More than $200 billion may have been stolen from two large COVID-19 relief initiatives:
According to new estimates from a federal watchdog looking into federally funded programs that assisted small businesses survive the worst public health crisis in more than a century, more than $200 billion may have been stolen from two significant COVID-19 relief initiatives.
The figures revealed on Tuesday by the U.S. Small Business Administration inspector general show how much more vulnerable the Paycheck Protection and COVID-19 Economic Injury Disaster Loan programs were to fraudsters than the office’s earlier estimates. This was especially true during the early stages of the coronavirus pandemic.
The inspector general’s report said “at least 17 percent of all COVID-EIDL and PPP funds were disbursed to potentially fraudulent actors.” According to the report, the COVID-19 Economic Injury Disaster Loan Program fraud estimate is more than $136 billion, or 33% of the program’s overall budget. The inspector general estimated that the Paycheck Protection fraud cost $64 billion.
A senior SBA official disputed the new numbers in comments that were included with the report. SBA’s interim associate administrator for capital access, Bailey DeVries, stated that the inspector general’s “approach contains serious flaws that significantly overestimate fraud and unintentionally mislead the public to believe that the work we did together had no significant impact in protecting against fraud.”
The COVID-19 disaster loan program and the Paycheck Protection program both had fraud estimates of $86 billion and $20 billion, respectively, by the SBA inspector general.
According to a June 13 AP report, scammers and swindlers may have stolen about $280 billion in COVID-19 emergency aid, and another $123 billion was lost or misused. The two SBA programs and another to provide unemployment benefits to workers suddenly out of work due to the economic upheaval caused by the pandemic account for the majority of the potential losses. President Joe Biden took over the three projects that were started by the Trump administration. The total loss estimated by AP amounts to 10% of the $4.2 trillion in COVID relief aid that the US government has already paid out.
The amount of potential fraud that the federal government has now disclosed is $276 billion, which is consistent with the AP’s calculations.
During the first nine months of the pandemic, while President Donald Trump was in office, 86% of the fraud—or potential fraud—in the emergency loan programs occurred, according to Gene Sperling, a senior White House official in charge of overseeing pandemic relief spending.
“$200 billion is a very big number, but this, again, should be remembered as potential fraud,” Sperling said. “We think the amount of likely or actual fraud is significantly less, significantly under $100 billion, perhaps around $40 billion.”
But he added, “whichever it is, it’s unacceptably high.”
The SBA inspector general, Hannibal “Mike” Ware, said in a statement Tuesday that the report “utilizes investigative casework, prior (inspector general) reporting, and cutting-edge data analysis to identify multiple fraud schemes used to potentially steal over $200 billion from American taxpayers and exploit programs meant to help those in need.”
Ware, in an interview with The Associated Press earlier this m onth, said these latest fraud figures won’t be the last ones issued by his office.
“We will continue to assess fraud until we’re finished with the investigations on these things,” Ware said. That could be a long while. His office has a backlog of more than 90,000 actionable leads into pandemic relief fraud, which amounts to nearly a century’s worth of work.
The SBA published a report on its own anti-fraud policies on Tuesday. The report details “the effective measures added to fight fraud and hold bad actors responsible,” according to an email statement from the agency’s administrator, Isabella Casillas Guzman.
SBA previously told The Associated Press the federal government has not developed an accepted system for assessing fraud in federal programs. Previous analyses, the agency said, have pointed to “potential fraud” or “fraud indicators” in a manner that conveys those numbers as a true fraud estimate when they are not. For the COVID-19 Economic Injury Disaster Loan program, the agency said it’s “working estimate” found $28 billion in likely fraud.
According to Larry Turner, inspector general for the Labor Department, fraud in pandemic unemployment assistance programs has reached $76 billion. That is a reasonable guess. According to his testimony, an additional $115 billion was inadvertently distributed to individuals who weren’t eligible for the benefits.
In order to combat widespread fraud, the Biden administration implemented stricter regulations, including the use of a “Do Not Pay” database. Additionally, Biden recently put forth a $1.6 billion plan to increase law enforcement’s capacity to pursue pandemic relief scammers.
Bob Westbrooks, a former executive director of the federal Pandemic Response Accountability Committee, said in an interview the $200 billion number is “unacceptable, unprecedented and unfathomable.” Westbrooks published a book last week, “Left Holding the Bag: A Watchdog’s Account of How Washington Fumbled its COVID Test.”
“The swift distribution of funds and program integrity are not mutually exclusive,” Westbrooks said Tuesday. “The government can walk and chew gum at the same time. They should have put basic fraud controls in place to verify people’s identity and to make sure targeted relief was getting into the right hands.”
According to John Griffin, a finance professor at the University of Texas at Austin’s McCombs School of Business, the fraudulent payouts have consequences.
In a recent paper, Griffin and colleagues claimed that fraud in pandemic relief drove up home prices.
Even after adjusting for other variables that affect home prices such as land supply, prior house price growth, and the ability to telework, the study found that people who fraudulently obtained Paycheck Protection loans were more likely to purchase a home than people who obtained legitimate loans and that housing prices increased by an average of 5.7 percentage points in ZIP codes with high levels of fraud during the pandemic. That would add $22,800 to a house worth $400,000.
Griffin said Tuesday that the study also discovered rises in consumer spending in ZIP codes where people had received significant amounts of fraudulent money, which may have fueled inflation more generally.
“If you paid too much for your house because fraudsters pumped up the house prices in your ZIP code and then your house price ends up going down, you could be the victim of an unintended consequence of fraud,” he said in an interview. “It’s another reason why we should care about fraud.”
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