Chicago Public Schools Employee Responsible for $870K in Billing Fraud

by | January 5, 2015

By Juan Perez, Jr.

A former Chicago Public Schools employee, with help from colleagues and vendors, orchestrated the theft of more than $870,000 by fraudulently billing the district for goods and services, according to the annual report from the district's inspector general.

The alleged scheme involved a half-dozen former CPS employees and is the subject of an ongoing criminal investigation by the Cook County state's attorney office, the IG's report said. CPS is seeking to bar vendors and business owners involved in the scheme from getting future district contracts.

Most of the alleged fraud occurred at Michele Clark High School in the Austin neighborhood on the West Side, sources said.

The billing scheme is among a litany of alleged wrongdoings laid out in the report by the inspector general, who does not identify schools or the names of employees who are the subject of investigation.

Inspector General Nicholas Schuler, who took over as interim head of the department in July before being appointed last month by Mayor Rahm Emanuel to serve through June 2018, said the office examined 280 complaints during the 2014 fiscal year on everything from fiscal impropriety to falsified student data to ethics violations.

The investigations stemmed from the 1,335 complaints reported to the office, and Schuler said the inability to look into more complaints renews concerns about the district's ability to scrutinize its tens of thousands of employees and multibillion-dollar budget.

"As previously reported by this office, the inability to investigate more complaints creates a substantial risk that instances of fraud and employee misconduct go undetected," Schuler wrote in his report.

The alleged fraudulent billing scheme was a focal point of the inspector general's work for the year, prompting four investigations that determined an operations employee "orchestrated multiple fraudulent purchasing and reimbursement schemes that resulted in the theft of $876,427" from late 2009 to early 2014, the report said.

The school operations employee _ identified only as "Employee A" in the report _ has since resigned and been given the district's "do not hire" designation. Several of the employees who allegedly abetted the scheme have either resigned or been fired, the report said.

In 2012 and 2013, the report said the employee stole more than $33,000 by submitting fake reimbursements for items purportedly needed by the school. The employee asked a co-owner of a CPS vendor for fake invoices to cover some of the missing paperwork, according to the report.

From 2009 to 2013, the owner of two district vendors gave the employee more than $111,000 in kickbacks in connection with more than $216,000 in purchases at two high schools, "either all or substantially" all of which were fraudulent, the inspector general found.

Over roughly the same period, the employee filed fake purchase orders totaling more than $581,000 with two owners of multiple district vendors. Investigations concluded that one business owner created four companies to provide office services and supplies to CPS, in an effort to avoid district purchasing limits "that interfered with his desire to fulfill large contracts with CPS schools."

The inspector general's office also found business owners and employees colluded to violate district procurement rules at other schools by structuring purchasing across various companies to avoid certain buying limits.

The investigation into the fraud involved seven CPS employees, eight business owners and 13 vendors.

Chicago Tribune reporter Jeremy Gorner contributed to this report.

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