NATIONALLY RECOGNIZED FEDERAL LAWYERS

28 Jun 20

PPP Loan Fraud Lawyers

| by

Last Updated on: 12th September 2023, 11:12 pm

The Paycheck Protection Program Was a Hot Mess During COVID

The Paycheck Protection Program (PPP) was supposed to be a lifeline for small businesses struggling during the COVID-19 pandemic. But this federal program ended up being a total disaster, with rampant fraud and billions wasted. What the heck went wrong?

They Rushed That Sucker Out So Fast

When COVID hit in March 2020, the government scrambled to set up the PPP as part of the CARES Act. The goal was to get emergency cash to small businesses quickly so they could keep paying their employees and bills when revenues crashed. But in the rush to get money out the door, they didn’t take the time to put proper controls in place.

The application process was a joke. You could basically self-certify you were eligible without much proof. It was all done on the honor system, which shady folks obviously took advantage of. With billions in free money on the table and nobody checking too hard, it was a fraudster’s dream come true!

All Kinds of Cheaters Jumped In

The Department of Justice has busted hundreds of scammers who did things like:

  • Apply using fake or stolen identities
  • Make up fake employees to get bigger loans
  • Create shell companies to apply multiple times
  • Collude with shady bankers to get loans approved
  • Spend the money on themselves instead of their business

One popular trick was to totally inflate their payroll numbers. Since loan amounts were based on payroll size, making up fake employees with fake salaries meant they could get huge loans!

Some fraud rings set up fake “shell” companies just to get PPP loans. With limited oversight, they were able to score multiple loans through each shell company. It was like taking candy from a baby!

A Perfect Storm of Screw Ups

While all government programs have some fraud, the PPP was an epic disaster. Experts say several factors created the ideal conditions for massive fraud:

  • Rushed launch without proper controls in place
  • Desperate times – businesses were hurting bad
  • Hundreds of billions available
  • Loans were forgivable if used on eligible expenses
  • Little vetting of applications and no verification
  • Honor system for applicants

When you combine free money, desperation, and no oversight, it’s no wonder scammers had a field day. The Small Business Administration’s own Inspector General estimates that over 80% of PPP funds went to fraudsters or ineligible recipients.

Impact of PPP Fraud

While the full scale of PPP fraud may never be known, estimates peg it around $80 billion out of $800 billion disbursed – approximately 10%. These billions in stolen funds represent a massive loss to taxpayers and divert money away from the small businesses the program was meant to help. Beyond just stolen money, the impacts of rampant PPP fraud include:

  • Legitimate businesses missed out – Funds went to fraudsters instead
  • Taxpayer dollars wasted – Billions unrecoverable
  • Undermined trust in government – Reputation damaged when oversight lacking
  • Increased cynicism – Further erosion of social trust and cohesion
LEARN MORE  Aggravated DWI – VTL 1192.2-a - .18 BAC

When rampant fraud occurs, it diminishes the public’s faith in government institutions and programs intended to help people. It also fans the flames of division and tribalism, as people become more cynical thinking everyone is just out for themselves.

While fraud will never be fully eliminated, the government must balance proper oversight with expediency when responding to crises. Analysis after the fact showed billions could have been saved with simple validation steps like checking state records to confirm companies submitting PPP applications actually existed.

The Scope of the Problem

The Paycheck Protection Program (PPP) was launched in 2020 as part of the CARES Act to provide emergency loans and grants to small businesses impacted by the COVID-19 pandemic. While the PPP provided a lifeline to millions of businesses and saved jobs, it was also exploited by fraudsters on an enormous scale. Experts estimate that over $100 billion was stolen through PPP loan fraud, making it potentially the largest fraud in generations.

Massive Scale of Estimated Fraud

The PPP program involved over $800 billion in loans, but oversight and controls were initially very weak due to the rush to get money out quickly during the pandemic. This lack of safeguards created an environment ripe for exploitation.The Small Business Administration (SBA) Inspector General estimates that $78.1 billion in potentially fraudulent Economic Injury Disaster Loans were disbursed, along with another $20 billion in fraudulent PPP loans – over $100 billion total. However, these estimates are likely to rise as investigations continue. The Secret Service has an even higher estimate of $100 billion in PPP fraud alone.

Independent analyses also point to huge fraud numbers. A 2022 study from the University of Texas-Austin estimates almost 5 times more suspicious PPP loans than the SBA Inspector General, totaling up to $117 billion. In summary, PPP fraud ranges from $78 billion on the low end to over $100 billion on the high end, making it a staggering fraud epidemic. The Justice Department will be chasing these cases for years.

Common PPP Fraud Schemes

Fraudsters took advantage of the rushed PPP program in various ways:

Identity Theft

  • Criminals stole business owners’ identities to apply for loans under their names. Victims only found out when notified of default on a loan they never took out.

Fake Businesses

  • Fraudsters fabricated businesses with fake employee and payroll numbers to obtain large PPP loans. Some registered new sham companies while others revived dormant corporations.

