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At least $200 billion in pandemic aid potentially went to fraudsters, federal watchdog estimates

JUANA SUMMERS, HOST:

A federal watchdog has estimated that at least $200 billion in pandemic aid for businesses potentially went to fraudsters. The Office of Inspector General for the Small Business Administration released its report today even as the SBA's administrators say that number is an exaggeration. NPR's law enforcement correspondent Martin Kaste joins us now. Martin, $200 billion is just a huge amount of money, but we're not even talking about the total amount of fraud in all pandemic aid, right?

MARTIN KASTE, BYLINE: That's right. Yeah, Juana. This does not include other things you might be thinking of, such as unemployment fraud. This is just about business loans. You probably remember that famous acronym, PPP, the Paycheck Protection Program. And the way this worked was that you could quickly apply for a loan to keep paying your employees, keep your business afloat or pay yourself if you were an independent consultant or contractor. And you'd get a loan from the private lender, and then that could be forgiven. And the Small Business Administration, the SBA, would cover the loan. So this was taxpayer money.

SUMMERS: All right. So walk us through this, Martin. What kind of fraud is the SBA's inspector general pointing out now?

KASTE: Well, people sometimes think this is about loans that went to rich people, you know, the Kanye West and Tom Brady businesses that got PPP. But that's not what this is. There may be some businesses that you think didn't deserve to get government money, but it was perfectly legal for them to get that money. What this is about is actual fraud, people making up businesses, claiming that they ran, say, a catering business before COVID when there was no real proof that there was such a business before COVID hit.

SUMMERS: OK. And I think we've heard reports previously about PPP fraud. So what's new in this report?

KASTE: Well, what's new here is the SBA's inspector general used its access to government data to do some pattern analysis, looking for telltale signs of fraud, things like cross-checking employer identification numbers, looking for suspicious bank accounts or repeated use of certain overseas IP addresses, that kind of thing. And they had this outside information - or inside information that other analysts didn't. And with that information, they concluded that at least 17% of all the loans had the hallmarks of fraud.

SUMMERS: Even at the time as the pandemic started, people were talking about how fraud was likely, given the urgency to get money out the door to keep the economy from stalling. Does this report talk about that?

KASTE: It does. It recognizes that the SBA lowered its anti-fraud precautions on purpose to get that money out the door fast. But the inspector general says there were some things the SBA could have been doing even in 2020, things such as, say, requiring photo IDs from applicants. And outside analysts agree. I talked to Sam Kruger. He's an assistant professor of finance at the University of Texas at Austin, and he's been studying pandemic fraud.

SAM KRUGER: I would say even in the very early weeks, we could and should have done a better job. Some of the analysis that the SBA has done on the back end here, you could conceive of this being done in real time. In fact, you know, some of these are using government identifiers and government data sources that really probably could've been done contemporaneously with the program.

SUMMERS: Martin, how do the administrators of the SBA respond to this?

KASTE: Well, they're pushing back hard against their own inspector general here. First, they say the inspector general is doing a computer-driven analysis that has too many false positives. They say that the number would shrink if human investigators took a closer look. And they estimate that the fraud was really closer to about $36 billion instead of 200 billion. They also say that about 86% of the fraud happened during the first nine months, in other words, during the year 2020, during the previous administration. And they point to new layers of the - of anti-fraud precautions that they've put in place starting in 2021.

SUMMERS: NPR's Martin Kaste. Thank you.

KASTE: You're welcome. Transcript provided by NPR, Copyright NPR.

Martin Kaste is a correspondent on NPR's National Desk. He covers law enforcement and privacy. He has been focused on police and use of force since before the 2014 protests in Ferguson, and that coverage led to the creation of NPR's Criminal Justice Collaborative.

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