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Illinois watchdog has referred 177 cases of alleged PPP loan fraud by state workers to law enforcement

Chicago Tribune

Wednesday, September 13, 2023  |  Article  |  Dan Petrella

The watchdog overseeing agencies under Gov. J.B. Pritzker has referred 177 cases to law enforcement in which there was “reasonable cause to believe” a state worker “improperly obtained” a federal pandemic business relief loan, according to a report released Tuesday.

The specifics of the alleged fraud likely won’t be known until reports on those cases are issued, a process than can take months. But the Office of Executive Inspector General said in its monthly newsletter that an investigation which began last year focused on loans from the federal Paycheck Protection Program for about $20,000 or more. Loans of that amount typically were issued to businesses with about $100,000 or more in annual net profits or gross income, according to the inspector general.

Nearly all of the more than 11 millions loans issued nationwide through the Small Business Administration have been forgiven.

The state IG, which found allegedly fraudulent loans totaling $4.5 million, used publicly available data on the widely used, and often abused, federal program to match loans to state employees, and then conducted investigations to determine if those loans were obtained by fraudulent means.

As of Tuesday, the office had completed 204 of the 438 investigations it had opened.

To date, the vast majority of the founded cases — 132 — have been among employees at the state Department of Human Services. The agency with the next highest total, the Department of Children and Family Services, had 25 cases.

The Department of Human Services already has been under fire for its handling of allegations of abuse and neglect of residents at the Choate Mental Health and Developmental Center in downstate Anna, leading Pritzker to announce a multiyear “repurposing” plan for the facility.

The governor last week announced he is promoting Human Services Secretary Grace Hou to be one of his deputy governors. She will replace departing Deputy Gov. Sol Flores next month in a position overseeing all of the state’s health and human services agencies and programs. Hou will be paid $310,079 — $171,079 by state taxpayers and another $139,000 from the billionaire governor’s personal fortune.

In response to questions about the allegations of rampant PPP fraud at the Department of Human Services, Pritzker spokeswoman Jordan Abudayyeh called Hou “an exemplary public servant who has served with integrity and has taken every available step to ensure employees who have engaged in personal misconduct are held accountable.”

“Falsifying a federal loan document, for significant and improper personal gain, calls into question the individual’s character, honesty, and ability to act ethically, but it does not have bearing on the character of the person leading an agency where those people work,” Abudayyeh wrote in an email.

All agency employees who are facing fraud allegations were hired through a process that prohibits direct input from the head of the department, Abudayyeh said.

Pritzker “recently signed a law extending the statute of limitations to prosecute these crimes because he believes bad actors should be held accountable to the fullest extent of the law,” she said.

“It is despicable that some state employees chose to lie to the federal government for their personal gain, but they are now being held accountable for those choices,” Abudayyeh said.

The IG’s newsletter notes that “the State of Illinois Code of Personal Conduct requires state employees to conduct themselves ‘with integrity and in a manner that reflects favorably upon the state.’ In addition, various agency policies prohibit employees from engaging in conduct that is unbecoming of a state employee.”

A spokesman for the Department of Human Services said as of Tuesday, 66 employees had been fired, face pending termination or have resigned as a result of PPP fraud allegations. That includes 43 employees at Ludeman Developmental Center in southwest suburban Park Forest, 13 at Shapiro Developmental Center in Kankakee, five at Kiley Developmental Center in Waukegan and five at other locations.

Department spokesman Patrick Laughlin called the fraud findings “deeply concerning” but said “the vast majority of IDHS’ roughly 14,000 state employees are hardworking people of strong character who work tirelessly to help the most vulnerable.”

“Since IDHS was notified of staff involvement in PPP loan fraud, we have been working to hire more staff,” Lauhglin said in an email. “IDHS also made schedule changes and is supplementing with agency support until positions are filled.”

Capitol News Illinois first reported last month on fraud allegations among staff at Ludeman and the IG’s ongoing investigation of dozens of employees under its purview.

The IG’s office said it is required to report any case involving alleged misconduct resulting in the loss of $5,000 or more in public funds to the Illinois attorney general’s office.

The attorney general’s office did not respond to questions about the status of its investigations into the alleged fraud.

Fraud in the PPP program has been a widespread problem at government agencies, with Cook County, the Chicago Housing Authority and others facing allegations of fraud by their employees.