Over $200 bn may have been stolen from Covid-19 aid: Federal watchdog

More than USD 200 billion may have been stolen from two large COVID-19 relief initiatives, according to new estimates from a federal watchdog investigating federally funded programmes that helped small businesses survive the worst public health crisis in more than a hundred years.

The numbers issued on Tuesday by the US Small Business Administration inspector general are much greater than the office's previous projections and underscore how vulnerable the Paycheck Protection and COVID-19 Economic Injury Disaster Loan programmes were to fraudsters, particularly during the early stages of the coronavirus pandemic.

The inspector general's report said at least 17 percent of all COVID-EIDL and PPP funds were disbursed to potentially fraudulent actors. The fraud estimate for the COVID-19 Economic Injury Disaster Loan programme is more than USD 136 billion, which represents 33 per cent of the total money spent on that programme, according to the report. The Paycheck Protection fraud estimate is USD 64 billion, the inspector general said.

In comments attached to the report, a senior SBA official disputed the new numbers. Bailey DeVries, SBA's acting associate administrator for capital access, said the inspector general's approach contains serious flaws that significantly overestimate fraud and unintentionally mislead the public to believe that the work we did together had no significant impact in protecting against fraud.

The SBA inspector general had previously estimated fraud in the COVID-19 disaster loan programme at USD 86 billion and the Paycheck Protection programme at USD 20 billion.

The Associated Press reported June 13 that scammers and swindlers potentially swiped about USD 280 billion in COVID-19 emergency aid; another USD 123 billion was wasted or misspent. The bulk of the potential losses are from the two SBA programmes and another to provide unemployment benefits to workers suddenly unemployed by the economic upheaval caused by the pandemic. The three initiatives were launched during the Trump administration and inherited by President Joe Biden. Combined, the loss estimated by AP represents 10 per cent of the USD 4.2 trillion the US government has so far disbursed in COVID relief aid.

The SBA inspector general, Hannibal Mike Ware, said in a statement on Tuesday that the report "utilizes investigative casework, prior (inspector general) reporting, and cutting-edge data analysis to identify multiple fraud schemes used to potentially steal over USD 200 billion from American taxpayers and exploit programmes meant to help those in need.

Ware, in an interview with The Associated Press earlier this month, said that these latest fraud figures won't be the last ones issued by his office.

We will continue to assess fraud until we're finished with the investigations on these things, Ware said. That could be a long while. Ware's office has a backlog of more than 90,000 actionable leads into pandemic relief fraud, which amounts to nearly a century's worth of work.

SBA previously told The Associated Press the federal government has not developed an accepted system for assessing fraud in federal programmes.

Previous analyses, the agency said, have pointed to potential fraud or fraud indicators in a manner that conveys those numbers as a true fraud estimate when they are not. For the COVID-19 Economic Injury Disaster Loan program, the agency said it's working estimate found USD 28 billion in likely fraud.

Han Nguyen, a spokesman for the SBA, said in a statement on Tuesday that it is vital to clarify that 86 per cent of the likely fraud in the PPP and COVID-EIDL programmes occurred in the first nine months of those programmes when, as the (inspector general) has often noted, the rush to get funds out led to unwise decisions to pull down anti-fraud guardrails.

Fraud in pandemic unemployment assistance programmes stands at USD 76 billion, according to congressional testimony from Labour Department Inspector General Larry Turner. That's a conservative estimate. Another USD 115 billion mistakenly went to people who should not have received the benefits, according to his testimony.

The Biden administration put in place stricter rules to stem pandemic fraud, including use of the Do Not Pay database. Biden also recently proposed a USD 1.6 billion plan to boost law enforcement efforts to go after pandemic relief fraudsters.

I think the bottom line is regardless of what the (total fraud) number is, it emanates overwhelmingly from three programmes that were designed and originated in 2020 with too many large holes that opened the door to criminal fraud, Gene Sperling, the White House American Rescue Plan coordinator, said in an early June interview.

Bob Westbrooks, a former executive director of the federal Pandemic Response Accountability Committee, said in an interview the $200 billion number is unacceptable, unprecedented and unfathomable. Westbrooks published a book last week, Left Holding the Bag: A Watchdog's Account of How Washington Fumbled its COVID Test.

The swift distribution of funds and programme integrity are not mutually exclusive, Westbrooks said on Tuesday. The government can walk and chew gum at the same time. They should have put basic fraud controls in place to verify people's identity and to make sure targeted relief was getting into the right hands.