Although the $900 billion COVID-19 relief package passed by the White House this week includes $284 billion for small and mid-size businesses (SMBs), there are signs that the Paycheck Protection Program (PPP) still has vulnerabilities that previously led to fraud, The Wall Street Journal reported on Wednesday (Dec. 30).
The Coronavirus Aid, Relief, and Economic Security (CARES) Act set aside over $600 billion for SMBs via two rounds of forgivable PPP loans. Overall, about 5.2 million SMBs borrowed $525 billion in forgivable PPP loans. However, some $2 billion went to almost 1,500 companies that were accused of committing crimes or sidestepping regulations, according to a WSJ analysis.
Further, 432 companies that received almost $1 billion in loans ended up laying off employees, anyway, according to an analysis by the nonprofit Good Jobs First, per the WSJ. The loans were intended to keep workers employed while relieving owners of making payroll.
The new package gives SMBs the power to use the money specifically to stay in business, not necessarily to preserve jobs.
“The government has charged dozens of people in at least 36 complaints related to fraudulently obtaining coronavirus relief funds, many for allegedly falsifying PPP loan applications and misappropriating the funds,” a WSJ review of Justice Department data indicated.
Because of the economic urgency brought on by the pandemic, PPP lenders bypassed some of the usual background checks and verifications, which likely allowed companies to break laws. The Small Business Administration (SBA) that oversees the program could end up revising the requirements and the application process for this new round of funds.
“Prevention is always better than detection,” Bruce Dorris, chief executive of the Association of Certified Fraud Examiners, told WSJ. “There will be tens of billions of dollars in fraud that we’re going to find in the first round of funding.”
SMBs with less than 300 workers are eligible to apply for the new funding. In the first round, the eligible company size was 500 employees and under. Companies also have to prove that business is down a minimum of 25 percent for any single quarter as compared to the same period last year.
Similar to the CARES Act, the package awards $600 per person in addition to expanded unemployment benefits. The new package also earmarks $15 billion in grants for live entertainment venues like theaters and museums.