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The Great Grift: How billions in COVID-19 relief aid was stolen or wasted

by Lucas Garcia
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Numerous instances of theft during the COVID-19 pandemic were both audacious and straightforward. Unscrupulous individuals resorted to using the Social Security numbers of deceased individuals and federal prisoners to acquire unemployment benefits. These dishonest individuals managed to claim benefits from multiple states, while federal loan applicants bypassed scrutiny from a Treasury Department database, which would have revealed suspicious borrowers.

This large-scale grift extended beyond criminal organizations and gangs. It also involved an American soldier in Georgia, the pastors of a defunct church in Texas, a former state lawmaker in Missouri, and a roofing contractor in Montana. These cases contributed to the most significant grift in U.S. history, resulting in the pilfering of billions of dollars from federal COVID-19 relief aid. This aid was originally intended to combat the most severe pandemic in a century and stabilize a plummeting economy.

A comprehensive analysis by Big Big News estimates that fraudsters potentially absconded with over $280 billion in COVID-19 relief funds, while an additional $123 billion was wasted or misused. Collectively, this loss accounts for 10% of the $4.2 trillion the U.S. government has disbursed thus far in COVID-19 relief aid.

The figure is projected to rise as investigators delve deeper into thousands of potential fraudulent schemes. The question arises: How was such an enormous sum stolen? According to investigators and experts, the U.S. government, in its rush to disburse trillions in relief aid, exercised inadequate oversight during the initial stages of the pandemic. Additionally, there were insufficient restrictions on applicants, making it far too easy for fraud to occur.

“Here was this seemingly endless pool of money that anyone could access,” said Dan Fruchter, chief of the fraud and white-collar crime unit at the U.S. Attorney’s office in the Eastern District of Washington. “People fooled themselves into thinking it was socially acceptable, even though it was illegal.”

To date, the U.S. government has filed charges against over 2,230 defendants for pandemic-related fraud crimes and is actively investigating thousands of cases.

The majority of the stolen funds originated from three major pandemic-relief programs launched during the Trump administration and inherited by President Joe Biden. These initiatives aimed to aid small businesses and support unemployed workers affected by the economic upheaval brought about by the pandemic.

While attention often gravitates towards high-profile cases involving millions of dollars, the theft occurred on a broad scale. These instances, regardless of size, highlight the epidemic of scams and fraud that occurred while America grappled with overwhelmed hospitals, school closures, and shuttered businesses. Since the start of the pandemic in early 2020, over 1.13 million people in the U.S. have lost their lives due to COVID-19, according to the Centers for Disease Control and Prevention (CDC).

Michael Horowitz, the U.S. Justice Department inspector general and chair of the federal Pandemic Response Accountability Committee, informed Congress that fraud amounts to “clearly tens of billions of dollars” and may potentially exceed $100 billion. While Horowitz stands by this estimate, he maintains that concrete data is required to determine the exact figure.

The U.S. Justice Department’s acting director for COVID-19 Fraud Enforcement, Mike Galdo, describes the scale of fraud as “unprecedented.”

Former President Donald Trump approved emergency aid measures totaling $3.2 trillion before leaving office. President Biden’s American Rescue Plan in 2021 authorized an additional $1.9 trillion. Approximately one-fifth of the $5.2 trillion allocated has yet to be distributed, according to the most recent report from the Pandemic Response Accountability Committee.

This injection of federal emergency aid into the U.S. economy occurred at an unparalleled pace. The resulting “largest rescue package in American history,” as described by U.S. Comptroller General Gene Dodaro, overshadowed multibillion-dollar mistakes.

For instance, an Internal Revenue Service (IRS) program, valued at $837 billion, successfully distributed economic stimulus checks to the appropriate recipients 99% of the time. However, the 1% failure rate resulted in nearly $8 billion being issued to ineligible individuals, according to a Treasury Department inspector general report.

