Much of the theft was brazen, even simple. Fraudsters used the Social Security numbers of dead people and federal prisoners to get unemployment checks. Cheaters collected those benefits in multiple states. And federal loan applicants weren’t cross-checked against a Treasury Department database that would have raised red flags about sketchy borrowers.
Criminals and gangs grabbed the money. But so did a US soldier in Georgia, the pastors of a defunct church in Texas, a former state lawmaker in Missouri and a roofing contractor in Montana.
All of it led to the greatest grift in US history, with thieves plundering billions of dollars in federal Covid-19 relief aid intended to combat the worst pandemic in a century and to stabilize an economy in free fall.
An Associated Press analysis found that fraudsters potentially stole more than $280 billion in Covid-19 relief funding; another $123 billion was wasted or misspent. Combined, the loss represents 10 per cent of the $4.2 trillion the US government has so far disbursed in Covid relief aid.
That number is certain to grow as investigators dig deeper into thousands of potential schemes. How could so much be stolen? Investigators and outside experts say the government, in seeking to quickly spend trillions in relief aid, conducted too little oversight during the pandemic’s early stages and instituted too few restrictions on applicants. In short, they say, the grift was just way too easy.
“Here was this sort of endless pot of money that anyone could access,” said Dan Fruchter, chief of the fraud and white-collar crime unit at the US Attorney’s office in the Eastern District of Washington. “Folks kind of fooled themselves into thinking that it was a socially acceptable thing to do, even though it wasn’t legal.”
The US government has charged more than 2,230 defendants with pandemic-related fraud crimes and is conducting thousands of investigations.
Most of the looted money was swiped from three large pandemic-relief initiatives launched during the Trump administration and inherited by President Joe Biden. Those programs were designed to help small businesses and unemployed workers survive the economic upheaval caused by the pandemic.
The pilfering was wide but not always as deep as the eye-catching headlines about cases involving many millions of dollars. But all of the theft, big and small, illustrates an epidemic of scams and swindles at a time America was grappling with overrun hospitals, school closures and shuttered businesses. Since the pandemic began in early 2020, more than 1.13 million people in the US have died from Covid-19, according to the Centers for Disease Control and Prevention.
Michael Horowitz, the US Justice Department inspector-general who chairs the federal Pandemic Response Accountability Committee, told Congress the fraud is “clearly in the tens of billions of dollars” and may eventually exceed $100 billion.
Horowitz told the AP he was sticking with that estimate, but won’t be certain about the number until he gets more solid data.
“I’m hesitant to get too far out on how much it is,” he said. “But clearly it’s substantial and the final accounting is still at least a couple of years away.”
Mike Galdo, the US Justice Department’s acting director for Covid-19 Fraud Enforcement, said, “It is an unprecedented amount of fraud.”
Before leaving office, former President Donald Trump approved emergency aid measures totalling $3.2 trillion, according to figures from the Pandemic Response Accountability Committee. Biden’s 2021 American Rescue Plan authorised the spending of another $1.9 trillion. About a fifth of the $5.2 trillion has yet to be paid out, according to the committee’s most recent accounting.
Never has so much federal emergency aid been injected into the US economy so quickly. “The largest rescue package in American history,” US Comptroller-General Gene Dodaro told Congress. The enormous scale of that package has obscured multi-billion dollar mistakes.
An $837 billion IRS programme, for example, succeeded 99 per cent of the time in getting economic stimulus checks to the proper taxpayers, according to the tax agency. Nevertheless, that one per cent failure rate translated into nearly $8 billion going to “ineligible individuals,” a Treasury Department inspector general explained.
An IRS spokesman said the agency does not agree with all the figures cited by the watchdog and noted that, even if correct, the loss represented a tiny fraction of the programme’s budget.
The health crisis thrust the Small Business Administration, an agency that typically gets little attention, into an unprecedented role. In the seven decades before the pandemic struck, for example, the SBA had doled out $67 billion in disaster loans.
When the pandemic struck, the agency was assigned to manage two massive relief efforts – the Covid-19 Economic Injury Disaster Loan and Paycheck Protection programmes, which would swell to more than a trillion dollars. SBA’s workforce had to get money out the door, fast, to help struggling businesses and their employees.
Covid-19 pushed SBA’s pace from a walk to an Olympic sprint. Between March 2020 and the end of July 2020, the agency granted 3.2 million Covid-19 economic injury disaster loans totalling $169 billion, according to an SBA inspector general’s report, while at the same time implementing the huge new Paycheck Protection Programme.
In the haste, guardrails to protect federal money were dropped. Prospective borrowers were allowed to “self-certify” that their loan applications were true. The CARES Act also barred SBA from looking at tax return transcripts that could have weeded out shady or undeserving applicants, a decision eventually reversed at the end of 2020.
“If you open up the bank window and say, give me your application and just promise me you really are who you say you are, you attract a lot of fraudsters and that’s what happened here,” Horowitz said.
The SBA inspector general’s office has estimated fraud in the Covid-19 economic injury disaster loan programme at $86 billion and the Paycheck Protection programme at $20 billion. The watchdog is expected in coming weeks to release revised loss figures that are likely to be much higher.
In an interview, SBA Inspector General Hannibal “Mike” Ware declined to say what the new fraud estimate for both programmes will be.
“It will be a figure that is fair, that is 1,000 per cent defensible by my office, fully backed by our significant criminal investigative activity that is taking place in this space,” Ware said.
Ware and his staff are overwhelmed with pandemic-related audits and investigations. The office has a backlog of more than 80,000 actionable leads, close to a 100 years’ worth of work.
“Death by a thousand cuts might be death by 80,000 cuts for them,” Horowitz said of Ware’s workload. “It’s just the magnitude of it, the enormity of it.”
- An AP report