SACRAMENTO — Master Sgt. Toni Jaffe was known as "the M&M lady" because she decorated her office cubicle with keepsakes of the confection's advertising characters.
However, the treats she dispensed were sweeter than candy and are now the subject of a criminal investigation.
From 1986 until her retirement last year, Jaffe's job with the California Army National Guard was to give away money — the federally subsidized student-loan repayments and cash bonuses — paid for by federal taxpayers nationwide — that the Guard is supposed to use to attract new recruits and encourage Guard members to reenlist.
Instead, according to a Guard auditor turned federal whistle-blower, as much as $100 million has gone to soldiers who didn't qualify for the incentives, including some who got tens of thousands of dollars more than the program allows.
For years, the auditor and other Guard officials alleged in interviews or internal documents obtained by The Sacramento Bee, California's incentives program was operated as a slush fund that was doled out improperly to hundreds of soldiers with fabricated paperwork, scant supervision and little regard for the law.
The Guard documents describe a high-speed assembly line for bonuses and loan repayments, in which Jaffe single-handedly processed some 8,600 payments over a 16-month period in 2007 and 2008 — about 25 per workday.
Most student loan repayments, the documents show, were drawn from money designated for combat veterans. Yet a large portion of those funds went to Guard members who hadn't served a day at war. Captains and majors were among those whom auditors think benefited improperly.
A Bee investigation, including a review of thousands of Guard documents gathered or prepared by auditors and other officials and sworn statements from managers who replaced Jaffe, found evidence that from 2001 until last year Jaffe often provided improper or illegal bonuses and loan payments.
The documents show that by recruiters and officers up the chain of command overlooked or ignored her efforts. Some recruiters appear to have benefited personally. The documents also show that state Guard officials failed to fix the incentives program despite warning signs going back years.
In comments to The Bee laced with profanity and evident bitterness toward former superior officers, Jaffe denied wrongdoing, insisting that she had followed regulations "by the book."
"They are still trying to blame me for s--- I didn't do," she said in a phone interview from her home near Sacramento. "I wish I never joined the Guard. I regret it, and I hate the Guard."
At 8 a.m. on July 8, the managers who replaced Jaffe briefed Capt. Ronald S. Clark, a federal auditor who oversees funds spent by state Guard organizations, about her alleged lapses. A former police investigator, FBI agent and U.S. Secret Service officer, Clark has fought white-collar crime for years.
Still, he said, the scale and audacity of the corruption he encountered in reviewing the California program shocked him: Excluding $43 million in improper payments recently halted by Jaffe's replacements, Clark estimated that $100 million was misspent. He called it "war profiteering."
Early in the audit, he said, he became concerned that officers implicated as recipients or enablers of improper payments might attempt to interfere with his work. So for the first time in his career, Clark became a whistle-blower. He secretly contacted the Internal Revenue Service and FBI.
"I don't like grifters," Clark said. "And I'm disgusted — at times, ashamed — to wear the same uniform as those who steal taxpayer funds or protect thieves."
'SPINE-CHILLING ABUSES'
In late August, after Clark came forward, the U.S. Department of Justice, the FBI, the IRS and the Army Criminal Investigation Division launched a criminal probe into the California program, in the process taking over Clark's audit, which was never completed. In a letter obtained by The Bee, the U.S. Attorney in Los Angeles informed Brig. Gen. Mary J. Kight, the adjutant general of the California National Guard.
Maj. Thomas Keegan, a spokesman for the Guard, told The Bee that Kight helped initiate the investigation after she learned of "significant irregularities" in the incentives program.
However, he said that neither Kight nor other state Guard officials would answer questions about the investigation or the incentives program, to avoid prejudicing the investigation. A spokesman for the Department of Justice, the lead agency in the investigation, said the department wouldn't comment.
The Bee examined payment documents on hundreds of soldiers, personnel files, e-mails to and from Jaffe and other officials, program audits and Guard spreadsheets that detail violations of bonus and loan rules. They were obtained from several confidential sources, including state and federal employees. The documents describe falsified and shredded records and five-figure favors that Clark called "corruption on an astonishing scale."
According to a review of Guard documents, the officers who benefited from the highest payments that auditors concluded were improper included:
_ Capt. Bruce Corum, a Santa Cruz-area chiropractor who joined the Guard in 2002, received $83,000 over one seven-week period in 2008. That included $63,000 — well above the $10,000 limit for the Guard program — for student loans taken out too long ago to qualify for repayment.
