Congressional inquiry reveals more than $ 1 billion in coronavirus aid fraud
More than $ 1 billion in emergency coronavirus aid went to companies that ‘doubled’ and received multiple paycheck protection program loans in violation of program rules, preliminary analysis released Tuesday by the House subcommittee on the coronavirus crisis.
Congressional investigators identified several areas of potential waste and fraud in the program, often referred to as P3s, that were part of the $ 2,000 billion CARES law. The program offered eligible small businesses up to $ 10 million in emergency loans and rebates to shore up their payrolls and cover basic expenses due to the business impacts of the coronavirus and lockdown periods. The program provided loans to nearly 4.9 million small businesses for a total of $ 521 billion. As designed, the program still has $ 133 million in untapped funds.
The latest analysis “suggests a high risk that PPP loans have been diverted from really needy small businesses to ineligible businesses or even to criminals,” according to the report, which was released in a hearing of the sub -Committee with Treasury Secretary Steven Mnuchin on Tuesday afternoon.
“Secretary Mnuchin has already testified that given the need to obtain emergency funds quickly, it was inevitable that the Treasury, and I quote,” will encounter many problems, “” said Representative James Clyburn, DS.C., chair of the subcommittee, wrote in his opening statement. “It’s a false dichotomy: taxpayers shouldn’t have to choose between getting help quickly to those in need and wasting federal funds, and there are simple steps that could have been taken to improve the situation. surveillance and reduce fraud. “
The subcommittee found over 10,000 loans in which borrowers obtained more than one loan. Under the administration’s rules to verify only loans over $ 2 million, only 65 of the loans would otherwise have been subject to further review.
More than 600 loans, worth nearly $ 100 million, have been made to companies that have been banned or suspended from doing business with the federal government. More than 350 loans, worth nearly $ 200 million, have been made to government contractors reported by the federal government for performance or integrity issues. Over 11,000 borrowers have had red flags in the government’s rewards management system, such as mismatched addresses.
Lawmakers said fraudsters were well aware of the limited oversight of the loan scheme.
The subcommittee called on the Treasury Department to adopt a “risk-based” audit plan to stop further waste. He said the current plan to audit only loans over $ 2 million “is clearly insufficient” and that “fraudsters are well aware of this limited audit plan and the limited oversight of the program.”
The Small Business Administration, which was responsible for overseeing the program, asked reporters to review a report written by Republican staff on the subcommittee.
“A lot of things are being addressed,” SBA administrator Jim Billimoria wrote in an email.
The Republican report called the work of the subcommittee a “partisan investigation” but acknowledged that there had been “minimal fraud”.
“While there were difficulties in implementing the program, as one would expect in implementing a program of this size in an accelerated timeframe, the SBA processed requests promptly and avoided fraud to the extent typical of disaster relief and other large government programs, ”staff said. members wrote.
As the program moves to review loan forgiveness requests, “the SBA must remain vigilant to ensure that loan forgiveness only extends to companies that have complied with the letter of the law.” , they wrote.
Mark Walsh, director of FactSquared, a Washington, DC-based data analytics company that headed the SBA’s Office of Investment and Innovation during the Obama administration, said, “He there will always be bad actors.
Walsh said it was premature to declare the level of fraud seen so far to be acceptable when it was only growing. “Let’s see how far it goes. Let’s keep chasing it,” he said.
He recommended three ways for the program to move forward and tackle the remaining issues: bringing in outside staff to help process requests; prioritize time-sensitive sectors, such as restaurants, which have suffered a disproportionate proportion of losses due to the pandemic; and increased penalties for violations.
Watchdogs said the report highlights the need for more light in the lending process.
“President Donald Trump’s administration has failed to design and implement a program that would help small businesses and their workers,” said Kyle Herrig, president of Accountable.US, a government watchdog body. waste. “Instead, it cut corners and kept the American people in the dark. Ultimately, the rich and well-connected were inundated with our tax dollars and fraudsters took advantage of the lack. disturbing transparency of the program. “
Experts said the errors underscore the need for rigorous oversight and openness.
Under heavy pressure from lawmakers, the Treasury Department released a partially anonymized candidate list in July, redacting the names of companies that received loans of $ 150,000 or less.
“The inability to install adequate collateral, while perhaps understandable given the rush to get money for struggling businesses, makes the need for full transparency all the more important,” wrote Neil Barofsky, Litigation Partner at Jenner & Block LLP. Barofsky was an investigator on the government’s distressed asset relief program, which bailed out a variety of industries during the Great Recession.
“Before another penny is allowed, the SBA must disclose full details of all loan recipients,” he wrote.