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Inside job

Sam Davis allegedly embezzled $420,000 from an S.F. welfare program that begged to be ripped off.

By A.C. Thompson

PERHAPS SAM DAVIS thought he'd discovered the perfect scam.

A welfare caseworker, Davis, 44, lived like Larry Flynt, rolling in a $40,000 SUV and plunking down fat wads of cash at topless bars. He was a regular at Bo's Bounty, a Pier 96 strip club, which has since been renamed. Regulars remember Davis as a big tipper who flirted with dancers and had a table permanently reserved for him.

According to prosecutors, Davis purchased his pleasure-filled life with money siphoned from the coffers of the San Francisco Department of Human Services (DHS), the city welfare office. They claim Davis used the welfare rolls to funnel some 2,400 bogus checks to a small army of petty criminals who cashed them and split the revenue with him.

And for nearly three years nobody – least of all Davis's superiors – caught on.

In fact, it was two of Davis's coworkers – not his supervisors – who busted him in the fall of 1998, leading to his ongoing prosecution on 11 felony charges of embezzlement and tax evasion. He has pleaded not guilty by reason of necessity. Last week marked the opening of Davis's long-delayed trial, and though the mainstream media missed it, the scene in Superior Court was as interesting as anything from the dog-mauling saga.

For starters, Davis, a pudgy, balding dude, seems to have led a chameleonic life: part player, part cheerful servant to the poor, part swindler. And what a swindle. The guy purportedly pocketed $420,000 in public funds, making this one of the largest rip-offs in recent San Francisco history.

While a jury has yet to determine Davis's guilt or innocence – he's expected to testify in his own defense in coming days – the trial has made one thing perfectly clear: the DHS failed to maintain simple commonsense safeguards to prevent employee theft. It was an operation begging to be robbed.

$$$

To be added to the General Assistance rolls, you must have no assets, no income, and no hope of acquiring either in the near future. G.A. recipients are the invisible class, classified by the federal government as "extremely low income," the worst of the down-and-outs.

Hired by the DHS to be a G.A. caseworker in 1991, Davis took on a caseload that ranged from 100 to 200 people, each of whom received two $172.50 welfare checks a month, for a total payment of $345. Most of his clients were doing time in city-funded rehab centers and halfway houses. Maybe he thought no one would notice if he robbed the town's most destitute demographic.

According to assistant district attorney John Carbone, Davis began pocketing taxpayer money in the fall of 1995 – in a big way. "It's uncommon that we get a six-figure embezzlement case," said Carbone, an experienced white-collar crime litigator. "We're taking this case extremely seriously."

The purported scheme was simple: the caseworker used real case files to issue G.A. checks to his circle of conspirators.

Davis met one of his reputed conspirators at Bo's Bounty. She was a striking young lady who worked the strip clubs under the stage name "X-tacy." Testifying March 25, the woman said she participated in the scheme "for at least two years." Davis, she told the court, would meet her in the parking lot of the Mission Street welfare office each week to slip her two checks for $172.50 and a temporary ID card. Assuming a variety of names, she'd cash the checks at the Civic Center branch of Wells Fargo bank and split the proceeds with Davis, the witness said. "He made it sound like they were uncollected Lotto tickets."

The checks were drawn on an emergency fund for G.A. recipients whose regular checks had been lost or stolen. To generate these emergency checks, Davis had to fill out two forms and get his supervisors to sign off on them.

The bosses didn't suspect a thing. Rather, they were charmed by the man's warm personality and work ethic. "I would've placed my life in his hands," testified Dorothy Enisman, who headed the General Assistance division in the 1990s. (It has since been renamed the County Adult Assistance Program; Enisman remains at the helm.) "To me, Sam was the best worker. He would volunteer when nobody else would."

In the spring of 1998 Davis was promoted. He was shifted out of the G.A. unit and elevated to the rank of supervisor in the food stamp program. Perhaps the good news dismayed him: working in the food stamp unit, Davis longer had access to the department checkbook and could only dole out food vouchers.

Still, prosecutors charge, the misdirected checks continued to flow. When two employees in the G.A. unit found their names apparently forged on documents authorizing emergency checks, they called in the department's internal-fraud squad, which then contacted handwriting experts at the San Francisco Police Department crime lab and detectives in the D.A.'s Special Prosecutions division.

Malcolm Vaughn, an investigator for the D.A.'s Office, jumped into the case – and quickly found himself drowning in an ocean of paperwork. Davis, according to Vaughn, used 800 different case files to generate the payments. "DHS said the loss was more than $400,000," the investigator recalled. Unable to deal with the massive volume of paperwork, Vaughn said, he "pared it down to $227,000 in theft. It was a case-management scenario."

With the parameters narrowed, Vaughn fished out a mere 6,000 documents, threw 'em all in an Access computer spreadsheet program for sorting purposes, and started haunting dingy Sixth Street hotels in search of witnesses.

