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 re-enlist.
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.
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For years, the auditor and other Guard officials alleged in interviews or internal documents obtained by McClatchy Newspapers, 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 McClatchy Newspapers 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 her efforts were overlooked or ignored by recruiters and officers up the chain of command. 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 McClatchy Newspapers 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." 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." 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 McClatchy Newspapers, 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 McClatchy Newspapers 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.
McClatchy Newspapers 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 McClatchy Newspapers 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 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 McClatchy Newspapers 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 McClatchy Newspapers.
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." 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."
Sacramento Bee researcher Sheila A. Kern contributed to this article.