The Small Business Administration (SBA), an agency that typically operates with little attention, faced an unprecedented role during the health crisis. Before the pandemic, the SBA had disbursed $67 billion in disaster loans over seven decades. Suddenly, it was tasked with managing two massive relief efforts, the COVID-19 Economic Injury Disaster Loan and the Paycheck Protection Program, which combined to exceed a trillion dollars. The SBA had to act swiftly to provide financial aid to struggling businesses and employees. This urgency resulted in the removal of protective measures against fraudulent applications. Prospective borrowers were allowed to “self-certify” the accuracy of their loan applications, and the CARES Act prohibited the SBA from reviewing tax return transcripts that could have identified questionable applicants. This decision was reversed at the end of 2020.

According to the SBA inspector general’s office, fraud in the COVID-19 economic injury disaster loan program is estimated at $86 billion, with an additional $20 billion in the Paycheck Protection Program. Revised figures, expected to be considerably higher, will be released by the watchdog in the coming weeks.

Experts, including finance professor John Griffin from the University of Texas at Austin, suggest that there may be as much as $117 billion in questionable and potentially fraudulent loans. These loans exhibit characteristics such as non-registered businesses and multiple loans tied to the same address.

Early on, government failures to utilize the “Do Not Pay” Treasury Department database exacerbated the problem. This database was designed to prevent government funds from reaching ineligible contractors, fugitives, felons, or individuals convicted of tax fraud. The reviews, if conducted promptly, could have identified thousands of ineligible applicants.

The Biden administration has implemented stricter regulations to combat pandemic fraud, including the use of the “Do Not Pay” database. President Biden has recently proposed a $1.6 billion plan to enhance law enforcement efforts in prosecuting pandemic relief fraudsters.

Regardless of the final estimate, Gene Sperling, the White House American Rescue Plan coordinator, highlights that the overwhelming majority of the fraud occurred within three programs established in 2020. These programs possessed significant vulnerabilities that facilitated criminal fraud. He also asserts that the Biden administration inherited these issues when they were already widespread.

The SBA spokesperson declined to confirm agreement with the figures issued by the inspector general’s office, explaining that the federal government lacks an accepted system for accurately assessing fraud in government programs.

The COVID-19 pandemic caused a brief but devastating recession in the U.S. economy. Unemployment rates reached double digits, prompting Washington to allocate hundreds of billions of dollars to assist suddenly unemployed individuals. State unemployment agencies, ill-equipped with outdated computer systems and limited staff, struggled to prevent the payment of fraudulent claims.

Congressional testimony from Labor Department Inspector General Larry Turner indicates that fraud in pandemic unemployment assistance programs amounts to $76 billion. Another $115 billion was mistakenly disbursed to ineligible recipients. However, accurately quantifying pandemic unemployment insurance fraud has proven challenging due to the federal Bureau of Prisons’ lack of cooperation, as scam artists exploited the Social Security numbers of federal prisoners.

State Auditor Keith Faber of Ohio foresaw trouble when safeguards against fraudulent claims were relaxed, making conditions ripe for fraud and waste. The Ohio Department of Job and Family Services reported $1 billion in fraudulent pandemic unemployment claims and an additional $4.8 billion in overpayments.

Although hospitalizations and COVID-19 cases have declined, and the national emergency has ended, discussions on Capitol Hill continue regarding the success of relief spending and who bears responsibility for the theft. Republicans argue that excessive government spending leads to fraud, waste, and inflation. Democrats contend that federal aid saved lives, businesses, and jobs.

Despite these differences, lawmakers on both sides collaborated last year to extend the statute of limitations from five to ten years for crimes related to the SBA-managed programs. This extension grants federal prosecutors more time to investigate cases of pandemic fraud involving identity theft and criminals operating overseas.

As the pandemic fraud cases continue, it remains uncertain if every individual who exploited the opportunity for easy gains will be brought to justice. Prosecutors are burdened with various cases unrelated to pandemic relief funds, and without an additional five-year extension, some fraudsters may evade prosecution.

Sperling emphasizes that future crises requiring government intervention should not force a choice between aiding those in need and preventing fraud. He advocates for a prevention strategy that balances prompt assistance with common-sense anti-fraud measures.

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