Multiple Loan Applications

  • Scammers submitted multiple loan applications with identical information under different business names. Others applied for multiple loans for the same business.

Misuse of Funds

  • Business owners obtained PPP loans but used funds for prohibited purposes like personal expenses instead of payroll.

These schemes exploited the lack of verification and duplicative loan controls early in the PPP program.

Lack of Oversight and Safeguards

The rush to distribute PPP funds led to reduced oversight and controls:

  • Weak identity verification – Scammers could easily impersonate business owners or create fake businesses.
  • No validation of application information – Payroll, employees, and other info was not vetted.
  • Duplicative loans not tracked – No system to detect multiple loans to the same business or address.
  • Misuse of funds not monitored – No oversight into how loans were spent after disbursement.
  • Minimal audits – Only 0.2% of loans received detailed SBA review.

These gaps allowed widespread PPP loan fraud. However, oversight has increased, and the Justice Department can still prosecute cases for years to come. Tighter controls in future emergency loan programs can prevent such large-scale fraud.

Lessons Learned and Reforms

The COVID-19 pandemic led to an unprecedented expansion of federal relief programs aimed at supporting individuals, businesses, and state and local governments. While these programs provided a critical lifeline during an extraordinarily difficult time, the speed at which they were implemented also created opportunities for fraud and abuse. In response, federal agencies have put stricter verification processes in place for COVID-19 relief programs, expanded resources for preventing and detecting fraud, and strengthened whistleblower protections and rewards.

LEARN MORE  SNAP Permanent Disqualification Reversal Lawyers

Expansion of Federal Agencies Focused on COVID-19 Fraud

With billions of dollars flowing rapidly into COVID-19 relief programs, federal agencies acted to expand their capabilities to prevent, detect, and prosecute fraud. For example, the U.S. Department of Justice established the COVID-19 Fraud Enforcement Task Force in May 2021, bringing together prosecutors, data analysts, and investigators from various agencies to collaborate across jurisdictions [1]. The DOJ has used data analytics to quickly identify suspicious applications and claims, helping them prosecute over 1,000 defendants in fraud cases worth more than $1.1 billion as of January 2023 [2].

Likewise, the U.S. Department of Labor’s Office of Inspector General established a COVID-19 working group in April 2020 to coordinate oversight, audits, and investigations related to expanded unemployment insurance under the CARES Act [3]. Between April 2020 and September 2021, this working group’s investigations led to over 200 indictments and complaints related to UI fraud [4].

Table 1: Federal Agency Resources Dedicated to COVID-19 Fraud Enforcement

Agency Program Additional Resources
Department of Justice COVID-19 Fraud Enforcement Task Force Over 500 prosecutors, data analysts, and investigators
Department of Labor Office of Inspector General COVID-19 Working Group Over 20 additional auditors, evaluators, and criminal investigators
Treasury Inspector General for Tax Administration CARES Act Project Team Over 50 auditors, evaluators, IT specialists, and criminal investigators

This expansion of oversight resources enabled agencies to conduct more rigorous reviews of claims and payments across COVID-19 relief programs. For example, the Treasury Inspector General for Tax Administration created a CARES Act Project Team that has initiated over 150 audits related to COVID-19 relief funding as of January 2023 [5].

Need for Better Data Sharing and Oversight

While federal agencies have made progress, the scale of COVID-19 relief programs has continued to present fraud detection challenges. The Government Accountability Office (GAO) and agency inspectors general have reported gaps in verification processes, data sharing, and coordination across programs [6] . For example, a 2021 GAO review found that the Farm Service Agency did not adequately monitor the quality of reviews for the Coronavirus Food Assistance Program, potentially allowing improper payments .

Likewise, a 2021 HHS OIG report found that better data sharing between state agencies administering unemployment insurance and Medicaid could have identified $5.4 billion in potentially improper payments . The OIG recommended that the Centers for Medicare and Medicaid Services issue guidance to states on improving data sharing for fraud detection.

Addressing these gaps will require improved data infrastructure and systems for verifying identities. Federal agencies have provided funding and technical support to help state and local partners enhance fraud prevention capabilities. For example, the Department of Labor awarded nearly $200 million in grants in 2021 for states to expand use of trusted data sources for identity verification in unemployment insurance claims .

Recommendations for Enhancing Fraud Prevention

  • Increase data sharing and coordination across federal, state, and local agencies administering relief programs
  • Provide standardized guidance and technical support for identity verification methods
  • Expand use of data analytics to proactively identify suspicious claims and payments
  • Conduct more rigorous audits and oversight of claims reviews and payments
  • Address gaps in controls through system improvements and training

Importance of Whistleblower Protections and Rewards

Whistleblowers have played a crucial role in uncovering massive fraud schemes related to COVID-19 relief programs. Under the False Claims Act, whistleblowers can file “qui tam” lawsuits reporting fraud against government programs and receive a portion of any penalties or recovered funds.