Forty-nine Red Cross contract workers have been indicted for mismanaging hundreds of thousands of dollars intended for victims of Hurricane Katrina, with the lead prosecutor expecting more arrests in the coming weeks.
At the heart of the scandal is an outsourced Red Cross telephone center in Bakersfield, California, which hurricane victims -- many of them destitute -- could contact for money to help them get back on their feet.
After proving that they were legitimate victims, they could claim the funds at a local Western Union branch using a pin number given to them by the center's employees.
Not victims
Many of the pin numbers ended up in the hands of people who had not been affected by the massive storm that devastated parts of the US Gulf Coast in late August.
The storm displaced about a million people from the region and destroyed New Orleans.
At least US$200,000, however, was siphoned to the friends and family members of call center employees, according to Mary Wegner, a spokeswoman for prosecutor McGregor Scott, quoted in the Los Angeles Times.
Scott is prosecuting the case through California's federal court system.
"What they did is call some of their buddies, some of their relatives, and provide these pin numbers," Scott told reporters.
"Persons who had no contact whatsoever with Katrina or the Gulf Coast got those pin numbers, went down to the local Western Union, and then were able to get the money that they had no right to. Thus the fraud," he said.
More arrests
Scott said he expected several more arrests to be made during the coming weeks, possibly doubling the number of indictments.
The controversy has escalated public criticism of the Red Cross, with sceptics asking why the organization allowed a private company to operate the call center and to distribute donations.
Richard Walden, president and chief executive of a separate relief agency, Operation USA, asked why the money had not been given to local groups in the affected communities.
Scott said that the Red Cross had been in a tough spot during the weeks following the storm.
"They were trying to allocate over 1 billion dollars in aid to a whole lot of people who needed it desperately right now ... And so there was a lot of pressure on the Red Cross to get that money out the door as quickly and as expeditiously as possible," he said.
Fraud unacceptable
The Red Cross said in a statement it does not tolerate fraud and that it was working with the US Justice Department and other agencies to prosecute those involved "to the fullest extent under the law, which includes court-ordered restitution to reclaim donor dollars."
"The Red Cross takes financial stewardship very seriously and has a robust system of checks and balances in place to uncover fraud as we did at the Bakersfield Center," the statement said.
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