In the State of the Union Speech this past week, President Biden called for increased oversight into COVID-19 Relief fraud. This article provides some details of what the government is doing to find EIDL and PPP fraud. We include several easy steps that every business owner should take to be ready for if and when they are investigated or audited.
By Thomas Tramaglini, Managing Director at BRP Onesta
About Thomas Tramaglini
Joe Biden wants to be the new ‘Sheriff” in town when it comes to Pandemic Program Fraud
In last week’s State of the Union Address, President Joe Biden announced increased investigation of fraud in the Pandemic’s Relief Programs. Both borrowers and lenders need to be aware that the federal government will continue to work with the Department of Justice to find those who abused the system.
However, it should be expected that there will be more and more investigations coming.Politically, with the government doling over $1.2 Trillion in EIDL and PPP funding it would make sense that the Biden Administration might try to score some easy points against greedy small business owners by showing that the Administration is tough and protects the American people from fraud.
Practically, as demonstrated by the Department of Justice and other organizations such as the Federal Trade Commission, some small business owners committed fraud. However, it is my guess is that there is plenty of fraud to be found as the government does not usually go after small business owners unless they know that they can find the fraud.
How bad was the Fraud?
The purpose of this article not to describe how inherent the fraud was but from what some watchdogs are showing, it was pretty bad. However, Yahoo Finance writer Dani Romero’s post on March 4 was pretty telling:
“Data from Accountable.US, a watchdog group, found that individuals with no employees, and making over six-figures annually – but received $20,833 in PPP funding, which was the maximum by the legislation.
Separately, a new paper published by the National Bureau of Economic Research reveals that was used accordingly. Of the $510 billion of PPP loans distributed in 2020, $115 billion to $175 billion went toward supporting jobs that would have otherwise have been lost, while about $335 billion to $395 billion ended up with business owners and corporate stakeholders, the paper found.”
The Department of Justice Coming Down Hard on Pandemic Relief Abusers
The government is promising to find those who cheated the government during the pandemic. I have written other articles on the schemes that some heroes of the pandemic have utilized. For instance, some business owners used fraudulent 940/941 forms which they submitted to banks and received funds. Other small business owners changed their business’ documents and were able to get funding (Several Examples Here).
Last week, the Department of Justice charged the CEO of an alternative lender MBE Capital with both fraudulent loan and lender applications. According to the docket, “Martinez [the CEO] used false representations and documents to fraudulently obtain the approval of the SBA for his company, MBE Capital Partners, LLC (“MBE”), to be a non-bank lender through the PPP. Martinez then used that approval to obtain approximately $932 million in capital to issue PPP loans and earn over approximately $71 million in lender fees. In addition, Martinez engaged in a scheme to obtain a PPP loan for MBE in the amount of approximately $283,764 through false statements regarding the number of employees of MBE and the wages paid to MBE employees and using the forged signature of MBE’s tax preparer. Martinez was arrested yesterday and will be presented today in Manhattan federal court before U.S. Magistrate Judge Katharine H. Parker.”
BEWARE! The DOJ is Showing Their Cards – They Are Using Data Analytics and Collaborative Tools Across Agencies to Find Those Worthy of Investigation
In several of the dockets and press releases that are available, the Department of Justice has indicated that it is using data analytics using collaboration between government agencies to find those who might have committed fraud.
I think that this is likely easy considering all they need to do is match data across databases. For instance, it cannot be very hard for the DOJ to match application data or funding data from the SBA to the information in the IRS. In fact, one of the reasons why so many EIDL expansion loans have been declined after approved for the original funding is because many of the applications could verify what the business owners reported on their original application to their taxes.
Could you be next?
Most small business owners who received their PPP or EIDL funds submitted correct and accurate data. Some did not.
It is surely plausible that small business owners did not try to defraud the federal government of Pandemic Relief Funds but made a mistake.
However, those who know that they used fraudulent documents or hired someone to submit the documents should understand that if the DOJ finds discrepancies that are blaring, expect an audit at a minimum.
“They are only going after the big fish” – NOT!
While the President in his State of the Union speech said he would be going after the most egregious cases, the database of fraud by Arnold & Porter suggests that there have been convictions with small business owners receiving as little as $10,000 in funding.
What does this mean for most business owners?
Most small business owners have nothing to worry about. However, with the announcement of more oversight and investigation, as well as the commissioning of a COVID-19 Fraud Enforcement Task Force and appointment of a Chief Prosecutor for Pandemic Fraud small business owners can expect that the government will be looking at two possible probes in their review:
- Were Pandemic Relief Program funds received legally?
- How were Pandemic Relief funds used?
Three things that small business owners can do to ensure they are ready for an audit or investigation.
- Small business owners should review their loan application and forgiveness application to make sure that the proper loan amounts were applied for, received, and forgiven.
- Some small business owners used a service or someone to apply on their behalf for their funding. Those who did this should know who did the application, what documents they provided, as well as have contact information for an auditor to contact.
- Maintain a list with back-up of all expenditures which were made using the Pandemic Relief Funds.
Dr. Thomas Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.