EDITOR NOTE: The U.S. government gave out $800 billion in Paycheck Protection Program "loans" during the pandemic in a desperate bid to protect the approximately 30 million small businesses in the country that are responsible for employing about 59 million people. It was a noble cause, indeed, but the program was rushed and offered very little oversight. Now, the Small Business Administration is rushing to forgive the loans and close out the program before we can truly understand how much fraudulent PPP money the government gave out. One study estimates that at least $76 billion worth of PP loans “involved ‘questionable’ lending.” This is just the latest example of the government’s complete lack of transparency and their rush to cover up the truth before they have to face tough questions. It also means that criminals are about to get away with fraud without having to repay the American taxpayer.
Billions of dollars of federal funds may have been misappropriated as part of the government’s well-intentioned but loosely monitored effort to support entrepreneurs and their employees during the Covid-19 pandemic. Meanwhile, the Small Business Administration, which has supervised the massive rescue since last year, decided recently to speed up its completion by making it easier for borrowers to have their loans forgiven.
Let’s slow down, shall we? After all, those billions came from taxpayers, and more transparency and accountability are needed before the government wraps it up. Congressional investigators and auditors, along with federal prosecutors, should stay on the case — especially before all of those loans are forgiven.
When former President Donald Trump’s administration launched the Paycheck Protection Program in early 2020, it billed the push as an effort to preserve jobs threatened by economic fallout from the coronavirus onslaught. Other programs were in place to support big corporations, but PPP money was meant for the small fry — some 30 million small businesses employing about 59 million people. Protecting jobs to keep small businesses afloat so they could ride out what policy makers hoped would be a short slump was the intent.
Time was of the essence given how rapidly Covid-19 was upending businesses and workers’ livelihoods, but the entire push was thrown together so quickly that the Treasury Department and the SBA failed to establish guardrails and oversight to ensure the program’s goals were met. During the program’s early days, former Treasury Secretary Steven Mnuchin’s team was unable to provide data indicating that PPP borrowers actually used the money to cover workers’ wages.
The first round of funding was sucked up in a flash and went to more established small businesses, leaving modest startups and entrepreneurs of color out in the cold. Subsequent efforts sought to remedy those disparities, but the rules also changed along the way. Borrowers were permitted to use a smaller portion of their PPP loans on wages. Eventually, revisionist history took hold. Some analysts said the best way to assess the PPP’s effectiveness was to examine how many small businesses it sustained, not how many jobs it preserved. I’m not convinced that is a better benchmark, but even if it was, that wasn’t the only standard when the program started. And if helping workers was the primary goal, why wasn’t the funding simply channeled through federal and state unemployment insurance programs rather than through banks and small businesses?
Analysts remain split on how best to assess the success of the PPP and the related Economic Injury Disaster Loan program. The Government Accountability Office puts the spending at $910 billion, of which $800 billion is PPP money. Any assessment, however, will rely on the release of more sweeping data about the push from the government and borrowers. It’s also becoming clearer that fraud may have been much more rampant than originally understood, although the likelihood of massive misappropriation because of lax supervision was obvious from the start. Any funds that wound up in the wrong pocket or were steered toward insiders also blunted the program’s effectiveness.
The GAO, a nonpartisan federal agency that provides auditing and analysis to Congress, has flagged looming abuses for more than a year. Several months ago, it warned that the SBA’s oversight and analysis of PPP and EIDL funding was insufficient and that the agency lacked a formal fraud risk assessment program. It noted that the SBA’s inspector general had detected the possibility of “widespread potential fraud” in the EIDL program and had, along with federal prosecutors, seized ill-gotten EIDL and PPP loans. Some cases involved identity theft and money laundering, along with bank and wire fraud. A GAO report released a few weeks ago found that the SBA had improved some of its monitoring but that its loan forgiveness plan lacked important public guidelines and suffered from communication problems with lenders.
Original post from Bloomberg