The owner of a Chicago drug-testing company with a long-standing no-bid state contract has been charged with billing the state for more than $2 million in drug screenings it never performed.

Anita K. Mahajan first came under government scrutiny last year following Tribune reports that Gov. Rod Blagojevich's wife, Patricia, earned more than $113,000 in commissions from real estate deals involving Mahajan and her banker husband, a campaign supporter of the governor.Mahajan, 55, made her first appearance before a judge Thursday on felony charges that carry prison terms of up to 30 years. She posted $250,000 bail and was released.

Mahajan is the longtime owner and president of K.K. Bio-Science Inc., a company that since the 1990s has held a no-bid contract to do drug screenings for clients of the Illinois Department of Children & Family Services.

Mahajan's company has been in trouble over government contracts before. The company lost a contract with the City of Chicago in the mid-1990s following allegations it was not licensed, according to court records obtained by the Tribune.

At a news conference after Thursday's court hearing, Cook County State's Atty. Richard Devine questioned why the company was allowed to have such a large contract without it being put out for bid.

"I can say that this contract was out of kilter with past practices and past contracts," Devine said. "And this office will continue to investigate."

Cook County Assistant State's Atty. Patricia Woulfe claimed Mahajan in statements to police acknowledged as much as half the state revenues her company collected since 2002 "were obtained by fraudulently billing the state for work that was never performed. That equates to approximately $2.1 million."

Authorities said Thursday they suspect the fraud is even greater, based on an audit of one year's worth of billings in which the fraud rate was 70 percent, Woulfe said at Thursday's bond hearing. This year, the company's state contract was worth nearly $740,000.

Following a meeting Thursday with the Tribune editorial board, the governor declined to discuss his relationship with Mahajan and her husband, Amrish.

"There is no relationship now," Blagojevich said. He did not elaborate.

The governor said the arrest was the result of internal inspectors general who investigate corruption in state government.

"I think, again, you should praise this administration for making sure that we police the system and it doesn't matter who is involved," Blagojevich said. "If someone's doing something wrong they're going to be held accountable."

Mahajan, who spent the night in jail and appeared in court via video, was charged with felony theft, money laundering, making a false statement on a vendor application, wire fraud and two charges centering on operating a continuing financial crimes enterprise.

"She's obviously very distraught and worried about her family," said Mahajan's attorney, Terence Gillespie, who persuaded Criminal Court Judge Thomas Hennelly to trim the state's "unusual" bail request of $400,000. "I hope everyone understands that these are just allegations. No proof was offered here today."

This is not the first time K.K. Bio-Science has come under scrutiny on fraud allegations. In 1995, the company lost its contract to screen Chicago police and fire employees following allegations it was not licensed by federal authorities to conduct urinalyses.

And in 1992, federal authorities accused the company of cheating on test results to pass federal licensing examinations.

Questions first arose about the state contract in October, when the Tribune revealed that Patricia Blagojevich earned $113,700 in real estate commissions last year through Mahajan and her banker husband, Amrish.

According to the Multiple Listing Service, they were the only four commissions Blagojevich earned during the first 10 months of 2006.

The governor's office has scoffed at questions about whether it is a conflict of interest for the governor's spouse to make money from a couple whose businesses depend on decisions made by the Blagojevich administration. The governor publicly called the Tribune's inquiry "Neanderthal," saying it was sexist to imply his wife got her work only because of her husband.