Rising PPP Fraud Shows the Importance of Oversight Efforts

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to “provide emergency assistance and health care response for individuals, families, and businesses” affected by the COVID-19 pandemic.[1] The CARES Act initially allocated $349 billion for the Paycheck Protection Program (PPP), overseen by the Small Business Administration (SBA). The funds are forgivable loans, which can convert to grants when small businesses meet certain conditions. On June 3, 2020, the Senate unanimously passed the Paycheck Protection Program Flexibility Act to ease rules around how small businesses could spend their loan funds, and the president signed it into law on the next day. The new legislation extends the PPP loan forgiveness period from 8 weeks to 24 weeks, increases the loan repayment period from two to five years, and allows payroll tax referral for the recipients.

The PPP is a welcoming bill serving small businesses affected by the pandemic. However, the long history of fraud during national emergencies, such as the 2008 financial crisis and natural disaster relief efforts, warns us of the potential abuse. [2] The SBA especially has been a frequent target of fraud, and the danger increases as the historic amount of government funds are available. In the month of May only, at least seven charges related to the PPP have been unsealed. The arrest in early May of two Rhode Island businessmen, who fraudulently sought the forgivable loans, triggered a series of charges and allegations related to the PPP. [3] Many fraudulently claimed to have employees earning wages when no employees were working for their purported businesses, while others applied under a different name to unlawfully obtain the forgivable loans.[4]

The government agencies are conducting aggressive investigations to root out the fraudsters exploiting the current crisis. However, with the $120 billion still untapped under the PPP, more robust government oversight and more effective implementation of the available overseeing bodies are necessary to fight against fraud and abuse. [5] The CARES Act already includes oversight bodies: the Pandemic Response Accountability Committee, the Special Inspector General for Pandemic Recovery, and a Congressional Oversight Commission.

The False Claims Act has proved its effectiveness in fighting against fraud as well. However, the lack of effective implementation of the oversight bodies and the protection of whistleblowers may undermine these valuable tools. Questioning the legitimacy of the oversight agencies and frequent leadership changes could waste government funds meant to serve the small businesses that are in great need of help.[6] Neil Barofsky, who served as the special inspector general for the Troubled Asset Relief Program (TARF) from 2008 to 2011, emphasized the importance of the “strong and effective” oversight to limit fraud.[7]

As the number of fraud cases will undoubtedly increase, the role of oversight groups and whistleblowers will be crucial in deterring fraud and mismanagement of not only the SBA loans but also other grants and funds to alleviate the current crisis. The cooperation among the government branches, strong security measures in the times of increased virtual work, and stronger protection for whistleblowers are necessary for this fight.

Suspected fraud against the SBA can be reported to OIG’s Hotline at 800-767-0385 or online.

Yoo Jung Hah is a former staffer of Taxpayers Against Fraud Education Fund. She served as the Public Interest Advocacy Fellow and is currently pursuing a Juris Doctorate at Duke University.

[1] S. 3548, 116th Cong. (2020) (enacted).

[2] Michael Grabell and Paul Kiel, We Tracked the Last Time the Government Bailed Out the Economy. Here’s What to Know About the $1 Trillion Coronavirus Plan, ProPublica, March 20, 2020, https://www.propublica.org/article/we-tracked-the-last-time-the-government-bailed-out-the-economy-heres-what-to-know-about-the-1-trillion-coronavirus-plan.

[3] Dep’t of Justice, Two Charged in Rhode Island with Stimulus Fraud, May 5, 2020, https://www.justice.gov/opa/pr/two-charged-rhode-island-stimulus-fraud.

[4] The U.S. Small Business Administration, Congressional Affairs and Media Press Releases, https://www.sba.gov/about-sba/oversight-advocacy/office-inspector-general/congressional-affairs-media#section-header-4; Dep’t of Justice, Reality TV Personality Charged with Bank Fraud, May 13, 2020, https://www.justice.gov/opa/pr/reality-tv-personality-charged-bank-fraud.

[5] Kate Rogers, After a Rush for More Small Business Funding, PPP Loan Money Remains Untapped, CNBC, June 2, 2020, https://www.cnbc.com/2020/06/02/billions-in-ppp-loan-money-remains-untapped-by-small-businesses.html.

[6] Statement on Signing the Coronavirus Aid, Relief, and Economic Security Act, Daily Comp. Press. Docs., DCPD202000194 (Mar. 27, 2020), https://www.govinfo.gov/content/pkg/DCPD-202000194/pdf/DCPD-202000194.pdf

[7] Grabell and Kiel.