As an officer commissioned before Oct. 28, 2004, by law Corum also was ineligible for the program. Jaffe added a $20,000 bonus for which Corum also was unqualified because he lacked the required job skills. Corum told The Bee that he couldn't recall how he obtained the benefits.
_ Capt. Teressa Vaughn, a licensed cosmetologist and a resident of Los Angeles County, received student loan repayments of $51,800 plagued by similar problems — overpayments, loans too old to qualify and officer commission date. She also got a $30,000 bonus for which she was ineligible because she lacked proper job experience.
Vaughn, a chaplain candidate, has worked as a recruiter, meaning that she was obliged to know the incentives program rules that Guard documents show were violated in her case. Vaughn said she wasn't authorized to comment.
_ The Guard repaid $51,000 in student loans for another recruiter who holds a top-secret clearance, Capt. Robert Couture of Hermosa Beach, near Los Angeles. The contract required under military regulations to certify eligibility wasn't on file, Couture received more than the maximum benefit allowed, and he didn't qualify for the windfall due to his rank. Keegan, the Guard spokesman, said Couture couldn't comment.
The Guard documents didn't answer the question of whether beneficiaries of the incentives understood that the payments they received might have been improper.
A spot check by Clark's office for Kight examined 62 individuals who received $1.2 million in loan repayments and bonuses during the past several years. Auditors found that at least 52 appeared to have benefited improperly. The recipients, about half of them commissioned officers ranking as high as major, got the funds despite falsified documents, ineligibility, payments beyond program limits and other improprieties.
When he began to grasp the magnitude of the problems, Sgt. Cody Lathrop, one of two managers who replaced Jaffe after she retired a year ago, prepared a sworn statement for the record that was included in the documents The Bee obtained. That statement, provided to federal auditors, cited "serious illegal activity" and "systematic and historic abuse and mismanagement of fiscal law, guidance and policy."
Sgt. Ray E. Douke III, the other new manager, echoed the concerns in a sworn statement. Lathrop and Douke declined to comment to The Bee.
In his statement, Lathrop voiced concern "for my family's safety," fearing physical violence in retaliation for disclosures that could spark prosecutions and efforts to recoup funds from soldiers.
He called the extent of the apparent fraud "spine-chilling."
RULES IGNORED
Jaffe, 51, worked at Mather Air Force Base near Sacramento as the Guard's incentives program manager beginning in 1986.
Her interests, according to her Facebook page, included the popular online game "Farmville," criminal justice television dramas and an abiding fascination with her favorite candy. Her page featured a trip to a New York M&M's convention. Recently parked in front of her modest suburban home, Jaffe's Ford Mustang, with vanity plates expressing love for her husband, was the color of blue M&M's.
She served the 17,000-member Army section of the state Guard. The overall California National Guard, with an annual budget last year of $1 billion, has more than 21,000 service members, including its Air section.
Each state controls its own Guard troops, with the top commander — the adjutant general — appointed by the governor. Most of the Guard's funding, however, including loan repayments and bonuses, comes from federal taxpayers.
The Guard responds to state emergencies, such as floods and fires, and maintains order during civil unrest. Most members are "citizen soldiers" who drill one weekend a month, plus two weeks every year, and hold down regular civilian jobs. Since the Iraq and Afghanistan wars began, many have been called up for active duty, adding urgency to recruit new soldiers and retain officers.
One key to recruiting during wartime has been student loan repayments and cash bonuses. In 2010, bonuses for the Army section of the Guard alone were budgeted at $549 million nationwide. Some individuals have received tens of thousands of dollars.
In managing the programs, Jaffe was supposed to begin with a review of applications forwarded by soldiers, their superior officers or recruiters. She was obliged to verify that applicants' claims of eligibility were valid.
That process can be cumbersome, because each of the nearly 60 bonus and loan-repayment programs she administered for the Guard follows unique rules. Some provide enticements for soldiers with critically needed skills. Others go to rank-and-file members. In all cases, Jaffe was supposed to enter data in a tracking database and order payments for the lender or soldier.
Instead, contracts that certify eligibility, required by Defense Department regulations, were often absent, as were tracking data in systems designed to catch errors. Processing forms show that payments sometimes were boosted in sloppy handwritten notes.
"It seemed very unsophisticated," Clark said. "But no one was supervising her work."
In the course of his audit, Clark frequently communicated with Douke to compare notes, in part because Douke worked alongside Jaffe for several months before he replaced her and was able to observe her methods. Douke told Clark in an e-mail, obtained by The Bee, that Jaffe maintained her torrid pace by approving most funds "under the table" and ignoring program rules.
