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Everybody expected this train wreck, but that doesn’t make it any prettier

The pandemic relief fraud numbers keep piling up. A billion here, a billion there. Was anybody watching?

Tom Temin@tteminWFED

February 15, 2023 2:35 pm

10 min read

The pandemic relief fraud numbers keep piling up. A billion here, a billion there. Was anybody watching? For an overview of what we know now, the Federal Drive with Tom Temin spoke to the director of Forensic Audits at the Government Accountability Office, Rebecca Shea.

Interview transcript:

Tom Temin
A lot of people are looking at this, certain Inspectors General and [Council of Inspectors General on Integrity and Efficiency (CIGIE)] and this one and that one. But GAO seems to have, kind of done, a metastudy, or maybe, a study of your own. And I guess, the first question is, which specific programs are we talking about here?

Rebecca Shea
The statement was based on, some of the quarterly reports and standalone reports, that GAO had done over the past three years. So it is a bit of a metastudy. And we took those that were focused on fraud and improper payments issues, because that was the focus of the hearing. And in the statement, we, significantly, feature three of the largest programs. Labor’s unemployment insurance program, [Small Business Administration (SBA)] paycheck protection and economic injury disaster loan programs. But there are many others that are covered in there, as well. For example, we’ve got some information about the economic impact payments from IRS, Coronavirus Food Assistance Program, the CFAP program for farmers and ranchers, Child Nutrition, Restaurant Revitalization, FEMA Funeral. All of the things that had some fraud and improper payment risks.

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Tom Temin
Yet, some of these programs are creatures of the pandemic and were, specifically, appropriated into life by Congress, acting very quickly. And the numbers were not shy. A trillion dollars for this, 800 billion for that. But, programs like unemployment insurance, go back to the dawn of the welfare state. And you would think that those mechanisms would be long established, to prevent fraud. So is there a difference there?

Rebecca Shea
There are and were, long standing vulnerabilities in the unemployment insurance program. But there are also, the pandemic unemployment insurance program was, freshly, stood up on top of the unemployment insurance. There are also, actions taken to reduce the controls, that were used to check some of the standard unemployment insurance claims and then also for the pandemic unemployment insurance claim. So, there were existing problems, as you say. And that’s one of the things we highlight in the testimony, there have been existing problems, in particular with improper payments. We’ve been looking at that for 20 years and we saw that continue. But then when you have this great influx of funds and then also, you’re asked to reduce some of the controls or minimize some of the controls or eliminate them, entirely. Those problems are exacerbated.

Tom Temin
Yeah, actions taken to reduce controls. Why on earth would an agency do that? Was it because of the speed and the need and just the general political pressure, to get that money out into as many hands as possible?

Rebecca Shea
Yeah, that is certainly one of the reasons why it happened, the need to get the money out quickly. But some of the things that we feature in the statement speak to, broader long standing problems. For example, we highlight the fact that, agencies have not been making progress on required fraud risk management activities. These requirements were in place since 2016. And had agencies been taking steps to understand what their fraud risks are, have data analytics capabilities in place, when these programs were stood up and they needed to get these funds out quickly. They would have been in a much better position to understand what the risks are, have the tools to deal with them, on the back end, to understand what tolerance they should have to let the money out quickly. Deal with them more of a detection capacity. But they didn’t, they hadn’t been making that progress. They also lacked some basic internal controls, specifically, again, we could talk about data analytics capabilities, to identify and detect fraudulent claims and request for paycheck protection and other funds. As you mentioned, I think a little bit earlier, we lacked a governmentwide data analytics capability. We were one year into the pandemic, before the Pandemic Analytics Center of Excellence was stood up and many of the funds had already gone out the door. So the capability, to bring a lot of those different data streams together, to identify fraud. It wasn’t until a year into the pandemic, that those were in place. And then also, the long standing and proper payments issue, that I mentioned. If you can’t manage errors and documentation gaps, it’s going to be much harder for you to manage the fraud that happens.

Tom Temin
Yeah, this is almost like, a ship if it leaves and it’s minutes off course, not degrees, but even minutes off course. When you leave the harbor, it’s only a few feet. By the time you try to reach Hawaii, you’re hundreds of miles off course. It sounds like, whatever little weaknesses were were just amplified, by the numbers and the speed and the sheer scale, of what the nation was trying to do. We’re speaking with Rebecca Shea, she’s director of Forensic Audits at the Government Accountability Office. And do we, actually, know the extent yet, of fraudulent dollars? There were a couple of figures, that exceeded the hundreds of millions mark and now we’re into the billion threshold.

