As we mentioned in our previous blog, billions of dollars of relief spending have been misappropriated by fraudsters and it is likely that only a small portion of the fraud has been uncovered. Despite over 1,000 defendants having been already charged, it is likely that thousands of other individuals have defrauded the relief programs. To learn about COVID-related fraud investigations and criminal proceeding developments, please visit PRAC’s website dedicated to these proceedings.
The programs were initially susceptible to fraud due to the urgency that was necessary to respond to the pandemic and the immediate crush of applications seeking relief aid. After the PPP was implemented implementation, the SBA processed 1.7 million loans in just the first 14 days of the program. In just the first 14 days of the PPP, the SBA processed more loans than it had processed in the previous 14 years. The PPP was established amid the urgency to help adversely affected small businesses, but when the PPP was launched, the SBA included only limited safeguards.
The PPP required that eligible small businesses certify they were entitled to potentially forgivable PPP funds by meeting basic program requirements, such as having already been in operation as of February 15, 2020, attest to the accuracy of their self-reported business information (such as their number of employees and payroll costs) and certify that they comply with a range of program terms (e.g., they had no disqualifying criminal histories, they would use funds only for eligible business related expenses, and they were not debarred from working with the federal government). Such urgency allowed for fraudsters to take advantage of the program and PRAC has referred to SBA’s approach to uncovering fraud as being “pay and chase.”
The PPP and EIDL programs have been especially vulnerable to fraud. Commonly, PPP and EIDL applicants made false statements regarding the number of employees they employed, falsified tax documents to support their representations, falsified payroll records, and set up shell companies to apply for loans they were not entitled to receive. Furthermore, many of the PPP and EIDL applicants applied for several loans at multiple different lenders. The funds then were converted into personal use and oftentimes were used for extravagant purposes, such as luxury homes and vehicles.
The unemployment insurance benefits program has also been ripe for fraud. The DOJ has determined that “international organized criminal groups have targeted these funds by using stolen identities to file for UI benefits. Domestic criminals, ranging from identity thieves to violent street gangs to prison inmates, have also committed UI fraud.” As of March 2022, over 430 defendants have been charged and arrested for federal offenses related to UI fraud. Other common unemployment insurance fraud is run-of-the mill fraud whereby individuals applied for benefits knowing they were not entitled to receive them since they had not lost their employment.
In healthcare, common fraud schemes include laboratory testing schemes through which COVID-19 testing was offered to obtain Medicare beneficiary information. This Medicare information was then used to submit false reimbursement claims for other Medicare claims, including medically unnecessary testing. Additionally, telemedicine fraud exploded because of policy changes put in place as part of the pandemic.
Fraud Will Continue to Be Discovered
According to SBA Inspector General Hannibal Ware, the SBA is still “realizing the true scope of fraud” that occurred, and that managing relief spending is the greatest challenge facing the SBA. Because of this, individuals should be on the watch for suspected fraud that the Government may not yet be aware of. In the coming months and years, we likely will continue to learn of thousands of instances where individuals were not entitled to PPP, EIDL, and UI funds.
As mentioned above, significant amounts of obligated relief funds remain unspent. Specifically, education, health care, and disaster relief are among the areas where the government has underspent its obligated funds. It is likely that fraudulent actors will attempt to defraud these industries in the coming years, especially in areas unique to the pandemic, such as telemedicine fraud. While significant fraud has been uncovered already, many are mindful that we are only just beginning, and whistleblowers are key to rooting out this fraud.
Written by Tim Granitz of Mahany Law