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Fraud Concerns Weigh on Paycheck Protection Program as Judge Orders Release of Loan Data

  • Hundreds of investigations have been opened into potential misuse of the Paycheck Protection Program
  • A judge has ordered the release of detailed PPP data, in part to make it easier to identify cases of fraud, waste, or abuse
  • Concerns over program management and effectiveness could influence congressional action on a new round of funding for the program

When the Paycheck Protection Program opened to businesses struggling during the COVID-19 pandemic, it was designed to offer easy access to crucial aid. But the leniency of these rules, which included little vetting and allowed applicants to self-certify that they needed the money, has led to mounting concerns of fraud and misuse.

The U.S. Small Business Administration, which administers the program, has said there are “strong indicators of widespread potential abuse and fraud in the PPP.” Tens of thousands of recipients may have been ineligible for reasons such as founding their company after the start of the pandemic, exceeding the maximum number of employees, or already being in debt to the taxpayers. Tens of thousands of other recipients may have received more money than they should have.

The Federal Bureau of Investigation has launched hundreds of investigations into potential PPP abuse, and 73 people have been charged. The SBA and Treasury Department are auditing several claims, though these are concentrated on loans exceeding $2 million. Although some small business owners worried that they could inadvertently commit fraud, the agencies have indicated that they are more concerned with false claims rather than applicants who made errors. Forgiveness of the loans will be based on whether the funds were used for approved purposes, not factors such as whether revenues increased during the pandemic.

The PPP, and the associated Economic Disaster Recovery Loans, distributed a total of $717 billion. The SBA previously only disclosed the names and addresses of businesses who received loans of $150,000, as well as the monetary range into which their loan fell. For loans under $150,000, about 86 percent of all funds distributed, amounts were disclosed but broken down by state and territory, with recipients remaining anonymous.

Several news organizations filed suit against the SBA, charging that the agency was not meeting its obligations under the Freedom of Information Act. A judge recently ordered that the SBA must publicize all loan amounts and recipients by Nov. 19, rejecting an argument that such an action could reveal personal and business information such as the size of a company’s payroll. He also ruled that failing to take this action could make it more difficult to detect fraud.

While the PPP proved to be one of the most popular aspects of the bipartisan CARES Act passed at the beginning of the pandemic, concerns about the program could affect its renewal as Congress contemplates action on new economic stimulus. There have also been differing assertions on how effective the program was. Treasury Secretary Steven Mnuchin says the $525 billion distributed to 5.2 million businesses saved approximately 50 million jobs. Yet an analysis of payroll data by the Massachusetts Institute of Technology concluded that it preserved just 2.3 million jobs, or a cost of about $224,000 per position.

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