Sgt. Anthony Ayala, left, of the California Army National Guard's 270th Military Police Company, 49th Military Police Brigade, coordinates with an Air Guardsman from the 129th Air Rescue Wing as a UH-60 Black Hawk prepares to land Nov. 17, 2016.

Sgt. Anthony Ayala, left, of the California Army National Guard's 270th Military Police Company, 49th Military Police Brigade, coordinates with an Air Guardsman from the 129th Air Rescue Wing as a UH-60 Black Hawk prepares to land Nov. 17, 2016. ( Eddie Siguenza/Army National Guard)

WASHINGTON — The recent investigation into massive fraud involving California National Guard bonuses revealed a lack of oversight in how the incentives were spent in California and elsewhere. During the height of the wars, some Army National Guard state bureaus were paying incentives without confirming whether soldiers were eligible, according to Army audits.

“Before 2012, you could actually give away the money without having all the documentation in place to prove that the people were entitled to it. That’s not possible anymore,” Gen. Joseph Lengyel, chief of the National Guard Bureau, told Stars and Stripes in October.

About 17,000 California incentives doled out before 2011 are being examined by a specially appointed Pentagon team in a review that could last until next summer. Congress passed legislation this month to offer relief to soldiers in the state who were asked to repay the money.

Spending on incentives ramped up during the wars in Iraq and Afghanistan in an effort to boost troop numbers. From 2005 to 2010, the Army National Guard spent $3.2 billion for its Selected Reserve Incentive Program, which includes enlistment and re-enlistment bonuses and student loan repayments, according to Defense Department budget records.

The money paid to recruit and retain soldiers nationwide reached a high point of $812 million in 2008 and 2009, just before federal criminal investigations exposed the scandal in California.

Rampant fraud

Reports in 2010 of rampant fraud in California triggered an investigation by the Army Criminal Investigative Command, the FBI and the Defense Criminal Investigative Services, which is part of the Defense Department inspector general’s office.

The incentives program manager for the California National Guard, retired Master Sgt. Toni Jaffe, was sentenced to 30 months in federal prison in 2012 for submitting $15.2 million in false and fraudulent incentive claims.

National Guard bureaus were under pressure to recruit and retain soldiers during crucial stages of the wars in Iraq and Afghanistan. Bonuses and loan repayments were quickly paid to meet those requirements. In California, the effort was a “high-speed assembly line” that had Jaffe processing about 25 per day -- 8,600 payments in 2007 and 2008, according to an investigation by the Sacramento Bee newspaper that uncovered the fraud.

As Jaffe’s case was unfolding, the Army and the National Guard Bureau began looking into oversight of the Selected Reserve Incentive Program. The program is federally funded but is administered by state Guard bureaus across the country and in U.S. territories.

‘Internal control problems’

The bureau ordered all states and territories to review their incentives in 2010 and took a nationwide sample of 9,641 cases, according to Maj. Shannon Thomas, a spokeswoman for the National Guard Bureau.

“The issues found were administrative in nature and rapidly remedied by the state, leaving no backlog of cases requiring remediation,” Thomas wrote in an email.

The Pentagon did not provide a breakdown of the results and said no official report on the sample was issued.

Earlier this month, the Defense Department official heading up the review of the California incentives cases, Peter Levine, testified to Congress that the nationwide sample found “some internal control problems” but no evidence of the type of fraud committed by Jaffe in California.

Soon after, a series of Army audits detailed problems in the system – but remedies would take another few years.

‘Little to no oversight’

The Army Audit Agency examined a handful of state Guard bureaus between 2011 and 2013, looking specifically at how incentives were being managed. The review came about after the agency was contacted by the Army Criminal Investigative Command.

The agency discovered systemic oversight and administrative problems that led to improper payments to ineligible soldiers in California, Indiana, Pennsylvania and Kentucky.

“Controls over the manpower incentive program in the [Army National Guard] were not sufficient to ensure that recipients met all eligibility requirements,” according to an Army Audit Agency report in January 2012.

Also, appropriate checks were not in place to ensure that the bonuses and loan repayments – once granted -- were being properly managed and paid, the agency found.

In Indiana, auditors found “little to no oversight” of the Guard’s student loan repayment program between 2005 and 2009. In some cases, managers who performed the same job duties as Jaffe were able to initiate student loan repayments without verifying whether a person was a member of the service.

The same problem was uncovered in California.

“We found no system control in place to prevent a payment on behalf of someone that isn’t enlisting” in the Army National Guard, the California audit found.

‘Improperly paid’

The California Guard struggled for years to complete a full review of its incentives cases but had not finished the work by the time Defense Secretary Ash Carter ordered a special Pentagon review in October.

Back in 2011, the Army Audit Agency had taken a more limited look at the handling of incentives by state bureaus.

It examined small numbers of troops in each state where auditors thought problems could exist, a method called judgmental sampling, and looked for incentives that were paid improperly for any reason.

The audits were aimed at ferreting out any oversight and administrative problems. Unlike random sampling, what it found could not be used to determine how many improper payments were made by the state bureaus or how much money might have been wasted during the wars.

The auditing discovered that the California Guard improperly paid $645,876 out of $1.2 million – 55 percent of the total spent -- in a sample of 95 cases from 2005-2010.

In Indiana, the agency found that 42 percent of 102 examined incentives from 2005-2010 were paid to soldiers who were ineligible, lost eligibility or were overpaid. It recommended reclaiming $284,652.

Nearly $79,000 in student loan repayments – six out of 13 examined cases -- was also improperly paid by the Indiana Guard during that same period, when there was little or no oversight of the program, according to auditors.

Among the states audited, Pennsylvania the only one with few problems. Army auditors found that only 7 percent of the 60 cases they looked at involved payments that should not have been made.

A follow-up audit in 2013 of 61 cases from the Missouri Guard bureau found that 30 percent of bonuses and 70 percent of loan repayments were made to ineligible soldiers or were not properly processed.

The Army’s audit results could indicate that money was improperly paid in other states, said John Furutani, a former auditor with the DOD inspector general and the Defense Contract Audit Agency, who is now retired. Furutani raised concerns to Congress about auditing practices at the IG when he worked there.

“The fact that they found all of these problems with just the judgmental sample is very significant,” he said. “It could mean that the problems are even worse across all 50 states.”

Greater oversight

Stars and Stripes asked the Defense Department whether it was concerned about potential improper payments and government waste by state Guard bureaus during the wars.

“The department obviously is concerned any time lack of oversight or proper internal controls is discovered,” Gordon Trowbridge, the Pentagon deputy press secretary, wrote in an email. “That’s [why] the steps the National Guard Bureau and the Army have made since these problems arose are so important.”

After the California scandal and Army audits, the National Guard Bureau took greater authority over monitoring and validating the bonuses and loan repayments, ordering state bureaus to prove that soldiers meet specific thresholds and are entitled to money before it is dispersed, Lengyel said in October.

“We had delegated the authority to give bonuses to all the individual states and we realized at the time, listen, we have to have greater oversight,” Lengyel said.

The Guard also set up a new computer system for all the state bureaus in 2012 to provide better processing and monitoring of the payments. It replaced an older system that auditors found was flawed.

“It consolidated everything for us and gave complete oversight,” Maj. Benjamin Tooley, a spokesman for the Indiana Guard.

The Indiana Guard also adopted a number of recommendations by the Army Audit Agency that improved its management of incentives, Tooley said.

The changes make the Guard capable of rooting out fraud, Lengyel said.

“One of the most important things we have, I think, is the trust and confidence of the American people and Congress, that we are going to be good stewards of our resources,” he said. Twitter: @Travis_Tritten

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