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Stimulus Cops on Lookout for Fake Employees, Identity Theft

By Andrew Duehren 

WASHINGTON -- Congress has thrown nearly $3 trillion at stemming the economic damage caused by the coronavirus pandemic. Now, Washington wants to make sure it knows where it is going.

The flood of federal relief funds has created an outsize opportunity for fraud and misuse, pushing congressional leaders to fill top positions created to monitor the money. With a fifth aid package in the works, lawmakers, inspectors general and prosecutors are ramping up their scrutiny of money disbursed from the four bills already signed into law.

"We have a bit of a perfect storm for financial crime to occur in the system," said Don Fancher, U.S. and global leader for forensic at advisory firm Deloitte.

Much of the initial scrutiny has focused on the Paycheck Protection Program, a $660 billion small-business loan program Congress created in March and replenished in April. The loans, administered by the Small Business Administration, can be forgiven if firms put the money toward keeping workers on payroll.

In an April memorandum, the inspector general of the Small Business Administration warned that the pressure to rapidly disburse the relief funds could increase the chance for fraud. Because the government is guaranteeing the loans, lenders may not scrutinize borrowers as closely as they rush to release the money, the inspector general warned.

"Without sufficient controls in place, SBA's programs suffer increased vulnerability to fraud and unnecessary losses when SBA and its lending partners expedite loan transactions to provide quick relief," Hannibal "Mike" Ware, the inspector general, wrote.

In a letter to Sen. Elizabeth Warren (D., Mass.) and Rep. Nydia Velázquez (D., N.Y.), Mr. Ware wrote that his office had started dozens of fraud investigations relating to PPP responding to their request for a broad investigation into the program. Mr. Ware found in a report last week that the agency failed to provide guidance to lenders about underserved and rural markets, despite Congress's requirement to do so.

The Justice Department is also pursuing cases related to the small-business program. A federal criminal complaint in Rhode Island unsealed last week accused two men of claiming to have employees that don't exist to apply for the small-business aid. Prosecutors expect similar alleged attempts to defraud the program, and the Justice Department has started other investigations.

Experts are expecting to see an uptick in cases of identity theft as people try to collect unemployment payments. Disrupted supply chains may also push firms to buy from suspect vendors that either price gouge or sell fraudulent products.

"Your imagination is about the only thing that limits you, if you're a fraudster, of taking advantage of a program that's flush with cash," said J. Howard Arp, a director of investigations in the Forensic Audits and Investigative Service team at the Government Accountability Office, Congress's independent investigative arm.

GAO has created a fraud reporting system, and Mr. Arp said GAO has made several referrals to law enforcement and regulatory agencies.

Aside from fraud, the administration and lawmakers have questioned whether certain companies and entities should be eligible to receive small-business loans, and several large companies, including Shake Shack Inc., pledged to return loans following public criticism. Recently, Democrats on a newly formed select subcommittee in the House called on five publicly traded companies to return the aid they received, while Republicans denounced the request as "dangerous government intimidation."

One of the companies Democrats called out, MiMedx Group Inc., wrote in a letter to lawmakers Monday that it had returned what it had borrowed.

That select subcommittee, approved along party lines in the House, is just one of the several new, overlapping oversight bodies that has struggled to overcome Washington's partisan rancor and begin its work.

President Trump last month replaced the acting inspector general of the Pentagon, Glenn Fine, making him ineligible to serve as the head of the Pandemic Response Accountability Committee. The committee, comprised of inspectors general from various agencies including the SBA, is charged with finding waste and abuse across the government's implementation of the $2.2 trillion response package. While the panel has named an executive director, it is still without a permanent chairman.

The Congressional Oversight Commission, a five-member body also tasked with tracking $500 billion allocated to the Treasury Secretary, remains without a chairman to lead it. Most of that money will go toward backstopping lending facilities at the Federal Reserve that are still in the process of launching and will support large and small corporations and municipalities, among others.

House Speaker Nancy Pelosi (D., Calif.) and Senate Majority Leader Mitch McConnell (R., Ky.) must agree on the leader of the panel, which missed its first deadline to issue a report last week. The delays have alarmed some oversight advocates.

"Congress is throwing money down a black hole and crossing its fingers that it will hit the mark," said Liz Hempowicz, director of public policy at the Project on Government Oversight.

The Senate Banking Committee on Tuesday advanced the nomination of Brian Miller, previously an inspector general and now a White House lawyer, to become the special inspector general for pandemic recovery, or SIGPR, another newly created position to watch the Treasury Department and Federal Reserve's use of the $500 billion.

The SIGPR office is modeled on the special inspector general for the Troubled Asset Relief Program, which was created in 2008 as part of the broader recovery effort during the financial crisis. Investigations by the special inspector general for TARP, or Sigtarp, which continues to operate, have resulted in 384 convictions and recovered $11 billion, according to the office's latest report to Congress.

Neil Barofsky, who served as the Sigtarp between 2008 and 2011, said that the likelihood for fraud in the Fed's lending facilities will depend on what kind of safeguards the central bank builds into the programs.

Not only may borrowers try to lie on their loan applications, Mr. Barofsky said, but employees at private organizations that help lend the Fed's money could collude with borrowers to help them improperly receive the aid.

Mr. Miller, if he is confirmed, will likely be slow to get the inspector general's office up and running. The bill that created the position didn't grant the office enhanced hiring powers, requiring it to go through the traditional federal hiring process.

Mr. Miller said he expects to hire between 75 and 100 people to start.

"It will be hard to staff up quickly because I have to build it from scratch and get hiring authority," he said at his confirmation hearing.

Write to Andrew Duehren at


(END) Dow Jones Newswires

May 13, 2020 08:14 ET (12:14 GMT)

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