Grand Jury Probing Welfare Fraud : Government: Incompetence and corruption by investigators may have allowed county workers to take millions of dollars in taxpayer money.

The San Diego County Grand Jury is examining allegations of widespread corruption in the county’s welfare department and charges that department employees have escaped prosecution for fraud because of botched county investigations.

Sources said the grand jury’s secret investigation has been going on for about a month, with a committee questioning County Department of Social Services officials, welfare fraud investigators from the department and district attorney’s office, and former employees.

The probe includes allegations that some welfare case workers opened phony cases and pocketed illegal payments, although other employees had warned department superiors about the abuses. This may have resulted in the loss of millions of dollars of taxpayers’ money.

In addition, sources said, the grand jury is investigating charges that welfare department employees who defrauded the county escaped prosecution because of incompetent or corrupt welfare fraud investigators. Most of the allegations of fraud and incompetence occurred between 1980 and 1991.

Dick Reed, the Social Services Department’s assistant deputy director of investigations, acknowledged Monday there were problems with employee investigations in the past, but that he has not seen evidence of corrupt investigators.

“I’m not going to say that every investigation was conducted with the utmost of efficiency and that some people didn’t slip through the net. . . . I think it’s probably safe to say that some people have gotten away without being prosecuted,” Reed said.

“For too long this place (investigations unit) was neglected. There were no policies in place. We’re in the process of establishing policy and putting together a training manual for investigators. We’re addressing all of those problems right now,” Reed added.

Much of the problem with the investigations unit stemmed from low morale, said Reed, who has directed the department’s fraud unit for 11 months.

“There hasn’t been a lot of stability in the past. . . . This unit is very factionalized, and I hope to ultimately bring it together,” he said.

The grand jury’s investigation began on the heels of a massive welfare fraud case unveiled in October, when the district attorney’s office charged five former welfare employees with masterminding the largest welfare fraud ring in the county’s history.

Prosecutors charged the five ex-employees, who worked as benefits analysts, and 15 accomplices of embezzling as much a $1 million by creating phony cases and pocketing the illegal payments.

The scheme leading to the charges against the 20 suspects was uncovered by an analyst for the California Department of Social Services during a routine audit and not by county welfare fraud investigators.

The grand jury’s current investigation is focusing on other employees who are believed to have engaged in fraud at various times.

David Sossaman, a welfare fraud investigator with the county Department of Social Services, testified before the grand jury committee earlier this month. Sources familiar with the probe said it was Sossaman who alerted the grand jury to the problems in the department’s investigative unit.

“I saw a pattern in the employee fraud cases. There were specific crimes and suspects that were completely overlooked . . . . That’s when I took my findings to the grand jury and told them either there was something illegal going on with the investigators, or they were grossly incompetent,” Sossaman said Monday.

Reed said he is studying past employee fraud cases to learn why some workers were not prosecuted.

“A lot of cases were disposed of in administrative fashion. Supposedly, there was not enough evidence to prosecute. . . . But I have the strength and resolve not to let these kinds of things go unpunished anymore. We will be prosecuting where appropriate,” Reed said.

According to sources and documents reviewed by The Times, the grand jury is looking into several incidents of purported corruption and wrongdoing, including:

* A benefits analyst from the El Cajon office who is still employed despite an arrest for possession of methamphetamine for sale and drug use at work. El Cajon Police are also investigating allegations that the employee is involved in the distribution of so-called snuff films that depict the killing of human beings.

* Reports by a local law enforcement agency that an employee of the department was procuring foster children who were then provided for use in pornographic films.

* An investigator who was pressured into loaning her supervisor $1,700, which the supervisor used to go on vacation. When the investigator complained after the supervisor lagged in paying the debt, the supervisor allegedly retaliated by giving her an unfavorable evaluation.

* A former benefits analyst who was caught with a batch of phony birth certificates in his briefcase. He was suspected of opening phony welfare cases, but was not disciplined or prosecuted. He was fired earlier this year after he was allegedly caught injecting himself with heroin in an office bathroom.

* A benefits supervisor who is still employed despite his 1987 involvement in a scheme with a former employee to open phony welfare cases. He was caught mailing illegal food stamps to his mother’s house but was never disciplined or prosecuted. His accomplice, however, was fired and convicted.

According to Sossaman, the department’s welfare fraud investigators have not been adept at conducting even the most simple fraud investigations.

For example, Sossaman pointed to the investigation of the 20 people charged in October with defrauding the county of an estimated $1 million. Investigators have been able to track down only $553,000 of the stolen money, but have not recovered any of it.

“The investigators subpoenaed only the defendants’ bank records. There were no search warrants done on anybody’s house. So, nobody bothered to look for any additional records. Nobody knows who else may have been involved, where most of the money went and how most of it was invested,” Sossaman said.