Federal watchdogs still uncovering full scope of fraud in $5T COVID-19 spending

Agency inspectors general have already flagged tens of billions of dollars in suspected fraud, and efforts are underway to recover some improper payments.

The Biden administration this spring plans to end the national emergency declarations that started with the COVID-19 pandemic, but agency watchdogs are still uncovering the full scope of fraud that stems from $5 trillion in pandemic spending.

Agency inspectors general have already flagged tens of billions of dollars in suspected fraud, and efforts are underway to recover some improper payments. But watchdogs on the front lines of these investigations say it will take a while before they understand the full extent of pandemic spending fraud.

Pandemic Response Accountability Committee Chairman Michael Horowitz, who is also the Justice Department inspector general, told the House Oversight and Accountability Committee that IGs are still trying to get to the bottom of how much COVID spending went to fraudsters.

“It’s clearly in the tens of billions of dollars, but it wouldn’t surprise me if it exceeds, ultimately, more than $100 billion,” Horowitz said Wednesday.

U.S. Comptroller General Gene Dodaro told lawmakers that the Treasury Department issued about $1.4 billion in Economic Impact Payments to deceased individuals.

“One of which was my own mother, who had passed away last year. My sister returned the money though,” Dodaro said, adding that the federal government has recovered about half of the EIP improper payments.

Agencies continue to prosecute individuals and businesses suspected of improperly obtaining pandemic relief funds.

More than 1,000 individuals, to date, have pled guilty have been convicted on pandemic fraud charges, and another 600 charges are still pending.

The Small Business Administration inspector general’s office has 536 active investigations ongoing. The Labor Department opens about 100 new cases every week.

“This is going to go on for a while. There are definitely indications of widespread fraud, but it’s impossible to estimate right now what the full extent will be. Time will have to unfold and these investigations will have to be undertaken,” Dodaro said.

Horowitz said three programs that account for about $2 trillion of COVID spending — SBA’s Paycheck Protection Program and Economic Injury Disaster Loan and the unemployment insurance program are “highly susceptible to fraud.”

“The problem there was the desire to simply get the money out as quickly as possible without taking, not an unreasonable amount of time, but an appropriate amount of time to make sure that they were sending the money to the right people,” Horowitz said, regarding the PPP and EIDL programs.

The unemployment insurance program, he added, lacked coordination between states, as documented by the Labor Department and its inspector general.

Horowitz asked lawmakers to extend the statute of limitations of pandemic unemployment insurance fraud from five years to 10 years. Lawmakers already extended the statute of limitations of SBA’s PPP program.

“We’re going to go after every penny we can. We’re going to use every tool you give us, but it’s going to take time and we’re not there yet,” he said.

While the federal government made speed a priority when getting pandemic relief spending out the door, Horowitz said agencies largely ignored the tools available to them to weed out suspicious claims.

Horowitz said the SBA issued 57,000 loans worth $3.6 billion to entities that were already on the Treasury Department’s Do Not Pay List, a list he said SBA “didn’t bother to cross-check.”

“This list was sitting there this was not anything that would have taken much time. There needs to be preparation,” Horowitz said. “I’m not saying every one of those would have been denied, but at a minimum, there should have been secondary screening,” he said.

Agencies under law have also been unable to share critical data sets that would help mitigate fraud. Congress gave Treasury access to the Social Security Administration’s Death Master File to eliminate improper payments to deceased individuals, but that access will only go into effect starting next year.

“The federal government needs more robust cross-agency data sharing agreements to improve program administration, reduce improper payments and identity and identity fraud and better prepare before the next crisis hits,” Horowitz said.

Dodaro said Congress, in the urgency to get spending out the door quickly, allowed applicants for many federal programs to self-certify eligibility for pandemic relief programs.

“These tradeoffs, along with internal control weaknesses within the agencies made these programs, are much more susceptible to fraud than otherwise would have been, he said.

The PRAC earlier this week identified $5.4 billion in potentially fraudulent pandemic loans and grants from SBA’s Paycheck Protection Program and Economic Injury Disaster Loan program.

The PRAC’s Pandemic Analytics Center of Excellence bases that figure on 69,000 questionable Social Security Numbers on PPP and EIDL applications. The PRAC said it flagged these Social Security numbers out of a pool of more than 220,000 Social Security numbers that are at risk of identity fraud.

Committee Chairman James Comer (R-Ky.) said the committee expects to hold many additional hearings on fraud, waste and abuse of COVID spending, which he called “the greatest theft of American taxpayer dollars in history.”

“These programs brought relief to many Americans,” Comer said. “But with massive government spending comes the opportunity for waste, fraud and abuse.”

While agencies issued an unprecedented volume of public relief spending – and are now discovered widespread fraud — Dodaro said agencies hadn’t adequately addressed the problem of improper before the pandemic occurred.

“When you have that type of problem that we’re not dealing with on a regular basis and you add additional hundreds of billions in this case, trillions of dollars, you’re going to have these type of problems in place,” he said.

Agencies, he added, were slow to implement the 2016 Fraud Reduction and Data Analytics Act, which required them to implement GAO’s fraud risk framework.

“Agencies should have been much better prepared in order to prevent fraud in the first place,” Dodaro said.

OMB, he added, was supposed to create a working group to tackle improper payments governmentwide, but GAO found in 2019 that the working group never met, as required under the legislation.

“Part of this is, there’s a cultural problem. In most cases, the fraud issues, people think of the inspectors general and think of the Secret Service and GAO, but you’ve got to prevent it in the first place,” Dodaro said.

The PRAC is also looking for a permanent home for its data analytics platform, the Pandemic Analytics Center of Excellence (PACE), and is calling on Congress to address this through legislation.

Lawmakers granted the PRAC $40 million to keep the PACE running, but the system under law will sunset on Sept. 30, 2025.

The PRAC is asking Congress to avoid making the same mistake twice. Its predecessor, the Recovery Accountability and Transparency Board, didn’t find a permanent home for its Recovery Operation Center (ROC), which resulted in the loss of analytical capabilities once the board disbanded in 2015.

Dodaro said the PACE would give IGs more oversight capacity when emergencies and disasters occur.

“It would not only deal with regular fraud, but it would be ready and there, when emergencies occur and you won’t waste time standing up. Every day wasted, is another day susceptible to fraud and improper payments. This would help,” Dodaro said.

The PRAC stood up its pandemic spending tracking website within a month of Congress passing the CARES Act. But Horowitz said the IGs had trouble early on getting spending data from agencies.

“We were challenged at the outset, because OMB leadership decided to use what was already existing, reporting tools on USASpending.gov, which we did not believe with sufficient,” Horowitz said.

Horowitz said the site gradually obtained more data and functionality but said SBA didn’t give the PRAC data it had requested until the fall of 2020.

“We couldn’t much of any data from them, because they were litigating FOIA lawsuits,” he said.

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