Every major federal spending program has the inherent risk of fraud, abuse, mismanagement and waste. Pandemic relief has been no exception.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act pumped $2 trillion into the national economy beginning in March 2020. It sent over 167 million stimulus payments to Americans, totaling about $391 billion. CARES was only the opening salvo of a massive economic response to a public health catastrophe.
The Most Ambitious Relief Effort in Modern History
Federal pandemic relief has packaged a combination of direct payments, grants, loans, and tax breaks to spur an economic recovery. American households, large corporations, small businesses, schools, and healthcare providers received the money. At almost $6 trillion, federal pandemic spending now exceeds the total federal budget for 2019.
Relief included the following programs:
- Paycheck Protection Program (PPP) —SBA-backed loans to help businesses keep workers on their payroll, totaling $790 billion[1]
- Economic Injury Disaster Loans (EIDL) — Repayable loans for small businesses, non-profits and agricultural businesses, totaling $200 billion[2]
- Economic Injury Payments — IRS tax credits totaling over $800 billion for households and individuals[3]
- Provider Relief Fund (PRF) — Funds totaling $178 billion for healthcare providers facing solvency challenges[4]
- Pandemic Unemployment Assistance (PUA) — Relief for self-employed workers, contractors, freelancers and gig workers totaling $130 billion[5]
- Federal Pandemic Unemployment Compensation (FPUC) — Emergency supplemental unemployment benefits for state benefits, totaling $439 billion[6]
Federal lawmakers designed pandemic relief to enter circulation quickly, without the usual lending guardrails or administrative infrastructure. Inevitably, evidence of fraud and abuse appeared. We now see the government cracking down, with fraud investigations likely to run for years.
The Fraud Risk of PPP Loans
The PPP ran from April 2020 to May 2021, using banks and other lenders to fund businesses. These were uncollateralized, low-interest loans, designed to be forgiven. The forgiveness process required using the SBA’s Loan Forgiveness Application form or the lender’s equivalent form. Businesses completed the form, attached all required documents and submitted the paperwork to their lenders. Required documentation included copies of canceled checks and bank statements with ACH information. Borrowers also had to provide evidence that employees remained on the payroll or were rehired following receipt of the loan.
The size and scope of federal pandemic relief was unprecedented. The scale and complexity of fraud, particularly with the PPP and EIDL funds, was also new. The National Bureau of Economic Research estimates that “only 23-34 percent of PPP dollars went directly to workers who would otherwise have lost jobs.”[7] The balance went to business owners, shareholders, creditors, and suppliers of firms participating in the PPP.
Online availability and cursory vetting made obtaining loans and forgiveness easier than applying for a typical business loan. This drew the attention of criminals — cybercriminals, identity theft specialists, organized domestic and transnational syndicates. The PPP’s potential for fraud and identity theft also appealed to amateurs. A 2021 working paper from the Social Science Research Network (SSRN) estimated that 1.8 million of the PPP’s 11.8 million loans, totaling $76 billion, had at least one sign of potential fraud.
Fraud in PPP Loan Applications, Usage and Forgiveness
Federal prosecutors are now investigating businesses and individuals who may have committed PPP fraud. These criminal actions include false statements on PPP loan applications, applying for multiple PPP loans with different lenders, using PPP funds for unauthorized purposes, and false PPP loan forgiveness certifications. Charges of PPP loan fraud come with substantial criminal penalties. They include:
- Wire fraud (18 U.S.C. § 1343) — Using the internet or phone to make false statements and steal money. Penalties range up to 20 years in prison.
- Bank fraud (18 U.S.C. § 1344) — Making false statements to banks or other financial institutions. Penalties range up to 30 years in prison.
- Making False Statements to an FDIC-Insured Bank (18 U.S.C. § 1014) — Falsifying loan applications, loan forgiveness forms and supporting documentation. Penalties range up to 30 years.
- Conspiracy (18 U.S.C. § 1349) — Entering into an agreement to defraud, even if the person takes no money or makes false statements. Penalties for conspiracy to commit fraud are the same as those for committing fraud.
Recovering Billions for the Foreseeable Future
Easing the economic impact of the pandemic was of paramount importance, leaving oversight to play catch up. As the pandemic moves forward in fits and starts, the federal government’s fraud investigations and recovery efforts are accelerating. The Department of Justice continues to announce arrests, indictments, convictions, sentences and forfeitures, working closely with federal agencies, and its COVID-19 Fraud Enforcement Task Force leads nearly 30 agencies that oversee and administer relief funding. These include the Departments of Labor and Treasury, the Small Business Administration, the U.S. Postal Inspection Service and the Pandemic Response Accountability Committee.
As of March 2022, the task force has charged over 1,000 criminal cases and opened 200-plus civil investigations of 1,800 individuals and entities. Together, these cases account for billions of dollars of suspected fraud.
How to Report Pandemic Relief Fraud to the SBA
If you suspect that someone has used your identity and/or information to apply for a PPP loan or Economic Injury Disaster Loan, you should complete a Declaration of Identity Theft Form (SBA Form 3513).
Contact the lender that issued the loan and report the suspected fraud. If you suspect that your identity, Social Security Number or Employer Identification Number have been stolen, you should monitor your personal credit at the Annual Credit Report website. This is a federally-authorized, free source of weekly online credit reports. You should also contact Experian, Equifax and Dun & Bradstreet for a copy of your company’s credit report.
Given the aggressive prosecution of relatively small-dollar fraud, you’ll want to make sure you can protect your credit, your business and your reputation. Our experience and insights will help us defend both your assets and your good name.
For more information, talk to your Windham Brannon advisor or contact Matt Stelzman.
On March 23, IRS Criminal Investigation released their latest statistical findings regarding COVID-related fraud over the past two years. They found that within the 660 COVID fraud investigations, the alleged fraud totaled more than $1.8 billion. You can read more from the IRS press release here.
[1] SBA.gov
[2] SBA.gov
[3] CRFB.org
[4] Congressional Research Service
[5] PandemicOversight.gov
[6] PandemicOversight.gov
[7] NBER.org