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Is it too soon to let bygones be bygones?
Two weeks ago, the Department of Justice announced criminal charges against 47 people with defrauding the government of $250 million. The defendants allegedly stole money from a government-funded child nutrition program meant to help during the COVID-19 pandemic. It’s the biggest pandemic fraud case to date, but it’s not a standalone occurrence.
Fraud and abuse were rampant in pandemic relief programs. A new POGO investigation has revealed that instead of scrutinizing all suspect aid, the government fumbled a big review of Paycheck Protection Program loans flagged for closer examination, dismissing millions of red flags in the process.
In this edition:
- The Paycheck Protection Program’s slapdash game plan
- How bad actors managed to pull a fast one
- There’s enough blame to go around
- And why we shouldn’t forgive and forget
Earlier today, we released an investigation on what my colleagues are calling “The Great Pandemic Swindle.” Nearly 2.3 million loans from the pandemic-era Paycheck Protection Program (PPP) were flagged for scrutiny. There was a chance those loans were ineligible or potentially fraudulent, and the flags were supposed to be thoroughly reviewed. But mass close-outs of the flags and previously unreported auditor findings point to the possibility that they weren’t reviewed closely at all.
As of this month, the government’s forgiven 95% of all issued PPP loan dollars — which includes many of the flagged loans that didn’t receive adequate review. It’s unclear why the government was so lax on these flags. Whatever the justification, the suspect aid amounts to a whopping $189 billion, and the government may have let bad actors get away with abuse of the relief program, scot-free.
A quick refresher
on the Paycheck Protection Program: Implemented by the Small Business Administration (SBA), the PPP was part of the earliest wave of COVID-19 relief and was intended to help small businesses weather the storm of the pandemic. The program was fast-tracked to protect jobs when the economy was suffering. But the trade-off for speed was infrastructure: There weren’t enough checks in place to ensure the loans reached borrowers in need or to help prevent fraud. The lack of oversight left ample leeway for bad actors to abuse the program.
Financial aid free-for-all
Though there were eligibility requirements to qualify for a PPP loan, there weren’t sufficient guardrails to prevent those who didn’t qualify from benefitting too. Large businesses, businesses without dire financial need, and even potentially fake businesses seemed to receive loans. But that’s just the start. Here’s an upsetting list: Benefactors of the PPP include billionaires, celebrities, foreign-owned private equity firms, and political candidates who shuffled money back into their own political campaigns.
PPP loans were supposed to help struggling businesses and save jobs. Instead, they largely aided those who were already on top of the financial food chain. A peer-reviewed paper on the program found that most loan dollars were pocketed by owners and stakeholders. Some PPP loan recipients even laid off their employees.
An aside:For two years now, POGO’s been logging COVID-19 relief in the largest and most comprehensive tracker of its kind. The tracker has played a pivotal role in all sorts of investigations into the government’s spending oversight failures. Check out that project here: POGO’s COVID Relief Spending Tracker
The blame game
What’s worse is that this wasn’t happening in the shadows. The SBA has been flagging loans for review since 2020, as our investigation revealed. These flags indicated clear reasons a recipient likely wouldn’t be eligible for a loan, or why a loan was questionable and warranted scrutiny. But the federal government failed to conduct meaningful oversight on these red flags.
And now, after clearing many of the flags without performing their due diligence, they’ve made it difficult to seek accountability on any wrongly forgiven loans. It’s easy to criticize bad actors for taking advantage of pandemic relief, but the federal government also deserves criticism for neglecting to conduct oversight of their own spending.
The oversight failures on the front end, when the loans were granted, and the back end, when loans were forgiven, will make any attempt to recover the potentially fraudulent loans exceedingly difficult. Again, the loans in question amount to $189 billion — and that’s not a number we can afford to ignore.
Forgiving and forgetting?
The chaos of the COVID-19 pandemic in spring of 2020 may have pushed the government to take rapid action without the time to prioritize oversight. But the big mess that created should serve as a lesson learned.
The unfortunate truth is that more disasters like the pandemic may be looming on the horizon. We could be faced with another situation where we’ll need to distribute financial aid quickly. But there’s an opportunity to learn from the COVID-19 pandemic and prepare a new and improved rapid response infrastructure.
The most foolproof infrastructure would create proactive, front-end oversight and a pathway for retroactive accountability from the get-go.
Thanks for reading. Another reason you should visit the investigation on the website: Our creative team put together some stellar data visuals to support our reporting that map out some of the nuances of the story. Be sure to check them out.
If you’d like to dig deeper on this subject, my POGO colleagues have done some fantastic reporting on the Paycheck Protection Program. Linked below is some of what I read while writing this newsletter.