03:34 - Source: CNN
Federal agents raid Goodwill in Memphis

Story highlights

Memphis Goodwill headquarters raided this week

AbilityOne is under investigation over allegations of fraud

Watch the latest on the investigation into AbilityOne tonight at 8 p.m. ET on AC360˚.

Memphis CNN  — 

Federal agents from Washington raided Memphis Goodwill this week as part of a growing national fraud investigation into AbilityOne, the top taxpayer-funded program that provides work to disabled workers, according to inside sources.

More than two dozen agents from numerous federal agencies drove onto the Memphis Goodwill headquarters on Wednesday, sealing the back of the property containing the corporate headquarters, which administers millions of dollars in Federal contracts throughout the Memphis metropolitan area.

The fraud investigation into the government program was first detailed in an exclusive CNN story several weeks ago. AbilityOne and its management operation, SourceAmerica, are now under investigation by at least four separate Offices of Inspectors General, and also by the U.S. Department of Justice, according to inside sources.

AbilityOne and SourceAmerica, and many of the contracts they administer, are being investigated over allegations of financial fraud, operating illegal contracts, not employing the legally required number of disabled workers, bid-rigging, contract “steering,” and possible racketeering, according to sources. The program is one of the nation’s largest taxpayer contracts programs, awarding some $2.3 billion annually to contractors across the country.

Companies awarded the taxpayer-funded AbilityOne contracts are required by law to have 75% of their work performed by blind or severely disabled employees. But as many as half the contracts across the country may be operating illegally and not hiring enough disabled workers, inside sources tell CNN.

One former top officer has stated repeatedly in recorded conversations that the entire program is run like organized crime.

“That’s the way they play the game. We are dealing with the Mafia here, the old SourceAmerica Mafia,” said Jean Robinson, the former top attorney for SourceAmerica.

She described the contract-awarding process as a “sham” driven by insider influence and cronyism. Robinson was later fired and sued by SourceAmerica and has not replied to CNN for comment.

AbilityOne and SourceAmerica have denied wrongdoing in their operation and have issued numerous statements in recent weeks assuring their contractors and allies that there is no problem in the program. Officials in AbilityOne and SourceAmerica at first said they had no knowledge that any investigation was under way by the Justice Department. In recent weeks, the officials with SourceAmerica have confirmed the investigation is, in fact, ongoing.

In the Memphis raid, the agents descended on the corporate offices just after 9 a.m., arriving in about 10 federal unmarked vehicles and escorted by the same number of Memphis police cruisers.

CNN Investigations

  • Email your story ideas and tips to CNNtips@cnn.com.

    The federal agents, wearing mostly black and brown unmarked federal police gear, moved their cars around the entire corporate offices, sealing in office workers and officers, and then had Memphis police create a “wedge” blockade of police vehicles, preventing anyone from entering or leaving.

    Agents moved in and out of the corporate offices, carrying in numerous empty boxes and large containers, while keeping nearly all the staff inside, where many were interviewed and asked about the operations. As the day wore on, workers inside the corporate office were let out, one by one. They left quietly, climbed into their cars, and were then allowed outside the police blockade. Almost none of the employees spoke to reporters, most simply waving and then departing.

    One man who was identified by Goodwill workers as the manager of the corporate office was escorted by agents several times to his black SUV, where he pulled out material and then went back inside. Eventually he was allowed to leave, looking shaken as he passed. When asked if he would comment to CNN he simply put up a hand and said, “No comment please. No comment.” Another employee spoke to reporters, but said she had “no idea” why the agents were there and that they gave her no indication what was going on inside.

    Typical Goodwill stores and operations recognized by the public are not believed to be under investigation, but rather only the specific programs that get the lucrative AbilityOne contracts.

    The main Goodwill store at the location was not affected and remained open throughout the day. Only the corporate offices, where the millions of dollars of contracts are administered, were raided. Dozens of Goodwill employees from the main store were left bewildered and uninformed about what was happening at the headquarters.

    Since 2010, Memphis Goodwill Industries has received more than $22 million in AbilityOne contracts to provide services such as janitorial work for the IRS and Public Buildings Service and to operate call centers for the Department of Veterans Affairs, according to a government database of federal contracts.

    Memphis Goodwill continues to list job opportunities related to federal contracts on its website.

    Goodwill offices are among the major contractors in the AbilityOne program. Goodwill offices across the country receive hundreds of millions of dollars in taxpayer-funded contracts to conduct numerous operations ranging from sewing uniforms to conducting janitorial and cleaning services.

    But the Goodwill operations that receive the contracts appear independent from state to state, and the contracts are awarded to the local offices to administer. Goodwill is only one of hundreds of contractors nationally that receive the AbilityOne contracts.

    The Memphis raid, led by agents from the Office of Inspector General for the Treasury Department and the General Services Administration, is only the first of what are expected to be more raids nationally, sources tell CNN.

    What is AbilityOne?

  • The AbilityOne program was first created with ambitious, altruistic goals by President Franklin D. Roosevelt and Congress in 1938 to help give jobs to the blind.

    The federal agents at the raid in Memphis declined to speak to reporters, and when asked if they could provide any information, they directed reporters to the U.S. Attorney’s office in Memphis, a division of the Department of Justice. Calls to the U.S. Attorney’s Office were returned by a spokesman, who told CNN “no comment” and would not confirm any information regarding the investigation.

    The AbilityOne and SourceAmerica program have been sued multiple times in recent years by contractors who allege the bidding process to get the lucrative contracts is “rigged,” and inside favoritism and “steering” determines where the taxpayers’ money is awarded. Several of the lawsuits also allege that the contractors who get the taxpayers’ money are not operating legally and are not hiring the required ratio of disabled workers. AbilityOne and SourceAmerica have vigorously denied the validity of those claims, but sources tell CNN that contracts across the country are operating illegally and out of compliance, not hiring the required number of disabled workers.

    One manager overseeing employees working on an AbilityOne contract told CNN, “The majority of the individuals that were being hired were not severely disabled.”

    “The jobs are being given to individuals who are able-bodied, who could go find employment anywhere else,” the manager said.

    SourceAmerica and AbilityOne have both declined CNN’s repeated requests for interviews.

    In a recent written statement, SourceAmerica denied the problems.

    “The allegations have no basis in fact, and are being advanced by two disgruntled nonprofit agencies through lawsuits and a PR campaign … SourceAmerica has conducted and continues to conduct business with the utmost integrity and complies with all federal and state requirements,” SourceAmerica said.

    In response to CNN’s questions about Memphis Goodwill, AbilityOne said, “As a federal agency, the U.S. AbilityOne Commission does not comment on any federal investigations.”

    Memphis Goodwill Industries President Tony Martini told CNN his organization is “working diligently alongside everyone involved to help them get the information they need. We’re hopeful to know more soon.” National representatives of Goodwill did not respond to CNN’s request for comment.

    CNN’s Drew Griffin contributed to this report.