Paycheck Protection Program Fraud: All Cannot Be Forgiven

In 1986, Congress passed the False Claims Act Amendments. From 1986 until 2019 DOJ, together with the whistleblowers the law empowered, clawed back more than $62 Billion in settlements and judgments related to Government fraud. Then came the COVID-19 pandemic, lockdowns, and a public health emergency declaration that’s still in place today, three years later.

As part of the response to the unprecedented pandemic, Congress funded the novel Paycheck Protection Program (PPP) in multiple tranches:

  • March 27, 2020 – The CARES Act provided $349 billion to create the PPP.
  • April 24, 2020 – The PPP and Healthcare Enhancement Act added $310 billion to the PPP, bringing the total program authorization to $659 billion.
  • December 27, 2020 – The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act provided an additional $147.5 billion, bringing the total program authorization to $806.5 billion. It also extended the program through March 31, 2021.
  • March 11, 2021 – The American Rescue Plan Act of 2021 provided an additional $7.2 billion to the PPP, bringing the total program authorization to $813.7 billion.
  • March 30, 2021 –The PPP Extension Act of 2021 allowed the Small Business Administration (SBA) to continue accepting PPP loan applications until May 31, 2021.

All in, therefore, the PPP authorized $813.7 billion in federal loans to be made pursuant to applications submitted in a fourteen-month window (April 2020-May 2021). Ultimately, SBA received more than 27 million applications for a piece of the $813.7 billion pie. The PPP provided small businesses with funds to pay up to 8 weeks of payroll costs including benefits,  and authorized billions toward job retention and certain other expenses for small businesses across the country.  As of May 31, 2021, SBA had processed 11.8 million guaranteed PPP loans, totaling $799.8 billion, through about 5,460 private lenders. Almost the entire $813.7 billion went out the door.

Unfortunately, the SBA Office of Inspector General (OIG) recently concluded that the SBA, tasked with implementing the massive program, “did not have an organizational structure with clearly defined roles, responsibilities, and processes to manage and handle potentially fraudulent PPP loans across the program.”  Independent analysis of the program’s loan process published in 2021 estimated that “1.8 million of the program’s 11.8 million loans – more than 15 percent – totaling $76 billion had at least one indication of fraud.” In other words, estimates point to fraudsters taking more from the PPP by fraud over a little more than a year than had been recovered in all FCA enforcement in the previous 34 years, combined

This year, as the SBA OIG catches up to the PPP loans that were made in 2020-2021, audits show those early estimates of fraud were likely low – and failed to account for who the fraudsters were or what they were doing with the money.  For example, OIG’s most recent report raises significant concern that the Economic Injury Disaster Loan (EIDL) Program, representing $342 billion of the total $813.7 billion PPP authorization, received ineligible applications from outside the United States but paid those applicants anyway. The OIG also raised questions about whether these loans of government funds were used to support organized international crime syndicates, and individuals and organizations in states deemed hostile to the United States.

Although the application period is closed and nearly $800 Billion has been dispersed, OIG notes that  “SBA’s challenge [now] is to effectively handle potentially fraudulent PPP loans to reduce the risk of financial loss and ensure only eligible borrowers receive forgiveness in accordance with program requirements.” To do that hard work of clawing back fraudulent PPP loans, SBA will be relying, in part, on tips from whistleblowers. OIG notes that  “[a]s of December 2021, PPP fraud Hotline complaints exceeded 54,000.”  The Department of Justice will also rely on its primary weapon for fighting fraud on the government, the False Claims Act.  News on that front.  On September 13, 2022 DOJ announced what was “believed to be the nation’s first settlement with a PPP lender pursuant to the False Claims Act.” It recovered $18,673.50. 

PPP money went out from a firehose. It will have to be clawed back one thimble-full at a time.

Written by Kate Scanlan of Keller Grover LLP. Edited by Regina Poserina of Cohen Milstein Sellers & Toll PLLC and Tony Munter of Price Benowitz. Fact checked by Julia-Jeane Lighten of Taxpayers Against Fraud.