Power & Market

The Paycheck Protection Program: Abuse and Misuse

Power & Market Georg Grassmueck

There are few examples to showcase the absurdity of the current political climate during the covid pandemic such as the Paycheck Protection Program (PPP). Put in place by the Trump administration and now continued under the Biden administration, the PPP has become the poster child for government programs rampant with fraud and mismanagement. Indeed, in a recent report, the Office of the Inspector General (OIG) repeatedly warned about the lack of program oversight and controls. However, government officials continued on with the program despite the OIG’s warnings.

What is the PPP?

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The intent of the CARES Act was to provide short-term relief for small businesses, individuals, and nonprofit organizations that were negatively affected by the shutting down of the economy to slow the spread of the coronavirus. The CARES Act appropriated first $349 billion for the Small Business Administration (SBA) Paycheck Protection Program in April 2020. Later in April, Congress appropriated an additional $321 billion for a total of $670 billion. Affected businesses can apply for a forgivable loan to cover operating costs and lost revenue. From 2000 to 2019, the SBA made about 1.2 million loans totaling $333 billion. Under the CARES Act, the SBA processed 5.2 million loans in six months, which was far more than all of SBA’s combined lending from 1990 to 2019. 

Six months into the program, on October 16, 2020, the OIG released the first in a series of reports. In Top Management and Performance Challenges Facing the Small Business Administration in Fiscal Year 2021, the OIG provides a good sense of the chaos with section title “SBA’s Economic Relief Programs Are Susceptible to Significant Fraud Risk and Vulnerabilities.” Anyone who has critically examined the government response to the covid pandemic should not be surprised by the fact that the PPP is a recipe for disaster. 

In October, the inspector general already sounded the alarm bell:

SBA moved quickly to establish the new nationwide program but eased controls required in its lending program to do so, increasing the risk of rampant fraud. Our preliminary investigative oversight revealed strong indicators of widespread potential abuse and fraud in the PPP.

In its preliminary report, the OIG found systemic issues with the PPP. OIG found indications of deficiencies with internal controls related to the eligibility of borrowers. 

  • Tens of thousands of approved and disbursed loans were made to borrowers for amounts that exceeded the maximum allowed based on the number of employees and compensation rates as defined in the CARES Act.
  • Tens of thousands of loans that matched a Do Not Pay data source record indicating potential loan ineligibility.
  • Hundreds of businesses that exceeded the greater of 500 employees or the SBA size standard for number of employees in the industry obtained PPP loans that may have been erroneously approved.
  • We found thousands of businesses obtained PPP loans with Tax Identification Numbers (TINs) that were not registered until after that date indicating the business was created after the fact.

Even more troublesome is the fact that OIG found that the data the SBA publicly reported as well as the loan-level PPP data was inaccurate and incomplete, concluding:

Without accurate and complete data, SBA cannot reliably and accurately inform SBA management and Congress about program effectiveness and measures needed to inform program decisions.

What is even more concerning is the fact that despite these early warning signs the SBA continued with the program without many changes to curb the widespread abuse of the program.

On January 11, 2021, the OIG published Management Alert Paycheck Protection Program Loan Recipients on the Department of Treasury’s Do Not Pay List:

Our review of Treasury’s analysis showed approximately $3.6 billion in PPP loans to potentially ineligible recipients.

In January 14, 2021, the OIG published another report entitled Inspection of SBA's Implementation of the Paycheck Protection Program, which can be summarized in the following quote:

SBA’s efforts to hurry capital to businesses were at the expense of controls that could have reduced the likelihood of ineligible or fraudulent business obtaining a PPP loan. As a result, there is limited assurance that loans went to only eligible recipients….We also found SBA’s PPP publicly reported and loan-level data was inaccurate and incomplete.

On March 15, 2021, just one week before the Senate passed the extension, the OIG published a flash report entitled Duplicate Loans Made under the Paycheck Protection Program:

We determined SBA did not always have sufficient controls in place to detect and prevent duplicate PPP loans. As a result, lenders made more than one PPP loan disbursement to 4,260 borrowers with the same tax identification number and borrowers with the same business name and address. These disbursements totaled about $692 million for PPP loans approved from April 3 through August 9, 2020.

Did Congress stop the program or demand more oversight? No. Congress extended the PPP. One can only conclude with the words of Hoppe again. “Government has the ability to be the savior twice over: the rescuer of a rescuer in distress.” It “rescued” us from the covid pandemic by severely limiting the economy, and then “rescued” us again from the economic free fall by compensating for the losses incurred by simply creating state paper money from nothing at zero expense. Government is the rescuer twice over, but government has the ability to socialize costs to the public while making itself look like the “blessed savior.” Rescue packages, however well intentioned, are not, and never are, free of charge.

The only thing missing from the covid Ponzi scheme is for government to take the rampant misuse and abuse in the PPP to grab as much power as possible by creating more rules and regulations for businesses in the name of covid. Readers of Robert Higgs’s book Against Leviathan: Government Power and a Free Society. know that government bureaucrats have a tendency to take advantage of “emergencies,” like the covid-19 pandemic, to consolidate and grab even more power. Let’s hope that this will not become true or happen.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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