Tellers at Wells Fargo require G.A. recipients to put a thumbprint on the checks before cashing them. Some of the prints were smudgy or partial and thus unusable. But in time the detective managed to gather a collection of good prints and started running the biometric data through law enforcement databases in search of clues about Davis's apparent impostors.

As for the loot, unless it's socked away in a secret Cayman Islands account, it's just gone. "We were able to trace some of the money to the purchase of an automobile," prosecutor Carbone said. "But there were no other assets we could find."

$$$

Vaughn also started grilling the man at the center of the shitstorm. Davis had an explanation. Yeah, he told detectives, I misappropriated money, but I had to – and I never got any of it. Would-be screenwriters take note: Davis's tale turned out to be a lurid story worthy of treatment as a Hollywood drama.

He said he'd been forced to steal in order to pay hush money to a blackmailer. The well-liked caseworker had some serious skeletons in his closet. For almost 10 years Davis had served in the U.S. Army. His career in the armed forces had come to a halt in 1986 when he pleaded guilty to six counts of child molestation. Army records indicate Davis, who was then a staff sergeant stationed at the Schofield Barracks in Hawaii, copped to repeatedly raping and sodomizing a minor. Sentenced to year in the brig by a military court, he was dishonorably discharged from the service.

In his statements to investigators Davis claimed his history as a sex offender had come back to haunt him while he was employed at the DHS. Somebody who knew his secret was threatening to reveal it – unless Davis coughed up some cash. This blackmailer, contends the defendant, got all the missing money (though he won't say exactly how much loot he funneled to this character).

He's sticking to that script. Addressing the jury last week, defense attorney Robert Graham laid out Davis's get-out-of-jail-free strategy. "The defendant did what he did for legally defensible reasons," Graham said, pausing for dramatic effect, "... blackmail."

The prosecution doesn't buy it. They say Davis hasn't produced concrete evidence that this blackmailer actually exists. "My own gut feeling," Vaughn said in an interview, "is that he simply used the money to live beyond his means."

$$$

While we can expect the defense to spin the blackmail claim for all it's worth – and shit, who knows, it could be true – the real story here is how easily the welfare apparatus could be bilked.

On the stand, DHS employee Vladimir Rudakov revealed how Davis may have exploited the G.A. system. G.A. supervisors, Rudakov said, were "supposed to make sure that is the correct name and the correct case number" before John Hancocking the authorizing forms for the emergency payments. The supervisors were also supposed to scope the department's computer log – a database of all G.A. clients and their payment history – to ensure that everything checks out, Rudakov testified.

From the looks of it, Davis's bosses weren't paying much attention.

Rudakov, who worked alongside Davis, admitted as much. Asked if supervisors always followed the mandated security procedures before authorizing emergency checks, Rudakov said, "Not always."

If the supervisors had been a little more on the ball, the scam would've been obvious: Davis, it seems, was regularly issuing checks to people who weren't even G.A. clients. Davis, prosecutors contend, used real case numbers coupled with fake names to issue checks to his crew of conspirators – something even a cursory look-over by his superiors should've revealed.

Then there's this: apparently Davis was routinely issuing X-tacy and his other sham clients two checks at a time. As one DHS employee told us, it's highly unusual for any G.A. recipient to get paid twice on the same day – and it should've caught the eye of the people approving those payments.

If the DHS had only balanced its checkbook, this whole fiasco might not have happened.

Each month, as the money was being steadily drained from the G.A. emergency account, Wells Fargo sent the department a list of all the checks that had been cashed.

On its end, the G.A. office kept a computerized log of all checks that had been written. From the testimony of Enisman and other DHS staffers, it appears that Davis never keyed many of the fraudulent checks into the in-house computer. Had anyone had compared the two indexes – checks cashed versus checks written – they would've picked up on the discrepancy.

After getting taken for 400K, the department started keeping tabs on its checks. "We now get a monthly list of every check that hasn't been posted [to the in-house computer]," Enisman informed the court.

Will Lightbourne headed the DHS during the time the funds disappeared. We asked Lightbourne, who now directs the Santa Clara County Social Services Agency, what the department could've done to thwart the scandal. "Absent an automated system [to track checks], probably nothing," Lightbourne said. "The truth is any assistance program will have some vulnerability to employee misuse if you want to make it responsive to the recipients."

That explanation doesn't sit well with Paul Boden, the executive director of the Coalition on Homelessness. "We always hear about the clients cheating the welfare system," gripes Boden, a long-standing critic of S.F.'s social service bureaucracy, "but the major welfare rip-offs of the past several years were all perpetrated by employees of the department.

"And I have a feeling that all the people who watched this one happen are still employed by the department. Or they've been promoted."

E-mail A.C. Thompson at acthompson@sfbg.com.