As more time has passed since the allocation of trillions of dollars for COVID-19 “relief,” the massive cost of the government’s failure to correctly distribute that money continues to be unearthed.  In the wake of the pandemic, Congress first enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided the Small Business Administration (SBA) and other federal agencies with money to distribute but knowingly failed to include sufficient fraud prevention measures to protect it from being wasted.  As more reviews of what went wrong are released, a more accurate estimation of losses to the taxpayers is coming into view.

A June 27, 2023, SBA Office of Inspector General report found that as much as $200 billion, or 17 percent of the $1.2 trillion in Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) funds, may have been stolen due to fraud.  A broader examination of the total $4.2 trillion in COVID-19 relief as reported in a July 12, 2023, Associated Press article found that at least $403 billion, was either stolen, misspent, or wasted.  That means that nearly half of the total estimated losses across all COVID-19 spending came from just the PPP and EIDL programs.

That also means that the SBA was of course not the only agency subject to fraud.  The CARES Act also provided increased unemployment insurance (UI) benefits to be distributed by the states overwhelmed by the rapid rise in unemployment claims as businesses closed across the country.  Criminals saw an opportunity to make an easy buck and the state UI systems, which were unprepared for the rapid increase in claims, were flooded with fraudulent requests.  Unemployment claims more than tripled in four months, from 6.2 million to 20.5 million.  The result of this chaos was at least $59.1 billion sent to fraudulent claimants, with only half of the states so far reporting how much they might have lost.

According to the Congressional Research Service, the SBA received approximately $1 trillion in additional funding to increase its ability to help small businesses during the COVID-19 pandemic.  In 2019, the SBA appropriation was $715.4 million.  The size of the agency grew from 4,191 employees in 2019 to 9,026 employees in 2021, giving it double the number of employees to distribute over a thousand times more in funds.  At the same time, the SBA was under political pressure from Congress to produce results.

That pressure led the SBA, and other agencies, to fail to follow even the most basic available measures to prevent fraudulent payments, including $3.7 billion in EIDL funds sent to individuals on the U.S. Department of Treasury’s Do Not Pay list, which is used by agencies to verify payment eligibility to individuals and businesses.  Another $1.3 billion in EIDL money was sent to foreign IP addresses in 209 different countries and territories, including $465,600 to countries on the United States’ State Sponsors of Terrorism list.

There have been some attempts by the federal government to claw back a portion of the lost taxpayer money.  The Secret Service has recovered at least $2 billion in fraudulently obtained COVID relief.  The SBA OIG’s actions have led to more than 1,000 indictments and 500 arrests.  Congress is also working on ways to help recover funds.  H.R. 1163, which passed the House by a vote of 230-200 on May 11, 2023, incentivizes states to recover funds by giving them up to 10 years to bring cases rather than the current limit of three years, and allows them to keep 25 percent of the amount they recover.

Progress has been made, but more remains to be done to both determine how much was lost due to fraud and mismanagement and how much can be recovered.  As the SBA OIG noted, there have been more than 250,000 Hotline complaints since the beginning of the pandemic, and more than 90,000 are “actionable leads, which represent more than 100 years of casework.”  While the amount of fraud from COVID-19 relief is the largest ever, Congress can and should do more to ensure this does not happen again, not just during the next pandemic, but every day in every federal agency. 

Written by Brandon DeRosa