Even if the highest estimates are inflated, the total fraud in all Covid relief funds amounts to a mind-boggling sum of taxpayer money that could rival the
$579 billion in federal funds included in President Joe Biden’s massive 10-year infrastructure spending plan, according to prosecutors, government watchdogs and private experts who are trying to plug the leaks.
“Nothing like this has ever happened before,” said Matthew Schneider, a former U.S. attorney from Michigan who is now with Honigman LLP. “It is the biggest fraud in a generation.”
Most of the losses are considered unrecoverable, but there is still a chance to stanch the bleeding, because federal officials say $600 billion is still waiting to go out the door. The Biden administration imposed new verification rules last year that administration officials say appear to have made a difference in curbing fraud. But they acknowledge that programs in 2020 sacrificed security for speed, needlessly.
Justice Department Inspector General Michael Horowitz, who oversees Covid relief spending, told "NBC Nightly News" anchor Lester Holt in an exclusive interview that Covid relief programs were structured in ways that made them ripe for plunder.
“The Small Business Administration, in sending that money out, basically said to people, ‘Apply and sign and tell us that you're really entitled to the money,’” said Horowitz, the chair of the
Pandemic Response Accountability Committee. “And, of course, for fraudsters, that's an invitation. … What didn't happen was even minimal checks to make sure that the money was getting to the right people at the right time.”
The criminal methodology varied depending on the program. The
epic swindle of Covid unemployment relief has been carried out by individual criminals or organized crime groups using stolen identities to claim jobless benefits from state workforce agencies disbursing federal funds. Each identity could be worth up to $30,000 in benefits, Horowitz said.
The looting of the Paycheck Protection Program worked differently — and it could be far more lucrative. The program authorized banks and other financial institutions to make government-backed loans to businesses, loans that were to be forgiven if the companies spent the money on business expenses. Nearly 10 million such loans have already been forgiven. Many of the loans-turned-grants were for millions of dollars, public records show.
Experts say millions of borrowers inflated their numbers of employees or created companies out of whole cloth. For much of 2020, lenders did little to verify the applications, prosecutors and experts say, in part because Congress required the Small Business Administration, or SBA, which ran the program, to issue explicit
guidance that in the interest of getting the money out fast, lenders “will be held harmless for borrowers’ failure to comply with program criteria.” The Government Accountability Office
warned of fraud risk, but the program continued under that rule.
“The government spent approximately $800 billion and provided 21 million loans to individuals,” said Haywood Talcove, the CEO for government at LexisNexis Risk Solutions, which works with the government to verify identities.
No one is sure exactly how much was stolen. An
academic paper released last year estimated at least $76 billion in potential fraud, and the authors said that was conservative.
The SBA’s inspector general has identified
$78.1 billion in potentially fraudulent Economic Injury Disaster Loans, another Covid relief program for businesses. The Secret Service has its own estimate:
$100 billion.
The basic scheme, Talcove said, was “really simple.” People went on state websites and took the names of existing businesses or registered new, fake ones.
“There's absolutely no security on there. There's no validation of any information,” Talcove said. “And voila, you have company ABC with 40 employees and a payroll of $10 million. And you go and apply for a PPP loan. It was a piece of cake.”
