Congressional investigation finds over $1 billion in coronavirus aid fraud

Ben Popken

Over $1 billion in emergency coronavirus aid relief went to companies that "double dipped" and received multiple Paycheck Protection Program loans in violation of the program's rules, according to a preliminary analysis released Tuesday by the House Select Subcommittee on the Coronavirus Crisis.

Congressional investigators identified multiple areas of potential waste and fraud in the program, often referred to as PPP, which was part of the $2 trillion CARES Act. The program offered qualifying small businesses up to $10 million in emergency and forgivable loans to shore up their payrolls and meet basic expenses due to business impacts from the coronavirus and lockdown periods. The program gave 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 may have been diverted from small businesses truly in need to ineligible businesses or even to criminals," according to the report, which was released as part of a subcommittee hearing with Treasury Secretary Steven Mnuchin on Tuesday afternoon.

"Secretary Mnuchin has previously testified that, given the need to get relief money out quickly, it was inevitable that Treasury, and I quote, 'ran into a lot of issues,'" Rep. James Clyburn, D-S.C., chairman of the subcommittee, wrote in his opening statement. "That is a false dichotomy: Taxpayers should not have to choose between quickly getting aid to those who need it and wasting federal funds, and there are simple steps that could have been taken to improve oversight and reduce fraud."

The subcommittee found over 10,000 loans in which the borrowers obtained more than one loan. Under the administration's rules to audit only loans over $2 million, only 65 of the loans would otherwise have been subject to additional review.

Over 600 loans, for nearly $100 million, went to companies that had been barred or suspended from doing business with the federal government. More than 350 loans, worth nearly $200 million, went to government contractors flagged by the federal government for performance or integrity issues. Over 11,000 borrowers had red flags in the government's System for Award Management, such as mismatched addresses.

The subcommittee called on the Treasury Department to adopt a "risk-based" audit plan to stop further waste. It said that the current plan to audit only loans over $2 million "is plainly insufficient" and that "fraudsters are well aware of this limited audit plan and the limited program oversight."

The Small Business Administration, which was responsible for overseeing the program, directed reporters to review a report written by the subcommittee's Republican staff.

"Many items are addressed," SBA Administrator Jim Billimoria wrote in an email.

The Republican report called the subcommittee's work a "partisan investigation" but acknowledged that there had been some "minimal fraud."

"While there were some challenges implementing the program, as would be expected in implementing a program of this size on an expedited timeline, SBA processed applications quickly and avoided fraud to the extent that is typical of disaster relief and other large government programs," staff members wrote.

As the program moves into reviewing loan forgiveness applications, "SBA should remain vigilant to ensure loan forgiveness only extends to businesses who complied with the letter of the law," they wrote.

Mark Walsh, director of FactSquared, a Washington, D.C.-based data analytics firm, who was head of the SBA's Office of Investment and Innovation during the Obama administration, said, "There will always be bad actors."

Walsh said it was premature to declare that the level of fraud found so far was acceptable when it was only likely to grow. "Let's see how deep this goes. Let's keep pursuing it," he said.

He recommended three ways the program could move forward and tackle remaining issues: bringing in external staff members to help process applications; prioritizing time-sensitive sectors, such as restaurants, which have suffered an outsize proportion of losses due to the pandemic; and increasing penalties for violations.

Full coverage of the coronavirus outbreak

Watchdogs said the report underscores the need for more sunlight in the loan process.

"President Donald Trump's administration failed to design and implement a program that would help actual small businesses and their workers," said Kyle Herrig, president of Accountable.US, a government waste watchdog. "Instead, it cut corners and kept the American people in the dark. In the end, the wealthy and well-connected were showered with our tax dollars and fraudsters took advantage of the program's troubling lack of transparency."

Experts said the errors highlight the need for rigorous oversight and openness.

Under significant pressure from lawmakers, the Treasury Department in July released a partly anonymized list of applicants, redacting the names of businesses that received loans of $150,000 or less.

"The failure to install adequate safeguards, although perhaps understandable given the rush to get money to struggling businesses, makes the need for full transparency all the more important," wrote Neil Barofsky, a partner in the litigation department of Jenner & Block LLP. Barofsky was an investigator into the government's Troubled Asset Relief Program, which bailed out a variety of industries during the Great Recession.

"Before another penny is authorized, the SBA must release all of the details of all loan recipients," he wrote.