Democrat House investigators found $1 billion in the Payroll Protection Program went to fraud, a part of the March 31 $2.2 trillion CARES Act. Investigators found double dipping with some companies, applying and receiving benefits twice, a clear violation of CARES Act rules. CARES Act money totaled $654 billion or about 25% of the totally taxpayer money distributed to distressed businesses during the peak of the coronavirus AKA SARS CoV-2 or Covid-19 crisis. Small businesses were eligible to receive payroll protection of up to $10 million, giving out loans totaling $4.9 million, eligible for eventual grants if the businesses used the money to make payrolls and other expenses. About $133 million has yet to be distributed, with lawmakers looking to make a CARES Act II deal, something House Speaker Nancy Pelosi (D-Calif.) and 74-year-old President Donald Trump are working on.
As the election ticks near, both parties stand to benefit from a new round of enhanced unemployment benefits and payroll protection. Haggling over the amount of the package, Trump has given the green light to Mnuchin to cut a deal, as long as it’s under $1.6 trillion. Mnuchin adcnowledged that that some PPP money was diverted to the wrong place. Mnuchin “suggests a high risk that PPP loans may have been diverted from small businesses truly in need to ineligible businesses or even to criminals,” giving the White House a big black eye. “Secretary Mnuchin has previously testified that, given the need to get relieve money out quickly, it was inevitable that Treasury, and I quote, ‘ran into a lot of issues,’” said 80-year-old House Majority Whip Rep. James Clyburn, (D-S.C.). Clyburn is one of the most anti-Trump members in Congress.
Clyburn’s decision to go ahead with a report aimed at embarrassing the White House two months before the election can’t pass unnoticed. While it’s true that government programs, especially crash programs like the CARES Act, was implemented at lightening speed, it’s also true that anytime the government hands out cash there’s going to be waste, fraud and mismanagement. If Mnuchin spent more time screening businesses, Clyburn would have screamed foul, blaming the White House for dragging its feet. “That is a false dichotomy: Taxpayers should not have to choose between quickly getting aid to those who need it and wasting federal funds, and there are simple steps that could have been taken to improve oversight and reduce fraud,” Clyburn insisted. Clyburn claimed that 600 loans worth $100 million went to businesses banned from doing business with the federal government.
Clyburn said over 350 loans worth $200 million went to contractors flagged with integrity issues. Over 11,000 borrowers had red flags in the government’s System for Award Mangemen, with faulty addresses. Mnuchin said the Treasury Department would implement a “risk based” system to audit loans over $2 million, contributing to fraudsters keeping loans under the $2 million audit limit. Clyburn called the Treasury Departments plans “plainly insufficient: with “fraudsters are well aware of this limited audit plan and the limited program oversight.” Republicans called Clyburn’s report a partisan investigation designed to embarrass the White House before the Nov. 3 presidential election. Small Business Administration [SBA] officials said there are always problems implementing large programs on an expedited timeline, something that happened with CARES Act PPP program.
SBA former head of the SBA’;s Office of Investment and Innovation Mark Walsh in the Obama administation said the government always deals with some degree of waste, fraud and mismanagement. “There will always be bad actors,” Walsh said, disputing Clyburn’s charge that Mnuchin dropped the ball. Walsh said the SBA needs to beef up its application team to review applications with more scrutiny to avoid whatever bad applications slipped through the cracks. Prioritizing applications for time-sensitive businesses like restaurants should also be considered. “President Donald Trump’s administration failed to design and implement a program that would help actual small businesses and their workers,” said Kyle Herrig, president of Accountable U.S., a nonprofit watchdog agency. Herrig thinks before another round of PPP takes place, the SBA should do a better auditing job.
Clyburn’s motive in raising the waste, fraud and mismanagement in the PPP program hopes to humiliate the White House before the election. But any way you cut, there’s no way the government can implement any program without some loss of accountability. Had Mnuchin taken more time to implement PPP or enhanced unemployment benefits, Democrats would have slammed the White House for incompetence. “The failure to install adequate safeguards, although perhaps understandable given the rush to get money to struggling businesses, make the need for full transparency all the more important,” said Neil Barofsky, partners in Jenner & Block LLP that investigated the 2008 Troubled Asset Relief Program [TARP]. Barofsky urges the SBA to release all the details about loan recipients before implementing a new round of PPP under the next stimulus bill.
