Investigators rush to reclaim pandemic small business aid lost to fraud.

Federal Investigators Scramble to Recover $200 Billion in Missing COVID-19 Relief Funds

Federal investigators are in a race against time to retrieve over $200 billion that they suspect was fraudulently diverted from the government’s efforts to stabilize small businesses during the COVID-19 pandemic.

The missing funds account for a staggering 17% of the $1.2 trillion disbursed by the Small Business Administration (SBA). The SBA’s inspector general, Hannibal “Mike” Ware, has provided an updated report that investigators are using to track down these fraudulent or wasted funds.

Joint Effort Yields $30 Billion Recovered So Far

According to a report from ABC News, a collaborative effort between the SBA, the inspector general’s office, the U.S. Secret Service, and other federal agencies has successfully recovered close to $30 billion, which represents 15% of the total missing funds.

The funds in question were distributed through two SBA programs: the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL). These programs were established as the pandemic began to sweep across the United States.

Potential Fraud in EIDL Program Raises Concerns

The EIDL program, being a low-interest disaster loan with repayment required at a later date, presented a higher potential for fraud. Ware estimated that approximately $136 billion, or 33% of the total funds allocated to small businesses, may have been subject to potential fraud.

On the other hand, the PPP program, which provided funds to businesses in a grant-like manner, had a slightly lower estimated fraud amount of around $64 billion, accounting for 8% of the total funds distributed.

Emergency programs like EIDL and PPP were particularly vulnerable to fraud due to their rapid implementation during the uncertain early days of the pandemic.

“To expedite the process, SBA ‘lowered the guardrails’ or relaxed internal controls, which significantly increased the risk of program fraud,” Ware stated in an October 2020 report.

Disputes Over Fraud Claims

While Ware predicted that the monetary value of fraud in these COVID relief programs would surpass any previous government program, the SBA has pushed back against allegations that they allowed fraud through a lax screening process for funds.

In a statement included in Ware’s recent report, the SBA criticized the “serious flaws” in the report and argued that it overestimated fraud while misleading the public about the effectiveness of their efforts to combat it.

The SBA conducted its own investigation and produced a lower estimate of fraudulent loans. Bailey DeVries, acting associate administrator of the SBA, acknowledged that decisions made by the previous administration prioritized speed and compromised the control environment. However, DeVries emphasized that the SBA has since implemented stronger anti-fraud measures.

Upcoming Congressional Hearing

Ware is scheduled to appear before Congress in July to discuss his findings. The Pandemic Response Accountability Committee, led by Michael Horowitz, a federal watchdog, released a report revealing that nearly 70,000 potentially suspect Social Security numbers were used to successfully apply for EIDL or PPP funds, amounting to $5.4 billion.

As the investigation continues, federal investigators are determined to recover the missing funds and hold those responsible for the fraud accountable.

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