City watchdog investigating whether as many as 1,000 PPP loans received by city employees were fraudulent
In the first of what could be a flood of fraud findings, Chicago’s inspector general has concluded a worker at the Department of Streets and Sanitation received a federal Payroll Protection Program loan “for a fictitious hair salon business.”
Friday’s quarterly report from Inspector General Deborah Witzburg said the finding was the first of a “large scale” investigation into whether city workers had fraudulently obtained some of the roughly 350,000 federal loans awarded in Chicago that were intended to keep businesses afloat during the pandemic.
This is the first “publishable outcome” of work investigating fraudulent federal pandemic loans paid to city actors, Witzburg said in a release accompanying the report, “an ongoing effort in which we’ve identified more than 1,000 potential subjects.”
The IG’s jurisdiction includes all city employees, elected and appointed officials, and city contractors and vendors. For several months, other local watchdogs — including inspectors general overseeing Cook County, the Chicago Housing Authority and Chicago Public Schools — have been digging into potential fraud or violations of personnel rules around ethics and secondary employment.
“Some of those loans may have been obtained legitimately, but a substantial number of the identified loans have indicators of potential fraud. We continue to investigate these matters and will continue to report publicly on investigative outcomes as appropriate,” Witzburg’s report said.
The report released Friday concluded that a “general laborer” in the city’s Streets and Sanitation department “falsified tax records with fabricated business income information in order to receive the loan.”
That was a violation of city personnel rules against breaking federal laws, the report said. It is the office’s practice not to publicly name accused employees. The report did not name the purported fictitious business nor the loan amount received.
The IG recommended the employee be fired and placed on the city’s do-not-hire list. The department “initiated the disciplinary process in accordance with the city’s personnel rules,” according to the IG’s report.
The Cook County Independent Inspector General’s office also released two reports Friday, which found other instances of federal fraud at the county’s Water Reclamation District and its health system.
Interim Inspector General Steven Cyranoski’s last round of federal loan fraud findings, published in July, resulted in the Metropolitan Water Reclamation District of Greater Chicago creating an “ineligible for rehire” list — where employees who engage in “egregious misconduct” are placed. Such a list is standard for other local governments.
In that previous report, Cyranoski’s office found four employees at the MWRD office defrauded the government. All four were either terminated after the investigation or resigned, according to the report. That report included findings about an MWRD police officer who used a $20,833 loan for a long-haul hazardous waste freight transportation business to make “unauthorized purchases.”
That officer claimed she had no part in the scheme and “thought that the funds that mysteriously arrived in her bank account were a gift from an acquaintance with whom she had played football,” the report said, which the office found was “not credible.”
In his most recent report, Cyranoski found another MWRD employee who received two PPP loans totaling $21,000 plus an Economic Injury Disaster Loan for at least three businesses she claimed to own and operate. Evidence suggested she won the loans and converted them to use “for her personal use and private gain.” She also did not spend all of the PPP dollars in the way she disclosed to federal officials and failed to comply with the OIIG’s investigation, the report said. She later resigned.
Cyranoski issued a separate report Friday that concluded seven Cook County Health employees had each fraudulently obtained PPP funds that totaled more than $200,000. Six “quickly resigned” shortly after discovering they were under investigation, the report stated.
The seventh employee obtained a $10,000 EIDL loan and two PPP loans totaling $40,050 while claiming she was sole proprietor of a “‘business consulting’ business,” according to the report. The IG’s search of state and public record databases as well as bank records “failed to show any evidence that the subject employee” ran the business.
The employee also claimed to own an agricultural business to get the EIDL loan then “improperly spent those funds entirely on personal expenses,” the report said. The OIIG recommended she be fired and placed on the ineligible for hire list. CCH’s response to the findings is not yet due.
