COVID Fraud Scams Needs to be Reported More by Whistleblowers

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Structure of a Coronavirus - Small business fraud and COVID fraud

COVID Fraud on the Rise

From March 2020 through January 13, 2023, at least 1,044 individuals pleaded guilty or were convicted of defrauding COVID-19 relief programs, according to a recent study by the Government Accountability Office (GAO).

Fraudsters’ biggest targets were two loan programs administered by the Small Business Administration (SBA) — the Paycheck Protection Program (PPP) and the COVID-19 Economic Injury Disaster Loan (EIDL) program.  Lending institutions across the country distributed about $835 billion in PPP loans and another $390 billion in COVID-19 EIDL loans.

Almost immediately after the PPP program was announced, lenders were inundated with loan applications, many by individuals who took advantage of the situation by submitting false or fraudulent information in those applications. The EIDL program was similarly targeted by fraudsters. The multitude of scams associated with these two programs has been called the “biggest fraud in a generation.”


Adequate Fraud Prevention Safeguards Were Not in Place

Due to the urgency of providing needed funds through these programs, there were very few controls in place to verify the information  provided by loan applicants.  In a report titled, SBA’s Handling of Potentially Fraudulent Paycheck Protection Program Loans, the SBA’s Office of Inspector General (OIG) found that there were insufficient controls in place to verify applicants’ eligibility prior to disbursing funds. Specifically, the OIG found that the SBA “did not establish a centralized entity to design, lead, and manage fraud risk because the agency did not establish a sufficient fraud risk framework . . . [and also] did not provide lenders sufficient specific guidance to effectively handle potentially fraudulent PPP loans.”

The report identified multiple methods of fraud utilized in the loan applications, including false attestations, inflated payroll numbers, fraudulent tax documentation, identity theft, and misappropriation of loan proceeds.


The Scale of the COVID Fraud

Based on OIG’s prior review and analysis of SBA’s loan data, it identified more than 70,000 loans totaling over $4.6 billion in potentially fraudulent PPP loans. The top fraud indicators were companies that received duplicate loans; businesses that were created after the February 15, 2020 cutoff date, and loans that matched “Do Not Pay” data sources.

In another analysis, the Pandemic Response Accountability Committee identified $5.4 billion in potential identity fraud associated with more than 69,000 questionable and unverified social security numbers used on PPP and COVID-19 EIDL applications that received a loan or grant.


The Government’s Prosecution and Recovery Efforts

The Department of Justice (DOJ) created three COVID-19 Fraud Strike Force teams to bolster its investigations of COVID-related fraud. The teams are comprised of DOJ prosecutors and agents from the Department of Labor OIG, the Small Business Administration OIG, the Department of Homeland Security OIG, the FBI, the Secret Service, Homeland Security Investigations, IRS Criminal Investigations, and the U.S. Postal Inspection Service. The teams operate out of U.S. Attorney’s Offices in the Southern District of Florida, the District of Maryland, and the combined Central and Eastern Districts of California.

The Pandemic Response Accountability Committee (PRAC) is a Committee of the Council of the Inspectors General on Integrity and Efficiency that was created in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  Among the goals identified by the Committee in its Strategic Plan for 2020 through 2025 are the detection of  fraud, waste, abuse, and mismanagement and the identification and mitigation of major risks that cross program and agency boundaries.

PRAC also created the Pandemic Analytics Center of Excellence (PACE) to provide “analytic, audit, and investigative support to the oversight community.” Data scientists at PACE took data from 12.5 million PPP applications and 27.8 million EIDL applications and ran it through 17 behavioral risk indicators and six statistical risk indicators. This enabled them to assign a risk score value between 0 and 100 for each transaction.

The results of this analytical process allow the government to prioritize transactions and entities having the highest fraud score. This allows for the most efficient use of the government’s limited investigative and prosecutorial resources to target the biggest and most egregious fraudsters.


Recent COVID Fraud Prosecutions

The government has been actively investigating and prosecuting individuals involved in PPP and EIDL fraud. Here are some recent cases:

  • January 2023 – A woman was sentenced to 45 months in prison after pleading guilty to conspiracy to commit wire fraud. The defendant recruited others to apply for more than $9.2 million in fraudulent PPP loans in exchange for kickbacks from their loan proceeds. She sent information to her co-conspirators who used it to prepare fraudulent PPP loan applications that included falsified bank statements and payroll tax forms, as well as false information regarding the number of employees and the amount of monthly payroll.
  • December 2022 – A former assistant attorney for the City of Atlanta was charged with conspiracy to commit wire fraud, wire fraud, and money laundering in connection with allegedly submitting fraudulent PPP loan applications on behalf of various companies that she and her co-conspirators owned. The indictment alleged that the defendant fraudulently obtained over $7 million in PPP loan funds, which were not used for payroll or other allowable purposes, but to buy luxury items such as a Rolls-Royce, a motorcycle, and jewelry.
  • December 2022 – A father and son were sentenced to 87 months in prison for submitting multiple fraudulent loan applications seeking more than $1.7 million in PPP loans. The loan applications misrepresented the number of employees and payroll expenses for the companies they owned. The government recovered about $1.3 million of the $1.7 million fraudulently obtained by the defendants.
  • November 2022 – A husband and wife were convicted of leading a fraud ring that engaged in a scheme to fraudulently obtain more than $20 million in PPP and COVID-19 EIDL relief funds. The couple used fake, stolen and fabricated identities to submit fraudulent applications for approximately 150 PPP and EIDL loans. They also submitted false and fictitious documents as part of the loan applications, including falsified identity documents, tax documents, and payroll records. After fleeing to Montenegro, the husband was sentenced in absentia to 17 years, and the wife received a six-year sentence.


Statute of Limitations Extended for PPP and EIDL Loan Fraud

In August 2022, President Biden signed two bills into law that extended the statute of limitations for fraud related to PPP and EIDL loans from five years to ten years.

The PPP and Bank Fraud Enforcement Harmonization Act of 2022 extended the statute of limitations for criminal charges and civil enforcement actions against a person who engages in fraud involving a PPP loan. The COVID-19 EIDL Fraud Statute of Limitations Act of 2022 similarly extended the statute of limitations for fraud related to COVID-19 EIDL loans.


Nothing Can Replace COVID-19 Whistleblowers

Despite all the technology in use and the resources allocated  by the government to chasing down fraudsters, there is no substitute for the firsthand observations of a whistleblower. A company insider who has knowledge of falsified information used on a PPP or EIDL loan application, or the misappropriation of PPP funds that were intended for allowable business expenses, is exactly who the government needs to come forward.

An eligible whistleblower can potentially receive an award of 10% to 30% of the government’s recovery in a qui tam action filed under the False Claims Act.