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Regulation and Compliance > Legislation

Where Did $6T in Covid Funding Go?

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What You Need to Know

  • As Congress doled out relief funds, crooks and con men lined up to get their share via fake companies and employees, stolen identities and other tactics.

Corruption is “a cancer that eats away at a citizen’s faith in democracy,” said a certain vice president, back in 2014. Now commander in chief, Joe Biden must confront a corruption problem unfolding on his watch: the spiraling costs of misspent Covid funds.

In recent court filings, the Federal Bureau of Investigation has described a “massive fraud scheme” in which nonprofit organizations in Minnesota illegally diverted aid money intended to feed needy kids and used the proceeds “to purchase real estate, cars and other items.” All told, the groups received some $65 million from federal food programs during the pandemic.

While shocking, the incident is by no means anomalous. As Congress has doled out almost $6 trillion in relief funds, crooks and con men have lined up to get their share. They’ve created fake companies, stolen identities, invented employees, misstated their earnings, and otherwise conspired to siphon off taxpayer money.

The Secret Service, which has opened more than 900 Covid-related criminal cases, estimates that $100 billion may have been misappropriated.

PPP Problems

Even that may be understating the problem. As little as 23% of the $800 billion doled out by the Paycheck Protection Program actually found its way into workers’ pockets. A Department of Labor study estimated that more than $87 billion in emergency unemployment benefits were improperly paid.

The Small Business Administration has (among other blunders) disbursed more than $6.2 billion to loan applicants it now suspects of identity theft. Somehow, the Internal Revenue Service managed to issue 2.2 million stimulus checks — worth about $3.5 billion — to dead people.

Only in government could such calamitous neglect be considered business as usual.

Of course, some level of fraud is inevitable with huge federal outlays, and Covid provided an especially tempting target. As businesses shut and the national economy ground to a halt, the government’s understandable priority was simply to get checks out the door.

That often meant officials relaxed safeguards, waived vetting procedures, and generally proceeded heedlessly. From the start, experts warned of a looming disaster.

Yet the problem wasn’t simply a lack of oversight. As the relief effort geared up, task forces, watchdogs and oversight panels were empowered across the government to prevent malfeasance.

Among other safeguards, the CARES Act, passed in March 2020, established the Pandemic Response Accountability Committee — consisting of inspectors general from nine separate agencies — to “prevent and detect fraud, waste, abuse and mismanagement.”

What was lacking was any kind of groundwork for such an effort. As one former member related, the accountability committee had to hire staff, create an elaborate database, and find a sophisticated analytics team to track trillions of dollars in spending — all almost overnight.

Meanwhile, government agencies failed to create uniform standards for reporting the necessary data. One result, as the committee’s chairman has conceded, was that the information it produced was “gibberish to most people.”

Time to Act

Fixing such deficiencies must be a priority. As a start, a dedicated data portal that tracks big government outlays in real time would make it easier for officials to monitor for fraud and make more informed decisions about how to respond.

With such a system in place, the accountability committee could be made permanent and be tasked with continuous oversight of big projects, such as the $1 trillion infrastructure bill Congress passed last year.

Upgrading antiquated technology would also help. As the Partnership for Public Service has found, 80% of the federal information-technology budget is spent maintaining legacy systems — some decades old — while investment in new ones often goes unfunded.

This can lead to almost comical missteps: One reason the IRS kept sending money to corpses was because the Social Security Administration had simply failed to share the relevant data.

Finally, the government needs to stop creating incentives for fraud. Community groups that steer federal funds to the needy — like those the FBI is probing in Minnesota — are typically paid a fixed percentage of outlays in administrative fees, for example, meaning that they’re encouraged to dole out as much as possible. Because they also act as watchdogs over such programs, the problem compounds. Such a system is simply asking to be abused.

To his credit, Biden has announced several efforts to combat pandemic fraud. But more focus and investment will be required to stop the cancer of corruption for good.

(Photo: Adobe Stock)

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