The Fraud Examiner

Vegas Trips and Lamborghinis: How Fraudsters Defrauding Government Stimulus Programs are Being Caught
 

Julia Johnson, CFE     
Research Specialist, Association of Certified Fraud Examiners                                 


As the COVID-19 pandemic continues to ravage the worldwide economy, small businesses and self-employed individuals have taken some of the hardest financial hits. As a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the U.S. government authorized the Paycheck Protection Program (PPP). This program, implemented by the Small Business Administration (SBA), offered low-interest, forgivable loans to small businesses as a way for them to continue paying their employees during the current global crisis. While over $523 billion worth of loans have been issued under this program, not all proceeds have gone toward their intended purpose. 

To obtain a loan from a third-party lender under this program, organizations had to provide documentation verifying the number of full-time employees on their payroll and their associated pay rates. A percentage of these PPP loans could also be used to cover the cost of lease, mortgage and utility payments for small businesses facing economic hardship as a result of the pandemic. These loans will be forgiven if 60% of the amount given to a small business is used for its payroll costs and there will be no associated fees charged on the borrowing.

 

As the U.S. Justice Department (DOJ) begins to crack down on PPP fraud, a common trend has emerged as to how individuals have attempted to defraud the government under this economic relief program. In cases that have been brought for prosecution so far, individuals have falsified information on their PPP loan applications regarding the number of employees currently on their payroll. In some instances, individuals filed PPP loan applications on behalf of fictitious businesses with no employees to receive funds. In other cases, legitimate businesses requested economic relief from PPP loans by fabricating their payroll expenses on the application. In addition to submitting fraudulent loan applications, these fraudsters created fake and altered federal tax filings and employee payroll records to fulfill the documentation requirement for loan disbursement. 



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