Watchdog Finds Covid Loan Program at High Risk for Fraud

A new report says the speedy setup of emergency small business loans increased the potential for fraud and mismanagement.

Sun shines on the U.S. Capitol dome on Tuesday. (AP Photo/Patrick Semansky)

WASHINGTON (CN) — Emergency small business loans established during the Covid-19 pandemic landed on the Government Accountability Office’s high-risk list Tuesday, while the U.S. Postal Service and the 2020 census remain areas of concern.

Every two years, the watchdog agency releases a list of federal programs that are considered to be highly vulnerable to fraud, waste or mismanagement.

Among those added to the list in the GAO’s latest report are the Paycheck Protection Program and expanded eligibility for Economic Injury Disaster Loans, both of which provide small business loans to help mitigate the negative economic impact of the pandemic.

“While loans have greatly aided many small businesses, evidence of fraud and significant program integrity risks need much greater oversight and management attention,” the GAO wrote in a summary of its findings.

The Small Business Administration provided about $744 billion in loans last year under the programs to help small businesses recover and Congress passed a bill in December allocating an additional $304 billion in emergency relief.

The watchdog report says the relief programs were set up quickly, which limited the implementation of proper safeguards to identify risks that include “susceptibility to improper payments and potential fraud.”

“So far, the federal government has allocated more than 2 trillion dollars to help ease the coronavirus’ devastating impact.  We know that the risk of fraud and abuse grows when large sums are spent quickly, eligibility requirements are being developed or changed, and new programs established,” Gene L. Dodaro, U.S. Comptroller General and head of the GAO, said in a statement.

The agency cited ongoing delays in obtaining key information about the loans, including oversight plans and documentation for estimating improper payments.

 “We rely on the public’s help to identify improper activities or weaknesses in programs that warrant scrutiny. Allegations reported to FraudNet can alert us, potentially early on, to the questionable use of CARES Act and other relief funds,” Dodaro added.

Using assessment criteria that includes leadership commitment, agency capacity, detailed action plans, monitoring efforts and demonstrated progress, the GAO found a total of 36 areas throughout government agencies that need to address risks of fraud, waste or mismanagement.

Under Donald Trump-appointed Postmaster General Louis DeJoy, the report says, the U.S. Postal Service went from achieving in a few areas in 2019 to meeting none of the criteria.

The GAO found that the Postal Service’s expenses “exceeded revenues by $18 billion in fiscal years 2019 and 2020 as its labor compensation costs continued to increase while the volume of its most profitable mail products continued to decline.”

Additionally, the watchdog partially blamed the Trump administration for the failure of the U.S. Census Bureau to meet the criteria needed to limit vulnerabilities in the decennial count.

It says the 2020 census remains in the high-risk category due to the Department of Commerce’s decision to shorten the Census Bureau’s timeframe for data collection.

After it was forced to delay field operations last spring because of the coronavirus pandemic, the agency hatched a new plan to extend data collection from July to October 2020. The Bureau also pushed back the deadline for data processing until April 2021.

President Trump issued an order last summer that sought to exclude undocumented immigrants from the state population counts that are used for dividing up congressional seats among the states, causing legislation to change the deadlines to stall in the Republican-controlled Senate.

The administration then chose to end headcounts early and cut the time for data processing by almost half.

“Compressing the time frame to collect data and process responses has increased the risk of compromised data quality,” the report states.

The GAO removed the Defense Department’s support infrastructure management from the high-risk list, finding the agency has more efficiently utilized military installation space, reduced its infrastructure footprint and lowered base support costs.

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