Healy tells Congress the Red Cross "must have the ability to help the victims of tomorrow."

WASHINGTON (CNN) -- Charities swung into action after the September 11 terrorist attacks, raising more than $1 billion. But questions are being raised about where and how and how much of that money is being distributed.

Bearing the brunt Tuesday during a hearing of the House Energy and Commerce Committee's oversight panel was outgoing Red Cross President Dr. Bernadine Healy.

The Red Cross has raised more than $564 million for the Liberty Fund, which was set up in response to the attacks on the World Trade Center and the Pentagon.

While the agency states on its Web site that it is spending more than any other relief agency responding to the terrorist attacks, it has distributed only $154 million.

Healy was hammered by one New York official for the Red Cross' decision to put aside nearly half of the money raised for future needs that may include terrorist attacks.

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"I see the Red Cross, which has raised hundreds of millions of dollars that was intended by the donating public to be used for the victims of September 11 -- I see those funds being sequestered into long-term plans for an organization," testified New York Attorney General Eliot Spitzer.

Healy later told CNN the Red Cross was a service organization and that previous donations had prepared the agency to deal with September 11.

"We had planned for a weapon of mass destruction attack," she said. "We knew our obligations under the congressional charter. We knew it involved victim assistance and sheltering. We knew that it involved with dealing with rescue workers. We knew that it involved blood."

She also noted that some of the new funding went toward helping communities learn how to deal with other threats such as anthrax.

The hearing was contentious, with panel members trying to get at the issue of donor intent and whether the Red Cross misled donors.

"What's at issue here is that a special fund was established for these families. It was specially funded for this event, September 11," said Rep. Billy Tauzin, R-Louisiana.

"And it is being closed now because we are told enough money's been raised in it, but we're also being told, by the way, we're going to give two-thirds of it away to other Red Cross needs."

The subcommittee asked Healy and her agency to provide the exact language of all of its television and newspaper appeals for donations.

Healy said what the agency has learned is it needs to explain to the public the mission of the Red Cross.

"Don't confuse us with the 9/11 Fund in New York. Don't confuse us with Habitat for Humanity. Don't confuse us with the scholarship in New York for the victims. We have to get that out," she said.

Controversy over the Liberty Fund was one reason Healy decided to resign at year's end. But she defended the agency's decision of how to use the money.

"The Liberty Fund is a war fund. It has evolved into a war fund," she said."We must have blood readiness. We must have the ability to help our troops if we go into a ground war. We must have the ability to help the victims of tomorrow."

Elizabeth McLaughlin says keeping up with red tape required an 18-page spreadsheet.

A widow who lost her husband in the World Trade Center attack also complained to the panel that what money was available from various charities was tied up in red tape and confusion.

"Why then haven't these charities been able to get together and agree on one uniform application? Why haven't they been able to get together and develop a quicker way for families to receive these funds?" asked Elizabeth McLaughlin of Pelham, New York.

"We all have the missing persons reports, death certificates, and any other proof needed to avoid fraud. But the charities are not sharing these documents and information with each other," she testified in tears.

She told the panel that she had to construct an 18-page spreadsheet to try to keep track of all the requirements of various aid groups.

McLaughlin received a $27,000 check from the Red Cross but fears she may still lose her house without additional aid.

The Red Cross said it has helped 25,000 families with food and temporary shelter, counseling and cash assistance.