Federal and state investigators may never be able to track down all of the fraud that occurred during the COVID-19 pandemic. The scale of it is massive.
What we have for now are mostly educated guesses. Roughly $80 billion in Paycheck Protection loans are estimated to have been fraudulently received, including around $1 billion in Mississippi alone. State Auditor Shad White claims another half-billion dollars in fraudulent unemployment claims were paid out in Mississippi during the time when the world was paralyzed by the virus, and the U.S. government responded to the resulting economic panic by throwing boatloads of “free money” at the problem.
Government agents have been using both criminal and civil procedures to go after the perpetrators and the stolen funds. According to reporting by the Daily Journal newspaper in Tupelo, the U.S. Attorney’s Office in the Northern District of Mississippi uses $40,000 in the PPP fraud cases as the threshold to determine whether to try to put the perpetrators in jail or to just get the money back.
Most of those who profited for less than $40,000 were recruited by “aggregators” to file claims on businesses that did not exist. The aggregators, who were the biggest crooks, took a cut of the loan value. That came generally to around 5%, but there were cases in which it was as high as 80%, according to the newspaper’s reporting.
As of a couple of months ago, the civil litigation strategy had produced $50 million in judgments but been only able to collect about $11 million. That’s because most of the ill-gotten gains had already been spent, and the perpetrators don’t have much income or property for the government to attach.
As investigators continue these law enforcement efforts, there are obvious lessons to be learned for the next time a panic hits, whether it’s caused by a global disease outbreak or a meltdown in the financial markets.
Decisions made in haste usually have bad consequences.
Congress was so concerned, and understandably so, by the potential economic devastation from the pandemic that it made a policy decision to get as much money as possible into circulation and worry later about those who dishonestly received any of it.
Certainly, a balance had to be struck between speed and efficiency, but the government relied too heavily on an honor system that invited dishonesty. It could not have taken that much time before issuing the relief payments to verify that a business existed or that an individual had just lost a job.
There were also patterns that could have been flagged as suspicious early on and investigated before the fraud got out of control. For instance, in Sardis, a poor town in Panola County, around 600 “businesses” received the maximum PPP loan. That many businesses would equate to one for every three residents. Simple math and common sense would have told anyone paying attention that a ton of cheating was occurring there.
Another lesson was this: Although technology offers speed, it also increases the risk of fraud.
The Small Business Administration, which administered the PPP program, tried to implement safeguards by the second round of lending, but they didn’t work. That’s because, according to the Tupelo newspaper’s report, the application process shifted from using local banks to process the loans to using online banks. People obviously were more inclined to pretend to own a business when they didn’t have to look across the table at a lender who knew better. The U.S. Attorney’s Office estimates that about 9 out of 10 PPP loans processed by an online bank were fraudulent.
The pandemic was a once-in-a-century health crisis, but it didn’t have to turn into an open season for thievery. Some simple precautions could have better kept people honest without severely impeding the flow of money.
