Army identifies up to $100 million in fraud in recruiting payments

Army officials disclosed details Tuesday of a multi-year criminal investigation that tarnishes one of the military’s most successful recruiting programs in recent memory.

Investigators have uncovered tens of millions of dollars in fraudulent payments, and the program itself appears to violate federal law and procurement regulations in several ways.

The Guard Recruiting Assistance Program (G-RAP) began in the Army National Guard in 2005.

That component of the Army was in the midst of a recruiting crisis, shorthanded by almost 17,000 soldiers, during the most intense period of the Iraq war. Millions of dollars in new spending on traditional marketing campaigns wasn’t working, so Guard officials decided to try something new. In what was essentially a “refer-a- friend” program, drilling guardsmen could receive payments of between $2,000 and $7,500 if they successfully persuaded someone they knew to join the Guard.

The program worked just as its designers had hoped. It brought in 130,000 new soldiers, and the Army Guard started meeting its recruiting goals soon after it implemented it. Between 2005 and 2012, the Guard received about 38 percent of its new guardsmen through G-RAP.

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But the Army now finds G-RAP was rife with fraud that went almost entirely undetected for at least five years. The program is the subject of one of the largest criminal investigations in the Army’s history, and officials think it will be another two years before they understand the full extent of what went on during the program’s run.

“The scope of this investigation is complex and far reaching,” Lt. Gen. William Grisoli, the director of the Army Staff, told the Senate Homeland Security and Governmental Affairs subcommittee on financial and contracting oversight Tuesday. “The Army has taken aggressive and comprehensive steps leading to corrective actions to prevent future occurrences and is committed to working with Congress as we move forward in this matter. The Army will also identify and take action against individuals who should be held accountable.”

Two-year investigation

Grisoli and other Army officials who testified Tuesday declined to speak to reporters, but documents the Army provided to senators in advance of the hearing provide a detailed view of the scale of an investigation the service has kept from public scrutiny for at least two years.

In the worst case scenario, the Army’s auditors believe up to $100 million of the $339 million in payments the Army made under G-RAP — and similar, smaller programs in the active Army and Army Reserve — were fraudulent. But officials currently believe a figure of about $50 million is more likely.

The RAP programs, which tried to turn currently serving rank-and-file soldiers into surrogate recruiters under the title “Recruiter Assistant,” operated under the radar of Army investigators from 2005 to 2010.

CID had been handling cases of fraud in the single digits per year in the program’s early years, but it wasn’t until 2010 that an agent in Huntsville, Ala., began to notice trends that might point to a systemic problem.

CID asked the Army Audit Agency (AAA) to look deeper, and after a year of examination, it confirmed the Huntsville agent’s suspicions.

While the vast majority of recruiting assistants (RAs) were operating on the up-and-up, the agency flagged thousands of cases that were at risk for fraud and found severe problems with internal controls and oversight of the RAP programs.

In early 2012, Army Secretary John McHugh saw AAA’s findings and canceled the program outright.

Auditors found several potential ways for guardsmen to get bogus incentive payments.

In many cases, they registered as RAs and then submitted the names and Social Security numbers of guardsmen who had already enlisted without the knowledge of the new soldier, in order to receive payments — in essence, a form of identity theft.

But in the majority of cases, actual Army Guard recruiters were in on the schemes, said Maj. Gen. David Quantock, the commander of Army Criminal Investigation Command.

Under the program, recruiters were legally ineligible to get the bonuses, since recruiting was already their job. But to get the payments, they would solicit other guardsmen to register as RA’s, provide them en masse with the names and Social Security numbers of new enlistees who had recently walked into their recruiting office, and split the payments between them, all without the knowledge of the new soldiers.

“We could tell that, because when they went online to put their names in the system, they were all coming from the same IP address,” Quantock said. “Either that, or you had many people putting money into the same bank account.”

All levels of the service

Some of the fraudulent RAs were extremely prolific. The top recipient of payments took in more than $274,000. The Army currently is prosecuting that person.

Investigators have found four others who received at least $100,000 each. One group of recruiters and RAs working together collectively pocketed nearly $1 million.

The perpetrators are not just low-level enlisted members. Officials say they’ve also implicated numerous members of the Army’s officer corps, including very senior officers.

Of 7,600 officers it reviewed, CID says it’s identified 110 that it believes committed a crime in the RAP case, and hundreds more still are under investigation.

The highest ranking officer implicated so far is a two-star general, but he, like many others, will avoid criminal liability. Because of the time it took for the Army to detect the fraud, the statute of limitations on federal fraud laws would expire before a U.S. attorney could file a complaint, Army officials said.

Quantock couldn’t say whether any officers have been criminally punished so far, but he insisted the Army is treating the officer cases as a first priority.

An additional difficulty, he said, is convincing busy federal prosecutors across the country to spend time to prosecute individual fraud cases that may only amount to a few thousand dollars each.

“It’s abhorrent to us and to the Congress to see any senior leader committing misconduct. But to the U.S. attorney, it’s more about the dollar value, not who commits the offense,” he said.

Sen. Claire McCaskill (D-Mo.), the chairwoman of the subcommittee on contracting and financial oversight and a former prosecutor, said she understands that reluctance.

“On the other hand, the worst thing that could happen would be for senior leadership to go quietly into the night,” she said. “I need to know, what tools do you have to make sure that everyone understands that there was punishment here? Even if they’re not going to prison, even if those criminal statutes of limitations have run, I need to know what else you can do.”

G-RAP construction defective

Quantock said there are a few other tools in the Army secretary’s “kit bag.”

“They include promotion review boards at the very end of this chain to see if they served at that particular last rank honorably. And that may impact, for example, their future retirement benefits,” he said.

While Army auditors exposed the likelihood of thousands of fraudulent incentive payments, they also showed that the RAP program’s design created a welcoming environment for guardsmen who might be inclined to cheat the system. Army officials now say the program was built on a fundamentally flawed acquisition strategy that included very little oversight or internal controls to detect fraud in real time.

Joseph Bentz, the Army’s principal deputy auditor general, said there was very little about the program that complied with federal procurement regulations.

“There were actually three contracts associated with the RAP. The first contract was a task order placed off of an existing marketing service contract, but it was outside the scope of that contract,” he said. “As they moved forward, there was little acquisition planning, and for the award of the G-RAP base contract in 2007, there were processes that favored the incumbent contractor, and did not actually account for full and open competition in that award.”

Bentz said his office also found the National Guard Bureau built the program on a shaky legal foundation. At some key milestones, it’s not clear whether program officials sought advice from Army lawyers, and in others, the legal vetting that should have accompanied something on the scale of the RAP program was inadequate.

In any case, auditors ultimately concluded that since Congress never gave the Army any sort of legal authority to make the incentive payments, most if not all of the G-RAP program’s spending most likely violated the Antideficiency Act.

Army officials say they’ve taken several corrective actions since they quietly killed the RAP program in 2012, including replacing the National Guard Bureau’s contracting chief, issuing a new National Guard contracting manual and launching several internal policy reviews.

But the underlying criminal investigation remains a massive chore for the Army.

CID has dedicated a task force of 60 investigators to work the case full-time, and it’s brought in additional staff to supplement their work on a part-time basis. Their task is to examine every one of the 106,000 people who got payments under the RAP system.

Officials currently estimate that job will be completed sometime during 2016.

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