COVID-19 fraud reaches over $400B

During the pandemic, the federal government implemented several pandemic-relief initiatives designed to help small businesses and unemployed individuals stay afloat amid unprecedented economic upheaval. Between the Trump and Biden administrations, a combined $5.2 trillion in COVID-19 relief funds was approved, and $4.2 trillion has been disbursed so far.

However, an AP investigation found around 10% of the disbursed funds — around $400 billion — was subject to fraud. In particular, around $280 billion in COVID-19 relief funds was stolen while another $123 billion was either wasted or misspent. AP called the outsized fraud "the greatest grift in U.S. history."

According to investigators and outside experts, this fraud was likely due to the government rushing to send out relief funds, which led to a lack of oversight and restrictions during the early days of the pandemic.

For example, borrowers were allowed to "self-certify" their applications for COVID-19 relief loans. The Small Business Administration (SBA), which was in charge of the COVID-19 Economic Injury Disaster Loan and Payment Projection programs, was also barred from using tax return transcripts to weed out ineligible or fraudulent applicants, a decision that was later reversed at the end of 2020.

"If you open up the bank window and say, give me your application and just promise me you really are who you say you are, you attract a lot of fraudsters and that's what happened here," said Michael Horowitz, an inspector general who chairs the federal Pandemic Response Accountability Committee.

"It is an unprecedented amount of fraud," said Mike Galdo, the Department of Justice's (DOJ) acting director for COVID-19 fraud enforcement.

The federal government cracks down on COVID-19 fraud

In March, President Joe Biden pledged $1.6 billion to increase law enforcement manpower and implement new programs that will help prevent fraud, prosecute scammers, and assist victims of identity theft.

"We want to not only capture them and get their funds, we want to send a signal to them that you can run, but you cannot hide," said Gene Sperling, coordinator of the White House's American Rescue Plan.

The federal government is also taking legal action against pandemic fraudsters. In May, DOJ filed criminal charges against 18 individuals for allegedly stealing $490 million in funds from federal health programs. Overall, over 2,230 defendants have been charged with pandemic-related fraud crimes, and thousands of additional investigations are underway, AP reports.

Last August, Biden signed legislation increasing the statute of limitations on crimes involving SBA's pandemic relief programs from five to 10 years. According to AP, this extended time will allow federal prosecutors to tackle more pandemic fraud cases, which often involve identity theft or international criminals.

However, an overwhelming amount of potential fraud cases and a limited workforce to investigate them may stymie potential action against these criminals. Currently, SBA has a backlog of over 80,000 actionable leads, which amounts to around 100 years of work.

"Death by a thousand cuts might be death by 80,000 cuts for them,” Horowitz said. "It's just the magnitude of it, the enormity of it."

In the future, Sperling said that crises that require government intervention will need to balance helping people in need and preventing fraudsters from misusing funds. "The prevention strategy going forward is that in a crisis, you can focus on fast delivery to people in desperate situations without feeling that you can only get that speed by taking down commonsense anti-fraud guardrails," he said. (Sforza, The Hill, 6/12; Lardner et al., Associated Press, 6/13; Collins, USA Today, 3/2) 

Download our cheat sheet to learn about fraud and abuse regulations, how to guard against potential violations, and prepare to have conversations with health system executives about compliance programs.