization that had few cost controls, little oversight of its inventory and no system of basic background checks for its volunteers.

The volunteers cited little direct evidence of criminal activity, but the magnitude of the missing goods had convinced them that the operations were being manipulated for private gain.

In one case, a kitchen manager swapped 300 prepared meals for parking spaces for Red Cross emergency response vehicles without creating any record of the transaction.

The Red Cross had 235,000 volunteers working in the Katrina disaster area, nearly six times the previous peak of 40,000. The sheer number collapsed the normal vetting process, the volunteers said.

The charity has said it responded to Katrina as best it could in circumstances almost unimaginable, while acknowledging that it stumbled in "technology, logistics and coordination."

That admission was not good enough for Grassley, who said he is set to meet next week with American Red Cross board of governors chairwoman Bonnie McElveen-Hunter.

"I hope to understand better what the timeline is for a complete review and reforms," Grassley said.

Two presidents of the Red Cross have resigned in a little more than four years. Both resignations came after clashes with the board of governors on the tail of major disasters: Dr. Bernadine Healy stepped down shortly after the Sept. 11, 2001, terror attacks and, more recently, Marsha Evans quit following Hurricane Katrina.