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
(CBS) In part one of her report on the American Red Cross,
CBS News Correspondent SharylAttkisson 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
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
"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
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
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
·"Payroll inappropriate or incorrect"
·"Financial reports ... are not prepared ... or are not
·"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.