6 ms·

Hundreds of PPP Loans Went to Fake Farms in Absurd Places

58 points by raybb 5y ago

ceejayoz 5y ago
> With speed as its strongest imperative, the effort run by the federal Small Business Administration initially lacked even the most basic safeguards to prevent opportunists from submitting fabricated documentation, government watchdogs have said. > While that may have allowed millions of businesses to keep their doors open, it has also required a massive cleanup operation on the backend. Frankly, I think that's exactly the right way to do it. Speed was of the essence here - a lot of small businesses don't have much of a safety margin to go without revenue for even a few weeks. Consequences for abusing it don't have to be fast to work.
- throwaway0a5e 5y ago
  Consequences have to actually happen though. I don't see much evidence of that. They'll probably make an example out of the few most flagrant fraudsters but doing that basically screams "we don't care about the fraud as long as it's tactful". Without consequences for the subtle fraudsters it just becomes a big-dig style feeding trough for the morally bankrupt which is the last thing we should be spending our tax dollars providing.
  - adkadskhj 5y ago
    perhaps it depends on expected returns. If it's expected a specific fraud case will go no where, why waste the money?
    - gruez 5y ago
      Because of the deterrent effect? If you set the expectation that $2000 of fraud won't be prosecuted because it costs $3000 to do so, then baddies will start doing tons of $2000 fraud.
- Sanzig 5y ago
  Agreed. I think people are already forgetting how frantic the first few months of the pandemic were, despite the fact that it was only a year ago. Governments around the world were placed in a no-win situation: they could do nothing and be criticized for allowing the economy to tank and causing mass unemployment, or they could throw together programs in a hurry without time to build safeguards around them deciding to fix it later. The latter was the right approach, in my opinion. Here in Canada, we have a national unemployment benefits program (Employment Insurance, or EI). Like most such programs around the world, it was wholly unprepared for the volume of applications due to the March/April 2020 lockdowns. So, the federal government introduced the CERB (Canada Emergency Response Benefit), which was a flat $2000 monthly payment offered to anyone who attested they met the eligibility criteria. There was no verification because there wasn't time to put such a system in place without unacceptably delaying release of benefits. Of course, there was plenty of fraud, which the Canada Revenue Agency (Canadian equivalent of the IRS) is in the process of investigating and cracking down on after the fact. IMO, this was exactly the right approach: time was absolutely of the essence. Get the money out, deal with the fraudsters later.
  - mcculley 5y ago
    There were many possible options other than "do nothing" and PPP.
    - anonfornoreason 5y ago
      My business got a ppp loan within 2 weeks of our “lay off five people” timeline. Any slower ppp process and we would have put a terrible burden on five people. Yes there are better programs we could develop. Don’t let the perfect be the enemy of the good.
      - mcculley 5y ago
        We could have even faster just given money directly to citizens. We could have started by refunding their 2019 federal income taxes.
- mcculley 5y ago
  There are many ways we could have routed money back to businesses without using the byzantine process defined by the SBA. This system benefitted banks at the expense of taxpayers, just like the last financial crisis. One fairer approach would have been to just refund everybody's 2019 federal income taxes and let the market figure out how to use it. Instead, we propped up a bunch of businesses that failed anyway. But hey, the banks got a percentage. Edit: To add a disclaimer: I run two companies which each received both PPP loans. I benefitted. My employees benefitted. I still think it would have been fairer to give that money to individuals and not to business owners like myself. Also, there is no reason we would have had to stop at refunding income taxes. That is just something that should have been ridiculously easy for the IRS to do quickly.
  - ceejayoz 5y ago
    > One fairer approach would have been to just refund everybody's 2019 federal income taxes... That sounds incredibly unfair.
    - mcculley 5y ago
      It would be unfair and yet fairer than the PPP, which mostly benefitted banks and corporations.
  - Godel_unicode 5y ago
    You're aware that a significant portion of people and businesses in the United States pay essentially no taxes, right? Especially the more vulnerable parts of society?
    - mcculley 5y ago
      You think it is better that corporations received welfare?
      - sokoloff 5y ago
        If the purpose is to keep payroll flowing to individual people for a while, yes, that’s exactly better than a system that is fairer-sounding but doesn’t accomplish the stated goal.
- sokoloff 5y ago
  Exactly! When the government starts handing out money, we should expect a mix of legitimate and fraudulent applicants. I’d be shocked if literally anything else happened. The key is to get the money quickly to the legitimate users and to ensure the fraudsters eventually do not benefit (and ideally suffer). Eventual consistency is fine for the fraudsters, but you need immediate relief for the legitimate users.
  - gruez 5y ago
    >and to ensure the fraudsters eventually do not benefit (and ideally suffer). How strong is this expectation? eg. for social security or tax refund fraud, what's the conviction/recovery rate?
    - clairity 5y ago
