Criminal investigators suspect hundreds of US Army soldiers exploited a recruitment program to receive illegal kickbacks worth more than $29 million, lawmakers and officials said.
The scale of the potential fraud was "astounding" and ranks as one of the largest criminal probes in the Army's history, said Senator Claire McCaskill, who held a hearing on the scandal.
An Army audit has found that more than 1,200 recruiters had received payments that were potentially fraudulent, defense officials said.
"We now know that thousands of service members, their families and friends, may have participated in schemes to defraud the government they served and the taxpayers," McCaskill said.
The kickbacks grew out of a 2005 project launched at a time when the US Army and National Guard were struggling to secure new recruits amid heavy casualties in the war in Iraq and Afghanistan.
The National Guard program, which was eventually extended to the active-duty Army, essentially paid troops for referrals of recruits.
These "recruiting assistants," which included National Guard soldiers and civilians, were allowed to earn between $2,000 to $7,500 for each person they persuaded to enlist.
Although official US Army recruiters were barred from collecting any referral bonuses, many of them took payments that were undetected for years.
Defense officials confirmed the allegations to AFP that were first reported by USA Today.
Officials at the firm hired to run the program, Docupak, first reported a few cases of fraud in 2007. Over the years, officials grew more suspicious and in 2011, the Army launched a formal audit of the whole program, which was scrapped in February 2012.
"This criminal fraud investigation is one the largest that the Army has ever conducted, both in terms of sheer volume of fraud and the number of participants," said McCaskill, chairwoman of the Senate's Subcommittee on Financial and Contracting Oversight.
She cited a criminal case in Texas, in which a former member of the National Guard was recently sentenced to four years and nine months in prison for leading a conspiracy to obtain $244,000 in fraudulent recruiting bonuses.
The Army expressed outrage at the fraud and vowed to get to the bottom of it.
"No one is more outraged about this than the leadership of the United States Army," said spokesman George Wright.
After an internal probe identified fraud, Army leaders immediately terminated the recruiting programs and ordered a criminal investigation, he said.
Those found to have abused the program would be held accountable in military and civilian courts, he said.