It takes little time to "blindly process payments for everyone," qualified or not, Douke wrote. Clark said in an interview that six people now share the work that Jaffe normally did alone.
According to auditor documents, an apparent example of Jaffe's streamlined practices involved Lt. Yasser Brenes, a Guard recruiter. In 2007 and 2008, Jaffe approved loan repayments of $27,000 for Brenes without the required contract on file and in excess of program limits.
Of that $27,000, USAA Federal Savings Bank got $18,500, ostensibly in repayment of a student loan. But USAA, a private lender, has never offered federally guaranteed student loans, the only kind that qualify under the Guard program. Military regulations are clear on unqualified loans: The payment should never have been made.
Guard documents also showed that Brenes was ineligible because he received a college scholarship from the Reserve Officers' Training Corps. In essence, he was reimbursed twice for his education costs, which is strictly prohibited by military rules.
On top of loan repayments, Brenes got a $10,000 bonus; the required contract certifying his eligibility wasn't on file. Loan repayments, ROTC scholarships and such bonuses are mutually exclusive, and as a full-time Guard employee, he was ineligible anyway.
Based at Mather Air Force Base, Brenes recently was promoted to captain. He said his superiors told him not to comment.
Maj. Douglas Williams, among the highest-ranking officers to benefit from the alleged fraud, received loan repayments of $33,800, documents show. Guard documents show they were improper for many of the same reasons that Brenes' were: He was ineligible due to his rank, his payments exceeded program limits, and no contract was on file.
Williams' bonanza was also unique, however. He was a high-level staff officer in the recruiting command where Jaffe worked. Guard spokesman Keegan said Williams would have no comment.
'SOFT TOUCH'
As loans and bonuses flowed to recruiters, company commanders and their staffs, it became common knowledge at state Guard headquarters that Jaffe "definitely blurred the lines of law," Douke wrote to Clark, in response to a query about how apparent fraud became so common.
Jaffe earned a reputation, Clark said, of being "a soft touch."
In one instance, on June 18, 2008, the wife of Guard captain and chiropractor Corum sent Jaffe an e-mail seeking help for Corum's student loans. Jaffe authorized $63,000 that day, no contract required, Guard documents show.
Jaffe routinely would backdate payment records, assigning payments to long-past loan due dates, Clark said, "to make it appear as if the service member was owed the funds and that she was merely catching up on her work."
In most years, $1,500 to $3,000 was the maximum payment that would have been allowed on qualified loans. In Corum's case, on a single day Jaffe created 21 payment requests for $3,000. Each was identical except for the annual payment due dates, running from 1987 to 2008.
The Guard couldn't repay Corum's loans for several reasons, according to audit documents. Even without those impediments, however, federal law prohibits payments for debts incurred more than six years earlier without a waiver from the secretary of defense.
Another beneficiary of backdated records, Capt. Eric Goldie, is an attorney currently deployed in Iraq. Goldie received $40,500 in loan repayments in 2008, although his required contract wasn't on file, according to Guard documents, and he was ineligible due to his rank.
"I have done nothing wrong," he said in an e-mail, referring specific questions to California Guard headquarters, where Keegan declined to comment.
In an interview, Jaffe acknowledged processing payments to officers without required contracts. If mistakes were made, she said, they were caused by recruiters who "falsify paperwork and lie to the soldiers" about what benefits they qualify for.
Given an immense workload, "I could only go on what they say," she said. "There's 300 recruiters. I didn't have the time to research every one."
Jaffe leveled harsh criticism up the recruiting chain of command.
"They would always tell me that I was doing a good job, then stab me in the back," she said, declining to provide details. "They are there just to protect themselves."
PRESSURE TO RECRUIT
Auditor Clark said, based on his knowledge of how the Guard operates, it was implausible to him that a sergeant could authorize what he estimated were thousands of fraudulent payments without detection by any superiors.
He blamed, in part, relentless pressure for new soldiers. In a May 2007 memo, Brig. Gen. Louis J. Antonetti, the new commander of the Army section of the state Guard, stated his top priorities: recruitment and retention.
A little more than a year later, Antonetti launched "operation overdrive" to re-energize enlistment. "I cannot overemphasize the importance of this effort," he wrote. "I am counting on leaders at every level to commit themselves fully."
Antonetti's 2008 operation came as federal Guard authorities were projecting substantial increases in efforts to pull in new soldiers and commit others to years of future service. This included a more than 13 percent boost in incentives program funding by 2010.