      yah, the risk needs to be high enough to hit a tipping point for mass deterrence. currently it’s much more likely (a couple percent iirc) that middle class americans will be audited (for small amounts, largely automated) than the well-off (~0.1% iirc, even though the population is much smaller). we need to flip those percentages (and more), no matter the cost. we are a rich country, and fairness is actually worth paying for rather than mindless bureaucracy and rote compliance.
      - sokoloff 5y ago
        That does not match data I’ve seen: https://www.nolo.com/legal-encyclopedia/what-are-the-odds-being-audited.html https://www.nolo.com/legal-encyclopedia/what-are-the-odds-be... (increasing audit rates at all levels over $200K in return AGI and over 2% audit rates for all ranges at/over $1M.)
        ceejayoz 5y ago
        https://projects.propublica.org/graphics/eitc-audit https://projects.propublica.org/graphics/eitc-audit > In a baffling twist of logic, the intense IRS focus on Humphreys County is actually because so many of its taxpayers are poor. More than half of the county’s taxpayers claim the earned income tax credit, a program designed to help boost low-income workers out of poverty. As we reported last year, the IRS audits EITC recipients at higher rates than all but the richest Americans, a response to pressure from congressional Republicans to root out incorrect payments of the credit. https://www.propublica.org/article/irs-sorry-but-its-just-easier-and-cheaper-to-audit-the-poor https://www.propublica.org/article/irs-sorry-but-its-just-ea... > On the other hand, auditing the rich is hard. It takes senior auditors hours upon hours to complete an exam. What’s more, the letter says, “the rate of attrition is significantly higher among these more experienced examiners.” As a result, the budget cuts have hit this part of the IRS particularly hard. > For now, the IRS says, while it agrees auditing more wealthy taxpayers would be a good idea, without adequate funding there’s nothing it can do. “Congress must fund and the IRS must hire and train appropriate numbers of [auditors] to have appropriately balanced coverage across all income levels,” the report said.
- deleted 5y ago
  [deleted]
- onlyrealcuzzo 5y ago
  For farms specifically? Or for most small businesses? In that environment, what realistically was going to happen if someone didn't have money for a few weeks? If you couldn't pay your rent - it's not like your landlord would immediately evict you. If you couldn't pay your suppliers, presumably, you wouldn't be able to place more orders - but if you were expecting a major cutback - you were probably planning to cut your orders. What I don't get is... Everyone acts like it would've been the end of the world if we didn't stuff everyone full of money immediately. Why would it have been? I could see it would've been bad if 95% of people would've been able to carry on as usual, and a small number of businesses wouldn't have. They would've got evicted, put into bankruptcy, and so on. Didn't EVERYONE have an interest in not putting EVERYONE into bankruptcy at the exact same time?
  - atonse 5y ago
    I don't know what the research shows, but my intuition says that especially for people in lower socioeconomic classes, many of these things just don't apply, because of the scarcity of money all around. A landlord in a lower income housing situation might be themselves strapped for cash and rely more on that income (as opposed to this being their second investment home), so might be less forgiving of you missing your rent. And people live more paycheck to paycheck. It's hard to remember how much uncertainty there was last spring, about how long this would last, how many would die, or just how catastrophically our economy would collapse. I don't fault the government at all for hastily putting this together. But as others have said, that doesn't mean they shouldn't go after fraudsters now that we have some breathing room. Full disclosure: my 2 person company received a PPP loan and it helped us for the period that it did, especially because our city government client took all of our contract's funds for COVID relief.
jeffrallen 5y ago
Cheaters gonna cheat. That's the cost of a fast system that saved jobs right away. The "technical unemployment" system used in done places in Europe is slightly more robust to these things, but only slightly. I'm glad the governments acted quickly even with fraud as a result.
fdroidmstrrce 5y ago
COVID caused people to avoid their cancer screening until it's too late, wealth inequality up, drug addictions, but we flattened the curve! Half of our city's daycares went out of business, I now pay an extra $5000/year. And flattening the curve didn't save my 80 year old relatives. Both red and blue team should be fired. Elect scientists that won't overreact at fractions of a percent.
JoeAltmaier 5y ago
It's easy to cry "Somebody cheated! So the whole program was worthless." It's rarely true. Sure people cheat. We don't close stores because people shoplift, or shut down the insurance industry when a false claim is discovered. The appeal to indignation is powerful, and the first tool used by bloggers and pundits.
h2odragon 5y ago
I know of a business that asked for $15k, got 10% of that, and was gone within a month back when this stuff opened up. They needed $50k but they were trying to have civic awareness and dharma. "Corruption" used to be understood as corrosive to society...
thoughtstheseus 5y ago
This is why we need direct fed bank accounts.
55555 5y ago
Everyone is defending the gov here. Fair enough. But I think most of you are being optimistic about the enforcement side of things. Probably billions of dollars of fraud were committed. They won't charge or prosecute even 1% of the fraudsters, either by capita or volume of fraud. We have a serious enforcement problem, and the root of that is that the gov is dealing with OPM (other people's money).

