State regulator uncovers at least $7.2 million in PPP fraud by state employees

CHICAGO (Capitol News Illinois) – A state regulator has identified at least $7.2 million in fraudulent claims and more than 275 cases misconduct by state employees accused of taking advantage of a federal program intended to help businesses during the Covid-19 pandemic.

Beginning in 2022, the Office of the Executive Inspector General is investigating allegations that state employees fraudulently applied for Paycheck Protection Program loans for small businesses that they failed to disclose or wholly fabricated. Government employees may take on additional employment, but only if it is disclosed and authorized.

The fraud involves employees of 13 different state agencies who illegally took these federal public funds, according to OEIGtasked with investigating allegations of misconduct in state government. As of April, more than 60% of those involved in the case so far worked for the Illinois Department of Human Services, which runs psychiatric hospitals and developmental centers across the state.

The Paycheck Protection Program was a federally instituted initiative CARES Act in 2020. The Small Business Administration oversaw the implementation of the PPP to provide forgivable loans to cover payroll costs or other expenses to small businesses struggling due to the Covid-19 pandemic. By October 2022, the program estimates that $786 billion in loans have been made and 93% of them have been forgiven. SBA.

PPP loans quickly led to “unprecedented fraud levels,” says the SBA inspector general. Applicants have self-declared their small business status and income. OEIG only investigates public sector employees who received more than approximately $20,000 under the program. To receive a $20,000 loan, companies investigated by OEIG typically reported net profit or gross income of at least $100,000 on their loan application.

OEIG could not comment on whether the investigation had concluded. Due to the scale of this fraud, many different agencies are involved in the investigation. In May 2023, the Illinois Legislature passed this bill House Bill 3304which allows criminal proceedings to be initiated for fraud related to Covid-19 within five years of the fraud being detected by the authorities.

Rep. Fred Crespo, D-Hoffman Estates, who sponsored the bill, said the program suspended most routine checks, such as comparing data on loan forms with other agencies’ databases. The lack of staff was also a big problem. According to Crespo, between April 2020 and April 2022, the SBA fraud hotline received millions of calls, many of which went unanswered.

“The security vulnerabilities that led to PPP fraud problems can’t really be attributed to state-level issues. “I would say the problems had much more to do with the confusing nature of the program itself,” said state Rep. Mike Kelly of Chicago, who co-sponsored the bill.

IDHS employees were heavily involved in the fraud. Since 2022, at least 43 employees have been laid off and 53 resigned before further action by management. In most cases on the OEIG website, workers either lied about being self-employed or provided false information about their income.

Records show Deborah Reynolds-Jones was a social worker who had worked for IDHS since 2016. Reynolds-Jones told OEIG investigators that her hairdresser recommended a company that could help her apply for a loan. She sent the company her personal information, including her Social Security number. The company filled out a form and simply asked her to sign. The information was false. Reynolds-Jones paid the company $3,000 for services after she fraudulently received a $20,000 PPP loan.

Otherwise Shanythia Anderson admitted to OEIG that it allowed a third party to submit a PPP loan application on its behalf and that the information it provided was inaccurate. She started working as a mental health technician at IDHS in 2020. Anderson met the woman on Facebook and she sent her personal information. In exchange for this service, the woman was to receive half of the loan, i.e. $10,000. Anderson worked at Ludeman Development Center in Forest Park, where at least 36 other employees were accused of wrongdoing.

“It happens that in one particular place, when you find out that 37 people did it, you can see that they were talking to each other at work,” Gov. J.B. Pritzker said at a news conference last year. “Maybe someone committed this type of fraud and then tried to persuade someone else.”

IDHS declined to comment on why so many of its employees were involved. IDHS is the largest public agency in Illinois, which may be one explanation. Crespo said his best guess was that public employees had advance access to the loan forms, making it easier for them to understand how to submit them, whether they were fraudulent or not.

“While the vast majority of IDHS’ approximately 14,000 state employees are hard-working people of strong character who work tirelessly to help the most vulnerable, any time an employee takes advantage of public programs is deeply disturbing,” IDHS said in a statement.

Other state agencies where OEIG found many cases PPP fraud cases included the Department of Corrections (31 cases), the Department of Children and Family Services (27), Pace (10), and the Department of Health Care and Family Services (8).

OEIG, via Executive Ethics Committeeonly publishes abuse reports when there is evidence of employee misconduct. It may refer the case to the Attorney General if the fraud is significant enough. The Attorney General, specifically Office of Public Integritythen conducts its own investigation to hold public sector workers accountable.

Many cases mentioned third parties applying for a PPP loan on an individual’s behalf. The Department of Justice has prosecuted some of these third parties in Illinois, but it is unclear whether they are the same third parties that assisted public sector workers.

In June, a federal jury in Chicago convicted Hadi Isbaiha on charges of wire fraud. According to the Justice Department, Isbaih used his company, Flash Tax Service Inc. to submit false loan applications on behalf of their clients. Isbaih charged an upfront fee for submitting the loan form, and once the customer received the loan, he charged an additional fee. No date has been announced for the verdict in Isbaiha’s case yet.

In September 2023, two Businessmen from Illinois were indicted on federal charges for obtaining $7.8 million in fraudulent business loans. According to the Department of Justice, they recruited self-employed people to provide personal information. In this way, they filled out loan forms with false data, for example overstating the income of individuals. They would then bill customers up to $4,000 if the loan was successfully obtained. These two were not convicted.

They are serious consequences for PPP fraud. Knowingly making false statements to a financial institution can result in up to 30 years in prison or a fine of up to $1 million. Wire fraud, the use of the Internet or electronic communications to commit fraud, is a federal crime punishable by up to 20 years in prison.

Amalia Huot-Marchand is a journalism graduate from the Medill School of Journalism, Media, Integrated Marketing Communications at Northwestern University and a scholarship holder of the Medill Illinois News Bureau in cooperation with Capitol News Illinois.

Capitol News Illinois is a nonprofit, nonpartisan news outlet that distributes state government coverage to hundreds of news outlets across the state. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.