April 30, 2021

Caity Roach
Editor

Fraud Friday – The Prevalence of PPP Loan Fraud Remains Uncertain

The Department of Justice, law enforcement agencies, and government watchdogs continue to report ongoing efforts related to identifying and prosecuting Paycheck Protection Program (PPP) fraud.  However, the overall prevalence of fraud throughout the program remains unclear. 

The Association of Certified Fraud Examiners estimates that about 5% of any given organization’s annual spending is lost to fraud. But in overseeing a bailout more than three times as large as what Congress spent on the 2008 recession, Linda Miller, deputy executive director of the Pandemic Response Accountability Committee says there has “never been a bigger challenge” when it comes to fraud in government spending. “The investigations are ongoing, so we won’t know the scope of the fraud for years,” says Miller. “My guess is when we’re all said and done, it’s going to be significantly higher than 5% in the case of the CARES Act.”

According to an internal memo issued by the SBA OIG last fall, $189 billion (or 36% of the $525 billion lent at the time) had been flagged as “potentially not in conformance with the CARES Act and related legislation.” However, that does not necessarily mean all of those funds went to fraudsters. As of last month, the Department of Justice had only confirmed that $446.8 million (or 0.06% of all PPP funds) was linked to PPP fraud. 

In total, the Department of Justice is currently prosecuting over 209 individuals in 119 active PPP fraud cases. Additionally, the SBA OIG is currently pursuing at least 91 other instances of potential PPP fraud that will get turned over to the Department of Justice if it is discovered that there is sufficient evidence to support fraud allegations.

Luckily, efforts to mitigate PPP fraud appear to have been successful. Federal investigators and SBA lenders have been able to catch a significant number of cases before loans were ever funded. Of the $446.8 million linked to PPP fraud, only $246 million (55%) was actually disbursed. 

To report PPP fraud, waste, mismanagement, or misconduct contact the SBA OIG by filling out an online complaint at: sbax.sba.gov/oigcss or call: (800) 767-0385.

Sources:
The Association of Certified Fraud Examiners
The Federal News Network
SBA OIG Independent Auditors’ Report on SBA’s FY 2020 Financial Statements
Department of Justice Memo to Congress
Project on Government Oversight