Rebecca Shea
Yes, it is a great question. And I really wish I had that silver bullet for you. I don’t. What I can tell you is that, there are two, maybe, three buckets to think about here, when you’re thinking about the extent of fraud. And the first bucket, are those things that you can, unequivocally, call fraud. Those are the cases that have been adjudicated as fraud. And those are things that you can count, things that have gone through the courts and you can count the number of defendants, the charges, the loss, the restitution ordered. And we’ve done that, we’ve counted at this point, over 1,000 individuals that have pleaded guilty or were convicted at trial. Charges pending against another 609 of those, 779 that have been sentenced, as of early January. And then of course, restitutions ranging from, thousands to millions of dollars. And prison sentences from, a year of probation to 17 years in prison. And that’s going to continue to evolve, as more cases are brought forward, obviously, investigated and tried as a point-in-time count, of the extent of the problem. And it’s really important, to note with this count, that these adjudicated cases are the tip of the iceberg, when you’re thinking about all the fraud that could have happened. And that leads us to the second bucket, what you can estimate, about the extent of fraud from what is known. And frauds, obviously, hidden crime. So, some of these estimates are going to be based on limited data. Data isn’t always reported in the same kind of way and that can affect your estimates. And GAO is working on an approach for estimating, from this limited data. But it’s got a lot of challenges. But we are working on that. We were able to develop a conservative estimate for the unemployment insurance fraud that happened. And that’s because, the states and labor, they have a process for doing a sample and estimating the amount of fraud that they have determined from claims. And when they did this estimate, they looked only at the standard unemployment insurance. They didn’t look at the pandemic unemployment insurance, which we know has much greater fraud risk. And they identified 4.3 billion in fraud. We extrapolated that, to all of the unemployment insurance. And that’s how we develop the $60 billion estimate. That’s a conservative estimate. And we’re continuing to work to identify a more comprehensive estimate.

Tom Temin
Yeah, that used to be considered real money, to use the old cliché. And just briefly, there are government oversight mechanisms, as you say, some of them are late to get their boots on to chase the fraud and so on. Also, the states are partners and a lot of these programs too. So this is not 100% a federal issue, is it?

Rebecca Shea
It is not just a federal issue. And there are a number of ways that the inspector general community work with states, the states work with the programs, to recover some of the funds. So, if we’re thinking about recovery, some of this is going to come through the court ordered restitution, obviously. That’s at the federal level. But there are also, along with that, forfeitures and seizures, but there are some administrative actions that happen, as well. And that can happen, with the states, through administrative recoveries. And SBA OIG and labor OIG have also, noted some of those recoveries, as well.

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Tom Temin
All right, so in the statement, this kind of metasurvey of all of the work that has been done by various bodies, including GAO, you came up with, quite, a large number of recommendations. And these almost feel like, spreading graffiti over Yankee Stadium. There’s a lot of it and a lot of places it can go, but you wonder about the impact. So tell us about your recommendations. You can’t go through all 374 of them. But what do they, basically, cover here? And who are they aimed at?

Rebecca Shea
As you said, we’ve made 374 recommendations here, about 26 Different agencies. And a lot of them have to do with, efficiency and effectiveness of emergency response and recovery, for the pandemic. Thirty-eight of them, had to do, specifically, with addressing fraud and improper payments. And a number of them, were directed, specifically, at SBA and unemployment insurance. And we made those, I’ll say, in real time, as we were going through the pandemic. And SBA has made some progress on those. Of the eight, specifically, focused on fraud and improper payments, they have fully addressed or partially, addressed eight of those. So there’s progress on that. There’s some other things, that deal with the, efficiency, effectiveness, that are still ongoing. And 147, overall, of that broad 347, have also been fully or partially, addressed. So there’s progress on the, efficiency, effectiveness and then also, on some of the fraud and improper payment recommendations. And then, as you mentioned, this is a lot of recommendations to individual agencies. We need a more global approach, which is why the Comptroller General, in some of our other reports, we’ve made recommendations for Congress to take action, 19 recommendations for congressional action. We noted 10 of those, from the Comptroller General’s, prior hearing, before the oversight committees last year. And a lot of this has to do with these more global issues. We need that, governmentwide data analytics capability to be made permanent, so we’re not wasting a year, getting something stood up again. We know it works, it returns value for the public. We need to reinstate the reporting requirements, for agencies progress on fraud risk management. I mentioned, that they were not taking action, based on 2016 requirements. The requirement to report on their progress, sunset in 2020. So, no light shining on it, action is not going to happen. And there are a number of other activities like that, we have suggested Congress take action on to address these things, more globally.

Tom Temin
And at this point, though, the pandemic money is dispersed. So for those specific programs, the government is, basically, in sue and clawback mode. Not prevention mode, anymore.

Rebecca Shea
Yeah. And that’s a great point. That is one of the reasons why GAO’s fraud risk framework. And their original requirements, for agencies to manage fraud risk, is so focused on prevention. You get pennies on the dollar in return, when you’re talking about fraud, in particular. It is so important, that we have these upfront controls and we’re making well informed decisions, about the fraud risk that we are able and willing to tolerate and have a ready plan for detection and recovery, on the back end. When we do need to get the money out quickly, make those decisions, we need to be ready to step in and address that quickly, on the back end.