The Great COVID Heist
As the United States grappled with the devastating effects of the COVID-19 pandemic, the government rolled out an unprecedented relief plan to help businesses and individuals weather the storm. However, the hastily implemented programs, such as the Paycheck Protection Program (PPP) and COVID unemployment relief, became targets for fraudsters who exploited the system's vulnerabilities, resulting in what experts call the largest fraud in U.S. history. Tax practitioners became the frontline to compliance as we watched the IRS struggle to address the hastily rolled systems.
Estimates now suggest that as much as $80 billion, or 10 percent of the $800 billion allocated to the PPP, has been stolen. Additionally, between $90 billion and $400 billion is believed to have been stolen from the $900 billion COVID-19 unemployment relief program, with at least half of the funds taken by international fraud culprits. In total, the fraud in all COVID relief funds could rival the $579 billion earmarked for President Biden's massive 10-year infrastructure spending plan.
The criminal methodology varied depending on the program. In the case of COVID unemployment relief, individual criminals or organized crime groups used stolen identities to claim jobless benefits from state workforce agencies disbursing federal funds. Each identity could be worth up to $30,000 in benefits. The PPP, on the other hand, authorized banks and financial institutions to make government-backed loans to businesses, which were to be forgiven if the companies spent the money on business expenses. Fraudsters inflated employee numbers, created fake companies, and took advantage of lenders' lax verification processes to secure millions of dollars in loans-turned-grants.
Many of those who participated in the fraud schemes used their ill-gotten gains to purchase luxury automobiles, mansions, private jet flights, and extravagant vacations. Lamborghinis, Ferraris, Bentleys, and Teslas were among the most popular purchases made with the stolen funds.
The fraud not only harmed taxpayers but also deprived legitimate businesses and individuals of much-needed relief funds. U.S. Attorney Juan Gonzalez of the Southern District of Florida emphasized that the public should be angry, particularly those who lost their jobs and worked for businesses that couldn't apply for the money because it was already depleted. As of now, the IRS has not paid out any ERC claims in 2024 in spite of legitimate businesses still waiting for their funds.
Despite the massive scale of the fraud, only 178 people have been convicted so far in PPP fraud cases. Prosecutors acknowledge that many more criminals have gotten away with their crimes, and the Justice Department lacks the resources to pursue all the cases. The government has defended its actions, claiming that the decision to prioritize speed over thorough vetting was made to quickly get money into the hands of those who needed it most during the pandemic.
Some experts argue that the government and lenders could have prevented such widespread fraud by implementing proper verification processes. Haywood Talcove, CEO for government at LexisNexis Risk Solutions, asserts that the idea of a tradeoff between speed and security is a false premise and that the private sector had solved this problem a decade ago. He claims that the states and the Small Business Administration panicked, leading to the massive fraud.
The COVID relief fraud scandal serves as a sobering reminder of the vulnerabilities in hastily implemented government programs and the need for robust verification processes to prevent exploitation by criminals. As the nation continues to recover from the pandemic, it is crucial to investigate and prosecute those responsible for the fraud while also implementing safeguards to ensure that future relief efforts reach their intended recipients without falling prey to fraudsters.
Many tax practitioners were left holding the bag of compliance duty when frustrated clients would continually ask about credits and programs they were not eligible for because they received a phone call from “credit mills” again. Unfortunately, we are now the ones also telling our clients that legitimate funds may not come for a still, extended period of time while the widespread fraud continues to be investigated.
Christine Gervais
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.