(WASHINGTON) – In the early days of the COVID-19 pandemic, as offices and restaurants began to close, the federal government struggled to keep small businesses afloat – eventually spending over a trillion dollars to protect the American dream of millions of workers and business owners. …
But even before the first checks went, alarm bells went off.
Hannibal “Mike” Ware, the Inspector General of the Small Business Administration, rang the bells the most. The veteran of internal oversight says he participated in a series of meetings with Trump administration officials and SBA program analysts, in which there was “fierce talk” about how to quickly disburse funds without making them vulnerable to fraudulent claims.
Ware said his warnings went unnoticed and the consequences turned him “from a black-haired guy to a gray-haired guy.”
“The level of my frustration was extremely high,” Ware said in a recent interview with ABC News. And now, a year and a half later, he said that “the scale of the fraud that we are seeing is unheard of – unprecedented.”
As small businesses emerge from the pandemic, two key Congressional CARES relief programs, the Payroll Protection Program (PPP) and the Economic Disaster Protection Program (EIDL), are phasing out. But despite all the work they’ve saved, their legacy could be tarnished by an unprecedented amount of fraud – a reality that experts fear could hinder efforts to implement future relief programs.
“In terms of monetary value, the amount of fraud in these COVID assistance programs will be greater than in any government program that preceded it,” Ware said.
According to experts, all government programs are more or less susceptible to falsification. And emergency programs are even more vulnerable because of the internal tension between the requirement to approve loans quickly and the need to review applications and take other fraud prevention measures that could delay the process.
In an October 2020 report, Ware found that “to speed up the process, the SBA” lowered restrictions “or loosened internal controls, which significantly increased the risk of program fraud.”
A senior SBA official in the Biden administration agreed with Ware’s analysis, noting that “we shouldn’t expect to sacrifice speed to be sure – you can do both.”
“The story of 2020 for both PPP and EIDL is that the leadership of the previous administration did not have sufficient controls to determine identity or business identity,” the official said. “A completely different choice could have been made to limit the vulnerability to fraud.”
“With limited staff, few technology tools to verify prepayment, and a huge need, the SBA and other agencies have abandoned many of the traditional controls and simply approved candidates with little or no human-provided verification,” says Linda Miller, a former deputy executive director. Director of the Accountability Committee on Pandemic Response, a government task force created under the CARES Act.
“Best practice requires due diligence initially to avoid fraudulent or improper payments in the first place,” Miller wrote in June after leaving PRAC. “But in a rush to quickly spread pandemic aid, we were unable to do so, and now we are chasing [funds that were fraudulently granted] … But the funds returned will be only a small part of what was stolen. “
Ware said this was exactly what his office was trying to avoid. Even before the PPP and EIDL were finalized, the SBA’s office of the inspector general submitted three reports to the SBA “detailing the importance of prior controls,” Ware said. During tumultuous exchanges in the spring of 2020, he said he had warned the SBA to “slow down” the process.
“The crooks will do the same as the crooks,” Ware said. “But upfront controls reduce the likelihood of fraud, and that would save taxpayers a lot of mental anguish in the background. Unfortunately, the heartache could not be avoided because of the way these programs were implemented in advance. “
Jovita Carranza, a former SBA administrator who stepped down after President Trump’s departure, was unable to contact ABC News for comment. Last October, in a letter responding to Ware’s report, Carranza wrote that the inspector general “did not recognize the enhanced and effective system controls and audits that the SBA uses” to weed out fraudulent applications, and “grossly exaggerates the risk of fraud, waste and abuse. “
Carranza’s successor as SBA administrator, Biden’s nominee Isabella Casillas Guzmán, said “reducing the risks of fraud, waste and abuse” in the allocation of loans and grants to aid is a top priority. She said that a number of steps taken in December, including preliminary checks and tax information from claimants, have already resulted in a “sharp decline” in fraud, and that she is working closely with Ware to further improve protections and vigorously track and recover previous fraudulent mailings.
Ware agreed that the controls introduced late last year helped curb fraud, but said the effort was too little and too late.
“By then, you already know how much money is missing,” he said. “A lot of money has been lost.”
Among the assistance programs, the deployment of EIDL by the previous administration attracted particular attention. James W. Connor, a former federal attorney who now works at the law firm Arnold & Porter, called the program a “fraud magnet,” citing a provision that allows recipients to receive up to $ 10,000 in advance “with little or no strings attached.”
“This money is gone,” Connor said.
But this did not stop Wer from trying to restore it. His investigative actions resulted in 307 indictments, 205 arrests and 69 convictions related to PPP and EIDL fraud, leading to the recovery of more than $ 600 million.
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