Audit of Stimulus Hiccups Hits Wall Street With a Thud

Visitors to Six Flag Fiesta Texas in San Antonio pass through a thermal screening area to enter the park last week as a precaution against Covid-19. (AP Photo/Eric Gay)

MANHATTAN (CN) — The federal government’s response to the coronavirus recession has helped prop up flailing companies and families, but it is also riddled with problems.

Among the most notorious of the concerns raised on Thursday in a report by the U.S. Government Accountability Office that $1.4 billion in stimulus payments were sent to dead people. Worse still, the Internal Revenue Service has no plans to notify ineligible recipients on how to return the bogus payments, the GAO report found. 

The error is because the Social Security Act provides death records to tax authorities but not to the Treasury Department or Bureau of Fiscal Service, which distributed the stimulus payments.

But the report also uncovered other stimulus problems, most notably with the Paycheck Protection Program, which the GAO found has the potential for fraud due to bureaucratical miscommunication and a lack of disclosure.  

The PPP, run through the Small Business Administration, has faced intense scrutiny since its bumpy roll-out for allowing publicly traded companies to snap up a good portion of the loans, quickly running out of funds, and including confusing guidance on eligibility and loan forgiveness.

“SBA has announced efforts to implement safeguards after loan approval but has provided limited information on how it will implement these safeguards,” Thursday’s audit states. Additionally, “SBA to date has failed to provide information critical to our review, including a detailed description of data on loans made.”

Another key problem with PPP, according to the report, is that letting lenders rely on borrower certifications raises “the potential for fraud,” as does the lack of mechanism to prevent unemployment insurance recipients from also receiving PPP funds. 

It is the GAO’s recommendation that the U.S. Labor Department, SBA and Treasury “immediately provide information to state unemployment agencies that specifically address PPP loans, and the risk of improper payments associated with these loans.” 

The SBA, a notoriously underfunded agency that is not used to the workload imposed by PPP, announced last week it would soon disclose the names and information of borrowers who received PPP loans in excess of $150,000. 

The disclosures are not yet public, however, and would not cover 25% of the total loan recipients.

A spokeswoman for the SBA said the agency is trying to compile loan-level data for the GAO, but that such information “implicates concerns about borrowers’ personal privacy and confidential, proprietary, and commercially sensitive business information.”

“Unfortunately, the report minimizes the historic work that SBA has undertaken to implement the CARES Act and mischaracterizes SBA’s engagement with GAO,” she said in a statement, noting agency officials produced hundreds of pages of documents. 

California Senator Kamala Harris introduced legislation Thursday to require all PPP loans to be made public and searchable in a database. “PPP loans were put in place to help sustain our small businesses, not to fill the pockets of large, wealthy corporations,” the Democrat said in a statement. “We need to know if minority communities and business owners are being served.”

Some business groups worry about PPP disclosures. In a letter to the SBA on Monday, the National Federation of Independent Businesses noted that the original PPP loan application stated borrower information is private except under the Freedom of Information Act. 

“Treasury, SBA and the [Senate] Small Business Committee should not single out America’s small businesses for lesser privacy rights than other Americans,” NFIB General Counsel David Addington wrote.

Revelations about the PPP and other stimulus programs had little impact, however, on markets Thursday. 

The Dow Jones Industrial Average, which opened flat after the Labor Department reported 1.48 million new unemployment claims were filed for the week of June 20, gained 298 points by the end of trading, a 1.2% increase. The S&P 500 and Nasdaq had similar increases after mild ups and downs throughout the day.

Other economic data — including that the U.S. economy officially contracted 5% in the first quarter of 2020 and that the trade deficit grew 5% in May after exports fell sharply — also failed to move the markets significantly one way or the other.

Wall Street has been much more focused on the recent uptick in coronavirus cases and hospitalizations the last few days, especially after the United States hit a new highest nationwide total of new cases on Wednesday, with more than 37,000 reported

To date, more than 9.5 million people have been infected by Covid-19 worldwide, while 484,000 have died, according to data compiled by Johns Hopkins University. In the United States, 2.4 million people have contracted Covid-19, while more than 122,000 have died.

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