WASHINGTON—The federal government is being overwhelmed with reports of potential fraud in the Paycheck Protection Program, which likely won’t come as a surprise to many in credit unions given the speed with which applications were being accepted and processed.
In all, about $525 billion in loans were distributed to 5.2 million companies between April 3 and Aug. 8. Now the Small Business Administration’s inspector general is saying there were “strong indicators of widespread potential abuse and fraud in the PPP.”
The Wall Street Journal reported the SBA’s IG has counted tens of thousands of companies that received PPP loans for which they appear to have been ineligible, such as corporations created after the pandemic began, businesses that exceeded workforce size limits (generally 500 employees or fewer) or those listed in a federal “Do Not Pay” database because they already owe money to taxpayers.
“Tens of thousands of organizations also appear to have received more money than they should have based on their headcounts and compensation rates,” the Journal quoted the IG as finding.
More Than Any Other Year
According to the report, the Treasury Department in September received 2,495 suspicious-activity reports involving business loans from banks and other depository institutions, more than the total for any year dating back to 2014, according to public data.
One type of suspicious activity banks reported were multiple government payments from coronavirus-relief programs to a single account, suggesting potential abuse, according to Kenneth Blanco, director of the Treasury Department’s Financial Crimes Enforcement Network, the Journal reported.
“The fraud is sometimes abetted by online vendors that sell a kind of how-to guide for ginning up a fraudulent application for the program, offering ‘data, instruction, and complete packages of PII,’ or personally identifiable information, Blanco told a group of anti-money-laundering experts this fall,” the Journal stated.
As CUToday.info reported earlier, several hundred PPP-related investigations have been opened, involving nearly 500 suspects and hundreds of millions of dollars of loans, according to the Federal Bureau of Investigation.
73 Cases So Far
The Justice Department has charged 73 defendants in PPP-related fraud cases, a spokesman said late last month. Many involve allegations of made-up companies or forged documents.
The Journal report added that many other PPP loans are falling into a gray area in which businesses received one despite seeing revenue increase during the pandemic.
The Justice Department has said it anticipated fraud in the program, creating a PPP-focused team the day it was established and using data analysis to bring cases within weeks.
“The government’s ability to follow up on allegations of PPP misdeeds will affect how much the program costs taxpayers,” the Journal added, noting the SBA is now accepting loan-forgiveness applications, which are largely expected to be approved if companies can show the money was spent mostly on payroll.
$224K Per Job?
The Journal pointed to work done by researchers at the Massachusetts Institute of Technology in July compared payroll data at PPP-eligible companies to ineligible ones and estimated the program had boosted employment by about 2.3 million jobs. At that rate, the PPP would have cost about $224,000 per job supported.
“It seems that a lot of that cash went to businesses that would have otherwise maintained relatively similar employment levels,” said David Autor, an MIT economics professor and one of the study’s authors.