Stealing COVID Aid | The week

Billions of pandemic relief dollars have been wasted or pocketed by crooks. How did it happen? Here’s everything you need to know:

Was COVID aid successful?

In many ways, yes. It helped prevent what most economists say would have been the worst economic crisis since the Great Depression. As the pandemic hit in the spring of 2020 amid a massive wave of hospitalizations and deaths, many businesses closed or reduced operations and the US economy lost more than 20 million jobs. Lawmakers rushed to act, and in late March President Trump signed the $2 trillion CARES Act, a sprawling package that included direct payments to households, enhanced unemployment insurance and small business loans. In March 2021, with millions still out of work, President Biden signed a second COVID relief bill, this one for $1.9 trillion. Under the Trump and Biden administrations, the federal government has allocated $6 trillion for pandemic relief. A report by Moody’s Analytics indicates that these collective efforts saved the country from a major double-dip recession. Amid a crippling pandemic, 2020 has seen the biggest drop in poverty in five decades and no major increase in hunger. Once the vaccines arrived, the economy rebounded briskly and unemployment hit record highs. “What the money did,” said Louise Sheiner, an economist at the Brookings Institution, “was basically to make sure that when we could reopen people had money to spend, that their credit score n was not ruined, that they were not expelled, and the children were not hungry.”

Was there a price for this success?

Yes. The San Francisco Fed estimates that trillions of dollars pumped into the economy added up to 3 percentage points to the rate of inflation at the end of 2021. In addition, an alarming proportion of money has gone wrong. spent or stolen. Of the $873 billion in unemployment insurance paid out, a recent Labor Department report estimates that at least $1 in 6 should not have been paid out, “with a significant portion attributable to fraud.” Cybersecurity firm DarkTower found that more than 200,000 users of the Telegram messaging app belonged to groups that swapped advice on the best states to target for unemployment money. Criminal networks in China, Nigeria and elsewhere have launched identity theft rings. Aid for businesses does not fare much better. A University of Texas analysis of 11.8 million Paycheck Protection Program loans found a fraud rate of 15%, which could cost taxpayers more than $117 billion. About $3.9 billion in Small Business Administration (SBA) loans have been issued to 57,000 entities on the Treasury Department’s “do not pay” list.

How did it happen?

Scammers invented or twisted companies to obtain loans. A 55-year-old Texan was later found guilty of pocketing $24 million from 15 fraudulent loan applications; he spent some of the money on a Bentley convertible and a Corvette Stingray. A California businessman has been accused of using $5 million in aid to buy a Lamborghini and a Ferrari. A family of Christian missionaries received $8.4 million from the SBA by falsely claiming to run a ministry with 486 employees and a monthly payroll of $2.7 million.

Why the lack of monitoring?

The government had never delivered aid on this scale before, and with millions of people and businesses affected, it chose speed over precision. Many state unemployment agencies, hampered by decades-old archaic computer systems and understaffed due to years of budget cuts, were quickly overwhelmed. Twenty states did not perform all required background checks on applicants. The SBA, a subcommittee of Congress, may have approved 1.6 million loans without evaluating applications. With 500 loans approved at a time, even obvious red flags, such as overseas customer locations, sometimes did not prevent approval.

Can the money be recovered?

Only a small fraction of it. Federal authorities have so far clawed back $4 billion – less than 3% of wrongful payments – of unemployment money, and they have opened more than 1,150 investigations into the potential misuse of various relief funds. Government and bank investigators have returned $10 billion in misdirected corporate relief to government coffers. But the vast majority of frauds go unpunished. The Department of Justice lacks the resources to investigate and prosecute tens of thousands of perpetrators.

Was there a better way?

Governments around the world have spent more than $15 trillion on pandemic relief, but most countries have not offered direct money to citizens, regardless of their needs, as have United States. Instead, they funneled the money to the laid-off workers through their employers and existing welfare bodies. Some level of fraud was inevitable, but even compared to a previous stimulus, COVID-related spending was wildly inefficient. For example, only 0.6% of the $831 billion US Recovery and Reinvestment Act of 2009 went to fraudsters. Strengthening, modernizing and expanding government social safety net systems could reduce the risk of large-scale waste in the next emergency, but Tara Sinclair, professor of economics at George Washington University, points out that there’s not much inclination to spend billions now to prevent future fraud. It’s hard to convince taxpayers, she said, that “if we do this, it will look like a lot of money now, but the next time there’s a crisis, we won’t end up spending a trillion or two, willy-silly.”

How states spent their windfalls

Washington sent some $900 billion to state and local governments in an effort to avert fiscal disaster as their tax revenues plunged. But with few conditions on how states could use the funds, some are spending or using them to free up public funds for projects with little or no connection to the pandemic. Alabama has spent $400 million in pandemic money building three new prisons. Florida spent a fifth of its $8.8 billion allocation on highway construction; a town in the state dedicated part of its lot to a new golf course. California, which got $37.3 billion from the two bailouts, posted a budget surplus of $100 billion in 2021, part of which is refunded to residents of the state. Federal law prohibits states from using the funds for tax cuts, but 21 states have challenged the ban in court, most successfully. “These states are awash with money – everyone from Kentucky to California,” said Scott Jennings, former aide to Sen. Mitch McConnell (R-Kentucky). And “if there’s one thing a governor knows how to do, it’s drive around his state and hand out huge checks.”

This article first appeared in the latest issue of The week magazine. If you want to know more, you can try six risk-free issues of the magazine here.

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