$26,800-a-year official bilks Air Force of millions Texan given away by his penchant for cars, jewels, women

June 01, 1993|By Richard H. P. Sia | Richard H. P. Sia,Staff Writer

LUBBOCK, Texas -- John James Lugas needed far more than his $26,800 salary as an Air Force accountant to feed an insatiable appetite for expensive cars, Rolex watches, diamond jewelry and beautiful young women.

So he exploited weaknesses in the Air Force bookkeeping system for three years to make sure U.S. taxpayers paid for his avarice. He siphoned more than $2 million without arousing suspicions of officials here at Reese Air Force Base on the wind-swept plains of west Texas, or higher up in the chain of command.

The 42-year-old civilian, who worked as lead accountant at base headquarters, was so brazen he deposited the money in the bank at Reese and drove to work in a 1992 Corvette, one of 27 luxury cars and pickup trucks he bought with stolen funds.

He routinely destroyed files, doctored computer records and forged the initials of other office workers to keep the cash flowing into his bank accounts.

"The Air Force, in my opinion, was clueless," said Christopher M. Sigerson, who eventually helped unravel the crime for the Internal Revenue Service last fall. "We went over to the base and asked, 'Is there any way this guy could've been embezzling money?' They said, 'No way. We're a small base. We would've noticed.' "

"The Air Force auditing system would not have allowed anyone to discover the crime," said Daniel J. Warrick, Lugas' defense attorney. "It's scary."

It actually took a tip by a female acquaintance to the Drug Enforcement Administration to expose Lugas, who pleaded guilty Jan. 15 to money laundering and entered La Tuna federal prison in El Paso, Texas, two weeks ago to begin a sentence of five years and three months.

The woman told DEA agent Bob Richardson last October that Lugas was -- "with no apparent source of income" -- buying lots of expensive vehicles and giving cash to women, investigators said in a search warrant application.

"So we started checking into it and found Corvettes here and Corvettes there, but it clearly wasn't a dope-related thing," recalled Gary Oetjen of the local DEA office. The agency then asked the IRS to lead an intense three-month probe, which eventually involved U.S. postal inspectors and the Air Force Office of Special Investigation.

By this time, Lugas had moved his family into a four-bedroom home in Lakeridge Country Club Estates, the richest section of Lubbock; bought a tanning salon business that provided jobs for several girlfriends, and helped underwrite the singing career of a Wayne Reed Boyd, a country-rock musician and close friend, IRS agents and an assistant U.S. attorney said in interviews here.

After weeks of surveillance, sometimes using video cameras, federal authorities arrested Lugas in his office on Dec. 3. Six days later, a federal grand jury indicted him on 71 counts of mail fraud, 70 counts of money laundering and one count of using a false Social Security number in his scheme to embezzle $2,037,235.

Air Force officials, who vigorously defend their ability to manage tax dollars, say privately they were shocked and embarrassed when federal investigators told them Lugas might be running a phony billing scheme.

Repeated warnings

Documents obtained by The Sun also show that the Air Force Audit Agency has faulted the service's internal financial controls -- which the General Accounting Office repeatedly warned were inadequate to safeguard public assets.

When he pleaded guilty, Lugas admitted in a sworn statement that he used about 80 phony invoices and a bogus company named L&J Supply between Oct. 1, 1989, and Nov. 19, 1992, to obtain fraudulent payments from the Air Force base.

Lugas said he prepared vouchers authorizing the payments and then certified the paperwork as accurate so that the unsuspecting base cashier could issue U.S. Treasury checks and mail them to the fictitious business.

Lugas also altered computer records to make it appear the checks -- in amounts ranging from $11,301 to $77,120 -- were paid to big, well-known defense suppliers.

The Air Force, which suspended Lugas without pay after his arrest and then fired him on March 26, rushed a team of auditors to Reese to find out how much was stolen, exactly how the billing scheme escaped the notice of finance officers and whether the finance and accounting system abetted the crime.

'Action' memo in February

Both the auditors and the Defense Finance and Accounting Service, which keeps track of monthly balances at Air Force bases around the world, are continuing to examine payments made by Reese and other bases for potential fraud.

But in a Feb. 23 "action" memo, the Air Force Audit Agency urgently appealed to all Air Force installations to strengthen their internal controls over payments and records because of clear-cut "control weaknesses" at Reese, which shares the same accounting system with other bases.

In addition, a random review of more than 1,000 changes in Reese's financial records already revealed that 53 percent of the adjustments were unsupported by bills or other documentation, the agency said.

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