Watchdog Identifies $5 Billion in Potential COVID-19 Relief Fraud

People line up outside Kentucky Career Center prior to its opening to find assistance with their unemployment claims in Frankfort, Ky., on June 18, 2020. Bryan Woolston/Reuters

A federal watchdog on Monday issued an alert for $5.4 billion in relief that may have been fraudulently claimed through the U.S. government’s small business COVID-19 support program.

Data scientists from the Pandemic Response Accountability Committee (PRAC) flagged over 69,300 “questionable” social security numbers (SSNs) for “potential fraud and identity theft” linked to the programs.

The taxpayer-funded support programs analyzed by the watchdog are the Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP).

These programs, created to provide financial assistance to small businesses and their employees affected by COVID-19 pandemic lockdowns, disbursed a total of nearly $1.2 trillion.

The watchdog said in its report (pdf) that the PRAC’s team used the Pandemic Analytics Center of Excellence to analyze over 33 million applications to these programs, identifying potential fraud and identity theft.

Using publicly available Social Security Administration (SSA) information to verify the SSNs, the data scientists found that over 221,400 numbers were either not issued by the SSA or had mismatched name and date of birth information, suggesting potential identity fraud, according to the watchdog.

The PRAC stated that over $5 billion in relief loans were given to 69,323 SSNs between April 2020 and October 2022. A further 175,768 SSNs were used in applications that were not disbursed by the SBA for undisclosed reasons.

The watchdog said it used the legal authorities provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 to request information from the SSA and uncover the fraud.

Programs

The EIDL program closed on Jan. 1, 2022, after providing $378 billion in loans and grants to small businesses. The PPP program, which helped businesses keep their workforces employed amid the lockdowns, closed on May 31, 2021, after disbursing $800 billion.

The watchdog said the programs “were more susceptible to fraud due to the elevated urgency for agencies to provide timely relief to applicants in response to the COVID-19 pandemic.”

“SBA’s initial approach to implement these programs quickly made billions of dollars available to millions of borrowers affected by the pandemic, but used few program controls to verify applicants’ eligibility prior to disbursing funds,” the watchdog’s alert stated.

The watchdog’s report said that the SBA launched PPP on April 3, 2020, a week after the CARES Act was enacted, with limited measures to ensure its integrity. Despite the addition of some fraud prevention controls in 2021, the initial implementation of the PPP focused on quickly disbursing funds, which led to widespread fraud.

The CARES Act, signed into law by then-President Donald Trump in March 2020, was designed to help small businesses and workers by making it easier for lenders to approve loans. Lenders were allowed to trust what the borrowers said about themselves.

However, the watchdog said that the SBA and lenders could also use other information to make sure the borrowers were eligible. Lenders who gave out PPP loans had to follow rules from the Bank Secrecy Act. But in 2020 the borrowers were not checked against a list called the “Do Not Pay” service from the Treasury Department.

Billions ‘Lost’

The Republican-controlled House Committee on Oversight and Accountability will have its first public hearing on Wednesday to look into the misuse of taxpayer money in COVID-19 relief programs. The committee has invited the head of the PRAC, Justice Department Inspector General Michael Horowitz, and other government officials to testify.

Rep. Jason Smith (R-Mo.), the chair of the Ways and Means Committee, has also called for an investigation into the “historic theft of taxpayer dollars from COVID-era unemployment programs” after a different report estimated that up to $60 billion could have been spent on such claims.

The report from the Government Accountability Office (GAO) states that the Department of Labor has reported paying out $878 billion in unemployment benefits between April 2020 and September 2022, with at least $4.3 billion confirmed as fraudulent by state agencies and $45 billion flagged as potential fraud by the Department of Labour’s inspector general. However, the report warns that the estimate is subject to limitations and should be approached with caution, as the actual amount of fraud is unclear.

Smith has said that the GAO report proved that hundreds of billions of taxpayer dollars have been “lost to criminal activity and fraud because Democrats refused to acknowledge the problem and repeatedly rejected Republican efforts to put basic safeguards in place to protect against this activity.”

“Congressional Democrats walked away from their oversight responsibilities of getting to the bottom of how this happened, what they could do to prevent it, and even how much has fully been lost, leaving criminals to profit off the backs of taxpayers. Republicans are committed to investigating fraud and conducting rigorous oversight on behalf of working families,” Smith said.

Katabella Roberts contributed to this report.