Camp San Luis Obispo office OK’d $15.2 million in fraudulent claims

July 14, 2011

By LISA RIZZO

A former California National Guard manager admits she submitted $15.2 million in false and fraudulent claims to the United States Department of Defense (USDOD)—all of which was approved at an office at Camp San Luis Obispo, then wrongfully paid out in the form of bonuses and loan repayments to fellow members of the Guard.

The guilty plea is part of the first major prosecution as a result of a criminal probe that was prompted by a federal auditor working at Camp San Luis Obispo who turned whistle-blower.

Retired Master Sgt. Toni Jaffe, 52, agreed to a plea deal filed Monday in a Los Angeles federal court and included her confession and a single count of making false claims against the United States.

As the bonus and incentive manager for the California National Guard for more than 15 years, the Citrus Heights resident admitted she routinely submitted claims to pay bonuses to fellow members of the Guard whom she knew were not entitled. She also paid off loans for officers, even though she knew they were ineligible for repayment, according to the plea agreement obtained by CalCoastNews.

According to the U.S. Attorney’s Office in Los Angeles, Jaffe submitted each false and fraudulent claim to the United States Property and Fiscal Office (USPFO), which is located at Camp San Luis Obispo. The local agency then certified the illegal claims and further led the USDOD to pay out of federal funds.

In effect, the USPFO failed to catch fictitious claims that in some cases were also illegal from the start because they exceeded legal monetary limits on loan repayments. For example, the law allows the USDOD to pay off eligible student loans to qualifying members of the Guard not to exceed $3,000 a year and up to $20,000 total.

However, Jaffe submitted claims that exceeded both limitations and the San Luis Obispo County-headquartered agency approved them, resulting in illegal payoffs, according to the plea deal.

In addition, some of the claims were also illegal on the basis that they were not qualified student loans, rather personal loans where the debts could have been incurred to purchase a car or cover other private expenses.

While Jaffe accepts responsibility for the government’s loss of $15.2 million, which resulted from hundreds of false claims from at least 2007 to 2009, she is only being charged for a single incident as part of the plea deal. That charge of making false claims against the United States carries a maximum statutory sentence of five years imprisonment and three years of supervised release.

She is also required to pay restitution to the United States, which is currently estimated to be $15.2 million. While the audit determining the full loss amount is ongoing, prosecution of the crimes is limited to a three-year statute of limitations.

The imminent conviction is the first prosecution following a massive audit scrutinizing more than $1 billion of the state program, which was centered at the Camp San Luis Obispo facilities, known by federal auditors as “ground zero.”

Last year, following their discovery of upwards of $100 million in misused federal funds, Jaffe’s replacements briefed federal auditor Capt. Ronald Clark who was hired to review funds spent by the California Guard.

Clark quickly became a whistle-blower leaking the findings to The Sacramento Bee the Internal Revenue Service, and the FBI to prevent the fraud from being covered up.

“I knew very quickly and very early on that they were looking to bury this,” said Capt. Clark who transferred to San Luis Obispo to conduct the review. “They had hand-selected their own federal agent [Department of the Army Criminal Investigative Division agent] to do damage control and minimize it.

“I was pointing at the moon and he was looking at my finger. He was not the right guy, so I went to the feds.”

Clark, being a former FBI agent and U.S. Secret Service officer, is no stranger to fighting white-collar crimes. He said the pressure to “brush this under the rug” came from the Guard’s concerns that public exposure of Jaffe’s “legacy of fraud” would create a “mass shaming during a war effort” and could in turn “affect troop levels or impact national security.”

The reality, Clark said, was the fact that many Guard officers would be implicated as recipients or enablers of improper payments.

Based on reductions in the plea agreement that eventually settled at $15.2 million, it appears Jaffe was given a break because investigators could not prove she profited financially.

“She acted like she was the CEO of her own personal business and she acted with impunity,” Clark said. “They called her the M&M lady” because of the trinkets in her office and the many handouts she gave like candy.

Clark said he believes she did it for attention and was doted on by fellow guardsmen, gaining in small gifts, dinners, trinkets, and even a helicopter ride.

The mentality is that “federal money is there to steal because there is no watch dog,” Clark said. And when there is, “there is no one watching the watchers.”

Bigger than the Jaffe problem, Clark said, is the “good old boys club” at the Guard which is very damaging to the rank and file soldiers and those that fight in the war zones.

“This is the oldest organization in America. They exist for one reason and one reason only,” Clark said. “They will tell you they exist for national security but the reality is they exist to launder federal money.”

In San Luis Obispo, Clark said those certifying the illegal claims reacted with indifference toward the audit and its findings partly due to their volume of work, and secondly to the fact that the money came from a “different kettle of funds.”

Changes have been made at the USPFO since the discovery, according to Assistant U.S. Attorney Aaron May in Los Angeles. While the California National Guard’s Pubic Affairs Office agreed to comment, they had yet to respond to CalCoastNews’ questions within the deadline.

Clark is trying to transfer to the U.S. Army Reserve Control group because he no longer wants to be a part of the Guard. His transfer is pending formal approval.

“I am just one inconsequential captain that yanked their sheets and exposed them for what they are… a continuing criminal enterprise,” he said.

After Clark brought the fraud discovery to federal authorities, the U.S. Department of Justice, FBI, IRS and the Army Criminal Investigation Division took over his audit, which was never completed.

The criminal probe is ongoing, according to Assistant U.S. Attorney May. Some members of the California National Guard may be approached, questioned, or even charged for their role in the scandal and may be asked to pay back any illegitimate payments received.

In a statement, U.S. Attorney André Birotte Jr. in Los Angeles said, “The deliberate misappropriation of tens of millions of dollars of federal government money is unacceptable, and those responsible for stealing federal money through fraud will be prosecuted to the fullest extent of the law.”