Flagged checks raise fraud concerns for N.C. housing program

RALEIGH, N.C. (WBTV) – Late on the morning of August 5, an employee at the North Carolina Office of Recovery and Resiliency emailed an employee in the Office of the State Treasurer. She needed help.

The NCORR employee needed someone from the Treasurer’s office to help get some checks returned. They’d already been deposited and cleared through a credit union in Fort Worth, TX. But, after they were deposited, the credit unit flagged them as suspicious.

Now, NCORR realized the checks were fraudulent; they’d been written to someone who was not authorized to receive them.

The three checks totaled more than $28,000. Had the credit union not flagged the suspicious checks, that money would have gone into the pocket of the man trying to deposit them instead people turning to the state for help paying their rent.

NCORR, an office inside the N.C. Department of Public Safety, is the state agency that administers the HOPE program, which uses federal pandemic aid money to help people pay their past-due rent. Under the program, tenants apply for help paying their past-due rent and the state sends a check for the past-due amount to their landlord.

The application process requires filling out a mountain of paperwork and getting approval from your landlord.

WBTV has previously investigated the program for its slow processing of claims and other problems.

But now, in a rush to process applications as quickly as possible, the state agency has acknowledged cutting checks to people who should never have been able to get them.

This story is based on emails, documents and cancelled checks provided to WBTV by the Treasurer’s office in response to a public records request.

‘It’s very disturbing’

The money from the three checks flagged by the credit union in Texas was eventually returned back to the state.

But, weeks later, the same credit union emailed again.

That same man had deposited another five checks, totaling $47,400. The bank hadn’t processed them yet but they were accepted for deposit because none of them had been subject to a stop payment order, despite the determination weeks earlier the man was cashing fraudulent checks.

In an email, an employee in the Treasurer’s office told the NCORR employee that unless someone issued a stop payment on the fraudulent checks, they could still be cashed or deposited.

N.C. Treasurer Dale Folwell said his office has gotten an alarming flood of calls from check cashing stores, banks and credit unions in recent weeks flagging suspicious checks issued through the HOPE program.

“We started getting dozens and dozens of calls because of what appears to be a lot of checks going to folks who may not have been landlords at all,” Folwell said.

Previous: Millions in N.C. housing assistance still unspent as state makes changes to speed help

“We have no way at the Treasurer’s office to determine whether these individuals were qualified to receive them but it was enough of a concern for the people at the check cashing services to call us to verify that they were actually real checks.”

One email forwarded from the Treasurer’s office to staff at NCORR shows a check cashing company in Georgia called because a woman was trying to cash three checks totaling $27,650 for properties that were not in North Carolina.

On August 12, an employee at the Treasurer’s office emailed an NCORR employee to voice concern about the number of suspicious checks that were being flagged for his office.

“I was speaking with the supervisor that oversees our check verification line yesterday, and she mentioned that they have been receiving a lot of calls from check cashing services verifying Hope Program checks. I thought this was odd as I would expect most of these checks to be going to businesses and/or deposited into business accounts,” the Treasurer’s office employee said.

“In total, we received approximately 31 calls yesterday from check cashing services and verified over $300,000 in Hope Program checks for them. My concern is that these are potentially the result of fraudulent applications to the program.”

Unless NCORR had issued a stop payment order against the checks, they would be cleared to cash.

The NCORR employee responded with an apology for the influx of calls and a document called a Check Status Report.

“It’s really the best we can do,” the NCORR employee said. “With this volume, I understand why places are weary.”

Documents and checks referenced in the emails provided by the Treasurer’s office, along with cancelled checks that had been flagged and returned to the office, amount to $265,755 in money from the HOPE program.

The Treasurer’s office provided copies of 23 suspicious checks flagged for their office to WBTV. A spokesman said there were more than 400 others.

“It’s very disturbing,” Fowell said. “As we started getting more and more of these calls because of the importance of this program to take this federal money and match landlords with renters.”

Striking the balance between speed and compliance

In an interview, NCORR’s director, Laura Hogshead, said she was unaware of fraudulent checks worth hundreds of thousands of dollars being flagged for her office.

Hogshead said her office has a program that checks all applications for eight fraud indicators that is updated weekly by compliance staff.

“With a program this large, there’s always going to be some element of fraud,” Hogshead said.

“But we are watching very carefully for that and we have a number of fraud indicators built into the system to make sure that we can minimize that as much as possible and, where we do substantiate fraud, we turn that over to the appropriate authorities.”

Late Monday, an NCORR spokeswoman said the agency had referred eight cases to the N.C. State Bureau of Investigation that day.

But, faced with questions of how people were able to qualify to checks on properties they don’t own, Hogshead acknowledged the agency does not check property records to verify applications.

“We are not able to check all of the applications,” she said. “We have 102,000 eligible applicants as of today and there is no central repository for checking those things.”

Hogshead said many of the fraudulent checks issued by her office were caught before the payment phase.

But she couldn’t answer questions about why her office failed to issue stop payment orders on checks issued to some individuals even after they had been deemed to be receiving fraudulent checks.

“We do stop payment on a number of checks, so if you have an instance where that didn’t happen, we’d love to see that so we could investigate that,” she said.

In her interview, Hogshead disagreed with Folwell’s assertion that fraudulent checks worth hundreds of thousands of dollars had been authorized by her agency.

“Yeah, I’m not sure where that’s coming from,” she said.

“If you have hundreds of thousands or millions of dollars of allegations of fraud, then we need you to give those to us because we do not have nearly that much substantiated fraud,” she said.

After the interview, a WBTV reporter forwarded the public records obtained from the Treasurer’s office.

Later, a spokeswoman issued the following statement:

“Bad actors who attempt to defraud vital Emergency Rental Assistance or any other government program should be thoroughly investigated and, if necessary, prosecuted for wrongdoing. The HOPE Program remains focused on providing housing stability for renters and getting much needed funds into the hands of landlords and utility companies that are waiting for payment. Unfortunately, we know there will always be attempts to defraud large federal assistance programs, which is why every application received by the HOPE Program goes through a quality control check and fraud indicators are built into the process. The email exchanges between the Department of Public Safety and Department of State Treasurer staff demonstrate vigilance with monitoring HOPE Program activities and following up appropriately when issues are identified. The HOPE Program’s commitment to preventing and eliminating fraudulent activity is further underscored by today’s referral of eight cases of suspected fraud to the State Bureau of Investigation.”

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