Fraud in Pandemic Funding Programs

Agencies across the federal complex have distributed more than $5 trillion in funding across a variety of programs committed to helping citizens, businesses, nonprofits, and state and local governments weather the impact of COVID-19. The pace at which these programs were implemented, without necessarily having the proper infrastructure in place to administer them, made them vulnerable to fraudulent activity. Now, those who received large allocations may find themselves the object of an investigation. 

Beginning with the Coronavirus Preparedness and Response Supplemental Appropriations Act enacted on March 6, 2020, the U.S. government passed a series of six acts over a one-year period. Many agencies implemented programs in short order, pushing to get money into the economy and promoting public safety measures to prevent or mitigate the virus’s spread. Unfortunately, this meant that processes and controls were not fully formed. As such, these COVID-related programs were ripe for fraudulent participation. Some estimates by federal Offices of Inspectors General (OIGs), including those participating on the Pandemic Response Accountability Committee (PRAC), find that 10% – $500 billion – or more of the funding distributed was misappropriated or fraudulently claimed.

While OIGs continue to review and investigate spending within certain programs, the sheer volume of the programs enacted have left the bulk of the dollars unmonitored. Since the onset of COVID-19, the Department of Justice has filed cases against more than 800 individuals for COVID-related fraud.  

Reports released in January 2023 by the PRAC and U.S. Government Accountability Office allege over $65 billion worth of improper payments across the Small Business Administration’s Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) and increased unemployment benefits from the Department of Labor. Nearly 70,000 “problematic” social security numbers have been used in these applications. Further, the SBA’s OIG estimates there may be up to $80 billion in unidentified fraud within the PPP alone.

What is being done

Though the U.S. Department of Justice has filed a number of fraud suits, only $7 million of the $2.1 trillion recovered through settlements in fiscal year 2022 was related to COVID-related fraud. This is partially due to the time required to fully investigate and litigate such fraud cases, and it is expected that this number will continue to increase as additional cases are settled. However, the larger challenge is the sheer magnitude of program participation and related data for programs administered with little upfront controls.  

Pandemic fraud continues to be a focus of the current administration, with President Biden announcing during his 2022 State of the Union address several efforts to “prevent, deter, and punish” related actions. One year later, on March 2, 2023, the White House released information regarding a three-part proposal to invest $1.6 billion in additional resources and tools to the oversight, investigation and prosecution of such fraud and to provide support to individuals suffering from identify theft in connection with COVID-relief programs. Additional executive action has also been taken, most significantly with the doubling of the statute of limitations for prosecuting such crimes from five to ten years.

It will be interesting to see how ongoing efforts play out, but the unfortunate facts are that a significant amount of taxpayer dollars distributed as COVID relief was misused or defrauded. While programs like the PPP and EIDL have lent themselves to review via data analytics and identification of anomalies, others would require a more detailed review of spending activity and have experienced little governmental auditing to date. These include:

• The $25 billion Provider Relief Fund supporting healthcare organizations
• The $76 billion Higher Education Emergency Relief Fund for colleges and universities
• The $150 billion Coronavirus Relief Fund supporting State and Local governments

Looking toward the future

While the current focus has been on fraud within certain relief programs, the government is clearly putting an increased emphasis and resources on identifying and investigating fraud within the various COVID funding streams. While PPP, EIDL, and unemployment payments may continue to be the greatest focus because of the ability to leverage data analytics, any organization that received federal funds, especially those receiving large allocations, may find themselves under the microscope. COVID funding recipients should take an opportunity to reflect on the processes and controls in place to govern their spending and consider risks within the program and expenses they have funded to be best prepared for any level of additional scrutiny.