Thursday 2 February 2023

Agencies, Congress Didn’t Even Try To Stop Fraud In $4T Coronavirus Bailout, Audit Finds

 Not only did the glut of coronavirus-tied bailouts likely result in billions of dollars of fraud, but it happened because government agencies in many cases did not take even basic steps to prevent it, and in other cases have declined to try to claw back improper payments, the Government Accountability Office said Wednesday.

In a searing, comprehensive report, the nonpartisan auditing arm of Congress excoriated the administration of almost every pandemic-era spending program—and Congress itself—for doling out $4.6 trillion with the prospect of fraud seemingly an afterthought.

Three years after the pandemic began, rampant fraud turned out to be very much a reality.

Unemployment fraud. Coronavirus-era programs flooded cash into a program that already has one of the government’s highest rates of improper payments: unemployment checks. Non-coronavirus unemployment checks already had an improper payment rate of nearly 19% in fiscal year 2021 and more than 22% in 2022. Coronavirus programs flooded this with even easier access to even more cash, with $873 billion in checks to people who said they were laid off or had hours reduced because of coronavirus. In the best-case scenario–that coronavirus unemployment checks were no more fraudulent than the lower 2021 non-coronavirus value–“at least $163 billion in pandemic UI benefits could have been paid improperly,” the GAO said.

And that’s likely a vastly optimistic scenario, because the coronavirus unemployment program “allowed applicants to self-certify their eligibility and did not require them to provide any documentation of self-employment or prior income.” The Department of Labor, which administers the program, also encouraged states to waive a standard 21-day waiting period—the period in which anti-fraud scrutiny often occurs.

Even as it dramatically loosened controls on a program that already had an atrocious rate of improper payments, the Department of Labor did not have a dedicated fraud unit in place, and more than two years after the GAO first warned of the problem in October 2021, DOL said it was merely “in the process” of “proceeding with implementing” the recommendations—long after the pandemic has ended, according to the GAO.

PPP loans. The most prominent coronavirus bailouts—forgivable PPP and EIDL loans for businesses—were administered by the Small Business Administration, which did not even set up an anti-fraud entity until after the program was done giving out money, GAO said.

“SBA did not designate a dedicated antifraud entity until February 2022. This new entity—the Fraud Risk Management Board—is to oversee and coordinate SBA’s fraud risk prevention, detection, and response activities. Further, in March 2021, we found that SBA had not conducted fraud risk assessments for PPP and the COVID-19 EIDL program and recommended that it do so. When SBA developed its fraud risk assessments for the programs in October 2021, PPP had already stopped accepting new applications and the COVID-19 EIDL program would stop at the end of that year,” it wrote.

EIDL. PPP and EIDL together paid out nearly $1 trillion. Yet Congress explicitly blocked SBA from using tax returns to verify a business’s eligibility for EIDL loans, even though it is a highly relevant piece of information. “As a result, SBA relied on self-certification,” GAO said.

GAO reviewed a sample of loans processed without consulting tax returns and found that “about half of them” should not have been approved.

Congress removed the restriction nine months later, but SBA still didn’t bother verifying applications using tax returns in a timely manner. “Specifically, the SBA OIG found that for about 4 months after Congress removed the tax return prohibition, SBA made 133,832 COVID19 EIDL disbursements, totaling about $8.5 billion without proving applicant eligibility using official tax information,” it said.

Congress. While one might assume that agencies should not have to be told to try to mitigate fraud, Congress explicitly removed legal requirements relating to policing fraud from massive coronavirus appropriations bills. “Although federal laws have required agencies to submit specific internal control plans for relief funds in previous emergencies, there was no such requirement for the COVID-19 pandemic,” GAO wrote.

The Fraud Reduction and Data Analytics Act of 2015 and the Payment Integrity Information Act of 2019 “required agencies to report on their antifraud controls and fraud risk management efforts in their annual financial reports,” but that requirement ended in 2020 and has not been renewed by Congress.

Nearly half of states didn’t even try to get wrongly-paid benefits back. In May 2021, the Department of Labor’s inspector general found that when 19 states overpaid someone’s unemployment benefits, they did not even attempt to get the money back. “From April 2020 through September 2022, states and territories reported about $48.6 billion in overpayments across the UI programs,” GAO said.

No attempt to screen fraud in program that prioritized minority restaurant owners. The Restaurant Revitalization Fund attracted scrutiny for excluding white males, a provision that a judge ruled was unconstitutional. The program also seemed to go out of its way to cater to minority fraudsters. While SBA, which ran the program, collected data that could be used to screen for fraud, the agency told GAO flatly that “they were not analyzing these data to detect potentially fraudulent recipients.”

Provider Relief Fund. This program, oddly enough, paid doctors and nurses who said they had lost business because of the nationwide medical emergency. In October 2021, GAO found that the Department of Health and Human Services did not even have procedures in place to recover overpayments. “While it took initial actions to address this recommendation, [HHS] suspended its post-payment recovery efforts in March 2022” to explore whether it even had the authority to claw back wrongfully-paid money. “According to HRSA, the agency is still in the process of determining its authority to recover overpayments” in some scenarios.

Emergency Rental Assistance. Another wildly controversial program involved rent payments. The program was administered by the U.S. Treasury. GAO “identified potentially duplicative emergency rental assistance payments but found that Treasury had not conducted a detailed risk assessment of the program’s susceptibility to improper payment, for example, by reviewing grantee payment data.” Treasury seemed uninterested: “Officials did not commit to additional steps to assess or address improper payment risks because of resource limitations.”

Coronavirus Food Assistance Program. The US Department of Agriculture paid $31 billion to farmers “to offset losses associated with the COVID-19 pandemic. GAO “reviewed claims of 90 producers with risk factors for improper payments and found that over half of these producers did not provide full support for their payments, potentially making it harder to identify payment errors and fraud.” It provided recommendations to USDA, but “the agency has not yet taken action to implement these recommendations.”

Affordable Connectivity Program. “In January 2023, we found that the Federal Communications Commission (FCC) had not developed an antifraud strategy to address identified fraud risks associated with the Affordable Connectivity Program,” GAO wrote.

The Office of Management and Budget said that federal agencies wrongfully paid out some quarter-trillion dollars in fiscal 2022. But GAO said even that shocking sum significantly understates it: OMB’s figure doesn’t include some of the most integrity-challenged programs, including pandemic uninsurance, food stamps, and welfare.

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