Illinois state employees fabricated hair salons, paid others to inaccurately fill out forms and drastically inflated income numbers for their side businesses in an effort to fraudulently receive pandemic-era Paycheck Protection Program loans, according to recently released reports from the Office of Executive Inspector General.
One Department of Human Services employee said on a PPP application that his car-washing business made $110,000 in a year but later acknowledged the venture had no customers or income, according to one report. Asked why he listed that amount, the report says he told investigators: “I just randomly put it in to see what I could get; I wanted to try my business again and wanted to go mobile with it.”
Another DHS employee who claimed to have six-figure income from a beauty salon business later told investigators she had only ever made $20 to $40 per month doing hair for friends and family and did not consider it a business.
The woman told investigators she “did what everyone else was doing at the time in order to get money,” the IG reports said. “She said that she did not use loan proceeds for any kind of business expenses because she does not have any business expenses.”
Those cases are two of the 275 instances in which the inspector general found PPP wrongdoing, the alleged thefts totaling more than $7 million in public funds, according to the IG’s April newsletter. Department of Human Services employees accounted for 175 of those cases. The Department of Corrections was the next highest, with 31 cases.
While the state IG provided updates on PPP investigations last year, the specifics of the alleged fraud weren’t made public until the state’s Executive Ethics Commission in recent weeks published about a dozen reports — all except one regarding Department of Human Services’ workers — detailing how they say state employees fraudulently received loans of $20,000 or more.
All employees in these cases were later fired, according to records posted by the ethics commission.
The inspector general’s office refers cases with alleged loss greater than $5,000 to the Illinois attorney general’s office for possible further action, said Neil Olson, general counsel at the OEIG. The AG can launch its own criminal investigation or pass the cases to a state’s attorney or federal prosecutors, he said.
The attorney general’s office is reviewing all of the referrals it receives and several investigations have been opened, spokesperson Jamey Dunn-Thomason said in an email.
“Attorney General (Kwame) Raoul is committed to holding accountable individuals who viewed the COVID pandemic as an opportunity for personal enrichment,” Dunn-Thomason said, while declining to comment further on pending investigations.
While state agencies have “consistently” followed the inspector general’s recommendations to fire workers accused of PPP fraud, the process for terminating state employees can be lengthy, Olson said.
Since the federal pandemic-era program took effect, many government employees have been linked to PPP fraud. Cook County’s independent watchdog last year found more than a dozen county employees fraudulently obtained federal pandemic loans, intended to keep small businesses afloat. And dozens of employees of Cook County Clerk Iris Martinez resigned or were fired amid a PPP fraud probe last year, the Chicago Sun-Times reported.
The program was often misused, as were other pandemic-era efforts to quickly disperse financial relief. A report from the U.S. Small Business Administration’s inspector general last year said some $64 billion in PPP loans may have been improperly doled out nationwide.
A Department of Human Services spokesperson in a statement emphasized that employees have been terminated over the inspector general’s findings.
“While the vast majority of IDHS’ roughly 14,000 state employees are hard-working people of strong character who work tirelessly to help the most vulnerable, it is deeply concerning any time an employee takes advantage of public programs,” spokesperson Daisy Contreras said in an email.
Several of the 13 state employees on whom investigative reports have been made public said they paid an outside individual to fill out the PPP application forms on their behalf. All claimed they had close to $100,000 in small business income to appear eligible for loans of about $20,000, according to the inspector general’s investigative reports.
In each case, “the OEIG determined that there was reasonable cause to believe” the employee had violated state and agency rules “by obtaining PPP loans based on falsified information,” according to the office.
Many said they used the money for everyday expenses such as food and gas, the reports said. Other employees told the watchdog they spent the money on expenses related to a business, but admitted their businesses earned only a fraction of the money they claimed on their PPP application forms.
An employee of the state’s Department of Healthcare and Family Services who received a $20,000 loan for a beauty salon later told investigators that business was fictitious, according to an OEIG report. Another employee who received a loan of about the same size told OEIG she had thought about starting a hair-braiding business, but never did.
Yet another state employee, who said she paid a friend to fill out an application on her behalf, received a $20,000 loan for a “livestock merchant wholesaler” business and later said she didn’t know where the information on the application came from, a report said. This employee also received a second, smaller PPP loan for a part-time babysitting business, which she told investigators was real.
Gov. J.B. Pritzker last year signed a law to extend the statute of limitations for theft and fraud prosecutions related to COVID-19 relief.
FBI Special Agent David Nanz, who is in charge of the bureau’s Springfield office, said last June that the scope of fraud involving pandemic stimulus money is likely massive.
“This is the largest theft of money in the history of the world,” Nanz said. “There is nothing that comes close when you look at all of the programs under the CARES Act,” he added, referring to the federal legislation that included the PPP program.
Several state employees also violated rules on disclosing secondary employment, the OEIG found.
“Regardless of the ease of procuring these PPP funds, this was not free money for the taking,” the OEIG said. “These loans, as with any other, required truthful information as a basis for approval.”