In response to a written inquiry from Clark about factors that contributed to Jaffe's actions, Douke cited the importance of payments to "overdrive."
"There were leaders — officers — willing to look the other way," he wrote, "as long as it supported the strength objective."
In fact, Guard documents show that for years, Jaffe's supervisors had reason to know about problems with her work and failed to intervene.
In 2005, an incentives expert dispatched to California by the National Guard Bureau discovered $2.5 million in overpayments from Jaffe's programs, according to a briefing prepared by Douke and Lathrop for Kight, the adjutant general. Those findings were reported to state leaders, a chronology by Lathrop noted.
Yet the following year, Jaffe was promoted to master sergeant and her position was moved from the personnel division into the recruiting command.
In April 2008, personnel records show, Jaffe was served with an "adverse action" notice — an allegation of wrongdoing that could result in reprimand, censure, demotion or court-martial. The cause for the "flag," in military parlance, wasn't noted. Col. Diana L. Bodner, who took over the recruiting command in 2007, signed the order.
The flag normally would have sparked an investigation, but it's not clear whether one took place.
The vast majority of questionable payments occurred from 2007 through 2009 after she was moved to the recruiting command, Clark said. In the 18 months after the flag was created until Jaffe retired, she processed some $63 million in bonuses.
In 2009, Clark's office began to examine one small bonus program among the many that Jaffe administered. Clark didn't participate in that audit. The report, issued last August, found a 20 percent error rate. Numerous lapses were cited, including the shredding of key documents.
As bad as that sounded, Douke told Clark in an e-mail that the audit looked to him more like damage control, understating the problems. Neither he nor Lathrop nor any other experts had been consulted.
The auditors noted that their work was requested to support an earlier, state Guard criminal investigation of "improperly approved and paid enlistment and re-enlistment bonuses." The results of that probe haven't been made public.
The Bee obtained personnel evaluations of Jaffe for the period between April 2007 and August 2008, the most recent in her file. Neither the flag nor the criminal probe of programs Jaffe administered was mentioned. Instead, she was praised for "100% accountability" in processing more than $86 million in loan repayments and bonuses and for "superior knowledge of bonus and incentive matters."
Paradoxically, the evaluators also said that Jaffe "becomes confused and puzzled when asked direct questions on bonus procedures." They gave her "marginal" overall ratings.
Bodner and another rater signed the evaluations in October and November 2009, more than a year after the period of evaluation and after Jaffe had retired.
An active flag would have blocked that retirement. However, records show that in July 2009, Bodner's successor as recruitment commander, Lt. Col. Jodee Rowe, removed Jaffe's flag for unspecified reasons, permitting Jaffe to retire honorably. Jaffe said she was forced out, but she refused to say why.
'NO MORE LUMPY RUGS'
Jaffe's missteps were so obvious that within weeks of taking over from her last fall, Douke sent word up the chain of command that they had a serious problem, according to a timeline he authored.
Clark's decision to contact outside authorities, he said, was based partly on the response of California leadership to Douke and Lathrop's concerns.
The two sergeants had been "screaming like crazy about this to any leader who would listen," Douke wrote to Clark in an e-mail, but were "disregarded as overreacting" until Clark's federal office stepped in.
Douke added his concern that beneficiaries of improper payments could "pollute the integrity of entire command structures."
Clark said he also thought that his office was ill prepared for a problem of this magnitude. It employs four auditors to oversee $1 billion in annual spending by the California Guard — understaffed for tackling what he estimated could be $100 million in ill-gotten taxpayer funds.
His concern was heightened, Clark said, when he heard about California National Guard Maj. Jeffrey Nichols. Guard documents show that Nichols received $45,000 in loan repayments in 2008 without the required contract on file. The amounts exceeded program limits; the loan was obtained too far back to qualify, and Nichols' officer commission date made him ineligible, according to Guard documents.
Around the time his student loans were repaid, Nichols was picked to head the national incentives program at the National Guard Bureau in Washington, D.C. Nichols, who now works to reduce National Guard attrition, declined to comment.
Clark said he began to worry that the National Guard Bureau might exercise its legal right to forgive improper payments to avoid embarrassment and the possible impact on recruiting. At that point, he said, he contacted federal agents.
"I came to realize that this criminal matter would be multi-jurisdictional, and would require vast resources to investigate," Clark said. "Soon National Guard officials will know this is for real and that there are no more lumpy rugs to hide stuff under."
(Bee researcher Sheila A. Kern contributed to this article.)
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