Fraud – Continue to raise the curtain on the abuse of federal aid – Criminal law
On August 31, 2021, the Pandemic Response Accountability Committee (PRAC) released its report detailing various fraud and administrative oversight accounts in the administration of federal COVID-19 relief funds. The report, titled “Lessons Learned in Oversight of Pandemic Relief Funds,” details an independent review of the $ 5,000 billion in federal relief funds provided since the start of the COVID-19 pandemic. As detailed in our previous articles, many people and businesses knowingly and unknowingly have not received and / or accurately used federal relief funds such as Paycheck Protection Program (PPP) loans. While the government continues to look in hindsight at who received federal aid and how it was used, there have been clear abuses of the system.
The PRAC was created as a committee of the Council of Inspectors General on Integrity and Efficiency (CIGIE) by the CARES Act, which provided the first wave of significant federal assistance to businesses and individuals during the pandemic. The PRAC’s goal is to “promote transparency and support independent oversight of funds provided by the CARES Act and other pandemic-related relief … [and to] monitor these funds and the response to the coronavirus. The CARES Act identified the Inspectors General of nine (9) federal agencies as members of the PRAC. As the law also allowed the President of CIGIE to appoint additional Inspectors General from other federal agencies affected by relief funding. , the PRAC is now made up of 22 inspectors general. recent releasehighlights what the PRAC has learned from overseeing federal relief funds, and in particular, their abuse and how to prevent further fraud in the future.
In its report, the PRAC identifies several lessons it learned about how individuals and businesses may have abused the system. The first and most recurring problem concerns self-certified information. When the CARES Act came into effect, an applicant only had to certify themselves that they were eligible for the Economic Disaster Loan (EIDL) and Unemployment Insurance (UI) programs. One of those requirements to be eligible for relief funds was that the applicant had been in business by January 31, 2020. It has since been discovered that over 22,700 applicants who were approved for funds had dates. registration effective February 1, 2020, which resulted in an embezzlement of relief funds of approximately $ 918 million. Now, the SBA receives tax filing information with EIDL applications to improve eligibility determinations.
When it comes to unemployment insurance programs, even before the pandemic, unemployment insurance programs had a recurring inappropriate prepayment rate of 10%. Since the pandemic forced unemployment insurance programs to broaden their base and increase their opportunity, applicants were only required to self-certify that they could not work for a reason related to COVID-19. . The Labor Department’s OIG estimates that this “honor system” of candidate questions resulted in the awarding of $ 87 billion in fraudulent or inappropriate unemployment insurance funds. As of January 31, 2021, applicants are required to submit documents of employment, self-employment or an offer of eligible employment within 21 days of application, as well as other means such as cross-references with the ‘Social Security Administration and the Automobile Department. Vehicles to verify information.
The PRAC also identified that programs such as the PPP loan program were not adequately financing underserved communities. Although the CARES Act ordered the SBA and the lenders that make the loans to prioritize minority-owned businesses, women and veterans, the SBA’s OIG reported that no demographics were collected on applicants for PPP loans, no guidelines were issued by the SBA on prioritization, and applications still had to be granted on a first come, first served basis, which According to some, minority-owned businesses disadvantage as it is reported that they are less likely to have existing relationships with domestic lenders who process the loans. Now the SBA has launched an online tool to connect lenders and community and minority organizations. the first three weeks and is now first come, first served.
The PRAC also encourages the use of existing federal data sources to help verify eligibility for funds. While initially, the SBA relied on self-certification to ensure that an applicant was not a company prohibited from working with the government or a company with past due federal loans, which is prohibited from receiving PPP loan funds, the agency now uses the existing database of the Treasury. for business centers Do not pay. Once the SBA started using this system that already tracks these offenders, it realized that it had made around 57,500 PPP loans worth $ 3.6 billion to potentially ineligible recipients.
Another reported problem was that the IRS had falsely sent about 2.2 million stimulus checks totaling $ 3.5 billion in funds to deceased people. While the IRS has asked taxpayers to return all funds that have been issued to deceased people, it has only received $ 72 million through voluntary returns. The IRS now uses the Social Security administrations’ death records database to crosscheck its own records to avoid such incorrect emissions.
Finally, the PRAC encourages the publication of the identification of beneficiaries of relief funds. While PPP loans started pouring in in April 2020, it wasn’t until July 2020 that the SBA released information on the companies that received the funds (companies that received less than $ 150,000 didn’t have not been identified, and some beneficiaries who received more than $ 150,000 have also remained anonymous). The PRAC suggests that continued transparency will reduce the number of ineligible applicants receiving funds.
Ultimately, at the onset of the pandemic, providing funds to the people who needed it as quickly as possible outweighed any other political considerations. Often there was pressure to get money out and no guidance on how to administer an unprecedented flow of funds. Although the decline is 20/20, it is important that state and federal agencies recognize the weak points in the disbursement of funds that have been overlooked to maintain the opportunity in the spring of 2020 and which now, more than a year and a half later can be corrected to ensure the money is received by the people and businesses who need it most. For more information on federal relief funds, visit Frost Brown Todd’s COVID-19 Resource Collection and Tax Law Blog.
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