Congressional investigation finds over $1 billion in PPP fraud

Over $1 billion in emergency coronavirus aid relief went to companies who “double dipped” and received multiple Paycheck Protection Program loans, in violation of the program’s rules, according to a preliminary analysis released by the House Select Subcommittee on the Coronavirus Crisis.

Congressional investigators identified multiple areas of potential waste and fraud in PPP, part of the $2 trillion CARES Act, which offered qualifying small businesses up to $10 million in emergency, forgivable loans to shore up their payroll and meet basic expenses due to business impacts from the coronavirus and lockdown periods. The PPP program gave loans to nearly 4.9 million small businesses for a total of $521 billion. As designed, the program still has $133 million in untapped funds.

The latest analysis “suggests a high risk that PPP loans may have been diverted from small businesses truly in need to ineligible businesses or even to criminals,” according to the report, which was released earlier on Tuesday as part of a Subcommittee hearing with Treasury Secretary Steven Mnuchin on Tuesday afternoon.

“Secretary Mnuchin has previously testified that, given the need to get relief money out quickly, it was inevitable that Treasury, and I quote, ‘ran into a lot of issues,'” Chairman James Clyburn, chairman of the Select Subcommittee on the Coronavirus Crisis, wrote in his opening statement. “That is a false dichotomy: Taxpayers should not have to choose between quickly getting aid to those who need it and wasting federal funds, and there are simple steps that could have been taken to improve oversight and reduce fraud.”

The Subcommittee found over 10,000 loans where the borrower obtained more than one loan. Under the Administration’s rules to only audit loans over $2 million, only 65 of the loans would have otherwise been subject to additional review.

Over 600 loans for nearly $100 million went to companies that had been debarred or suspended from doing business with the federal government. More than 350 loans worth nearly $200 million went to government contractors flagged by the federal government for performance or integrity issues. Over 11,000 PPP borrowers had red flags in the government’s System for Award Management, such as mismatched addresses.

Lawmakers said fraudsters are well aware of the limited oversight of the PPP loan plan.

The subcommittee called on the Treasury Department to adopt a “risk-based” audit plan to stop further waste. It said the current plan to only audit loans over $2 million “is plainly insufficient,” and that “fraudsters are well aware of this limited audit plan and the limited program oversight.”

The Small Business Administration, which was charged with overseeing the loan program, directed reporters to review a report authored by the Republican staff of the committee.

“Many items are addressed,” SBA Administrator Jim Billimoria wrote in an email.

That report called the Subcommitte’s work a “partisan investigation” but acknowledged there had been some “minimal fraud.”

“While there were some challenges implementing the program, as would be expected in implementing a program of this size on an expedited timeline, SBA processed applications quickly and avoided fraud to the extent that is typical of disaster relief and other large government programs,” staffers wrote.

As the PPP moves into reviewing loan forgiveness applications, “SBA should remain vigilant to ensure loan forgiveness only extends to businesses who complied with the letter of the law,” they wrote.

“There will always be bad actors,” Mark Walsh, director of FactSquared, a Washington, D.C.-based data analytics firm, and former head of the Office of Investment and Innovation for the SBA under the Obama Administration, told NBC News.

He said it was still premature to declare that the level of fraud found so far was an acceptable level when it was only likely to grow. “Let’s see how deep this goes. Let’s keep pursuing it,” he said.

He recommended three ways the program could move forward and tackle remaining issues. That included bringing in external staff to help process applications, prioritizing time-sensitive sectors, such as restaurants — which have seen an outsized proportion of losses due to the pandemic — and increasing penalties for violations.

“The wealthy and well-connected were showered with our tax dollars and fraudsters took advantage of the program’s troubling lack of transparency.”

Watchdogs said the report underscores the need for more sunlight on the PPP process.

“President Donald Trump’s administration failed to design and implement a program that would help actual small businesses and their workers,” said Kyle Herrig, president of Accountable.US, a government waste watchdog. “Instead, it cut corners and kept the American people in the dark. In the end, the wealthy and well-connected were showered with our tax dollars and fraudsters took advantage of the program’s troubling lack of transparency.”

Experts say the errors highlight the need for rigorous oversight and openness.

After significant pressure from lawmakers, the Treasury Department in July released a partially anonymized list of applicants, with business names redacted for loans of or below $150,000.

“The failure to install adequate safeguards, although perhaps understandable given the rush to get money to struggling businesses, makes the need for full transparency all the more important,” wrote Neil Barofsky, a partner in the litigation department of Jenner & Block LLP and a former investigator into the government’s Troubled Asset Relief Program, which bailed out a variety of industries during the Great Recession.

“Before another penny is authorized, the SBA must release all of the details of all loan recipients,” Barofsky said.

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