Risky Business

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The Illinois Department of Children and Family Services (DCFS) exists to protect vulnerable children who are at risk for being neglected or abused. The state agency provides permanent families for children who cannot safely return home; supports early intervention and child abuse prevention activities; and, partners with communities to provide safe environments for children and training to strengthen families. Today’s ”Fraud of the Day” focuses on a man who ran multiple organizations—one non-profit and three for-profits—offering social services and mental health care to vulnerable children and their families in the Chicago area. (Unfortunately, he used his non-profit organization to steal nearly $1 million in state grants intended to benefit children at risk.)

The article states that over 20+ years, the businessman held multiple contracts worth millions of dollars with Illinois agencies including DCFS, the Illinois State Board of Education (ISBE), the Department of Human Services and with Chicago State University. The DCFS Inspector General (IG) launched an investigation of the businessman’s non-profit organization accusing him of double- and triple-billing these agencies for the same services, forging records and falsifying expenses. (Apparently, the initial investigation discovered that he submitted the same invoice for reimbursement to three state agencies; dispensed incorrect dosages of psychotropic drugs to children under his care; and, billed more than $130,000 for rent when his costs were actually one-third of that amount.)

When the DCFS IG suspected that the fraud was not just contained within her agency, she sought the help of the Office of Executive Inspector General. State investigators determined that the businessman misused portions of the $18 million in state grants he received. Unfortunately, they were only able to review several years of contracts and could not determine the full extent of the misuse. A suit was eventually filed against him alleging he had illegally spent $8 million of taxpayer money on travel, concert tickets and sporting events. (The suit is still pending.)

At a recent federal hearing, the businessman admitted to persuading the DCFS and the ISBE to issue two similar grants worth $450,000 and $342,000 to his non-profit organization within two days of each other. (It seems he used the funds for personal and business use instead of for the children and families under his care. I bet they would have enjoyed a vacation, concert or sporting event.)

The businessman pleaded guilty to money laundering and mail fraud. The 66-year-old must pay $950,000 in restitution to Illinois. The fraudster is currently free on bond while awaiting sentencing.According to state records, the DCFS Director—who happened to be a friend of the fraudster—stepped down from his position, refusing to cooperate with the state investigation. (Fraud often happens when someone on the inside helps out.)

This man’s financial scheme involving fraudulent state contracts accomplished the opposite of what his non- and for-profit businesses set out to do. Instead of providing a safer environment for the children and families he served, he stole state funding and used it for his own personal pleasure, putting his clients at risk. (Fraud is risky business for those involved, including the perpetrators and the victims. They both end of paying in the end.)

Source: Today’s ”Fraud of the Day” is based on an article entitled, ”Chicago businessman pleads guilty in state grant fraud scheme,” published by The Chicago Tribune on March 30, 2016.

A Chicago businessman at the center of an investigation into millions of dollars in allegedly fraudulent state contracts has pleaded guilty to money laundering and mail fraud.

George E. Smith’s plea in federal court this week was the culmination of a years-long investigation into a financial scheme that rocked the state’s Department of Children and Family Services and led to the resignation of its director.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.