58 points by raybb 5y ago

> With speed as its strongest imperative, the effort run by the federal Small Business Administration initially lacked even the most basic safeguards to prevent opportunists from submitting fabricated documentation, government watchdogs have said. > While that may have allowed millions of businesses to keep their doors open, it has also required a massive cleanup operation on the backend. Frankly, I think that's exactly the right way to do it. Speed was of the essence here - a lot of small businesses don't have much of a safety margin to go without revenue for even a few weeks. Consequences for abusing it don't have to be fast to work.

throwaway0a5e 5y ago
Consequences have to actually happen though. I don't see much evidence of that. They'll probably make an example out of the few most flagrant fraudsters but doing that basically screams "we don't care about the fraud as long as it's tactful". Without consequences for the subtle fraudsters it just becomes a big-dig style feeding trough for the morally bankrupt which is the last thing we should be spending our tax dollars providing.
- adkadskhj 5y ago
  perhaps it depends on expected returns. If it's expected a specific fraud case will go no where, why waste the money?
  - gruez 5y ago
    Because of the deterrent effect? If you set the expectation that $2000 of fraud won't be prosecuted because it costs $3000 to do so, then baddies will start doing tons of $2000 fraud.
Sanzig 5y ago
Agreed. I think people are already forgetting how frantic the first few months of the pandemic were, despite the fact that it was only a year ago. Governments around the world were placed in a no-win situation: they could do nothing and be criticized for allowing the economy to tank and causing mass unemployment, or they could throw together programs in a hurry without time to build safeguards around them deciding to fix it later. The latter was the right approach, in my opinion. Here in Canada, we have a national unemployment benefits program (Employment Insurance, or EI). Like most such programs around the world, it was wholly unprepared for the volume of applications due to the March/April 2020 lockdowns. So, the federal government introduced the CERB (Canada Emergency Response Benefit), which was a flat $2000 monthly payment offered to anyone who attested they met the eligibility criteria. There was no verification because there wasn't time to put such a system in place without unacceptably delaying release of benefits. Of course, there was plenty of fraud, which the Canada Revenue Agency (Canadian equivalent of the IRS) is in the process of investigating and cracking down on after the fact. IMO, this was exactly the right approach: time was absolutely of the essence. Get the money out, deal with the fraudsters later.
- mcculley 5y ago
  There were many possible options other than "do nothing" and PPP.
  - anonfornoreason 5y ago
    My business got a ppp loan within 2 weeks of our “lay off five people” timeline. Any slower ppp process and we would have put a terrible burden on five people. Yes there are better programs we could develop. Don’t let the perfect be the enemy of the good.
    - mcculley 5y ago
      We could have even faster just given money directly to citizens. We could have started by refunding their 2019 federal income taxes.
mcculley 5y ago
There are many ways we could have routed money back to businesses without using the byzantine process defined by the SBA. This system benefitted banks at the expense of taxpayers, just like the last financial crisis. One fairer approach would have been to just refund everybody's 2019 federal income taxes and let the market figure out how to use it. Instead, we propped up a bunch of businesses that failed anyway. But hey, the banks got a percentage. Edit: To add a disclaimer: I run two companies which each received both PPP loans. I benefitted. My employees benefitted. I still think it would have been fairer to give that money to individuals and not to business owners like myself. Also, there is no reason we would have had to stop at refunding income taxes. That is just something that should have been ridiculously easy for the IRS to do quickly.
- ceejayoz 5y ago
  > One fairer approach would have been to just refund everybody's 2019 federal income taxes... That sounds incredibly unfair.
  - mcculley 5y ago
    It would be unfair and yet fairer than the PPP, which mostly benefitted banks and corporations.
- Godel_unicode 5y ago
  You're aware that a significant portion of people and businesses in the United States pay essentially no taxes, right? Especially the more vulnerable parts of society?
  - mcculley 5y ago
    You think it is better that corporations received welfare?
    - sokoloff 5y ago
      If the purpose is to keep payroll flowing to individual people for a while, yes, that’s exactly better than a system that is fairer-sounding but doesn’t accomplish the stated goal.
sokoloff 5y ago
Exactly! When the government starts handing out money, we should expect a mix of legitimate and fraudulent applicants. I’d be shocked if literally anything else happened. The key is to get the money quickly to the legitimate users and to ensure the fraudsters eventually do not benefit (and ideally suffer). Eventual consistency is fine for the fraudsters, but you need immediate relief for the legitimate users.
- gruez 5y ago
  >and to ensure the fraudsters eventually do not benefit (and ideally suffer). How strong is this expectation? eg. for social security or tax refund fraud, what's the conviction/recovery rate?
  - clairity 5y ago
    yah, the risk needs to be high enough to hit a tipping point for mass deterrence. currently it’s much more likely (a couple percent iirc) that middle class americans will be audited (for small amounts, largely automated) than the well-off (~0.1% iirc, even though the population is much smaller). we need to flip those percentages (and more), no matter the cost. we are a rich country, and fairness is actually worth paying for rather than mindless bureaucracy and rote compliance.
    - sokoloff 5y ago
      That does not match data I’ve seen: https://www.nolo.com/legal-encyclopedia/what-are-the-odds-being-audited.html https://www.nolo.com/legal-encyclopedia/what-are-the-odds-be... (increasing audit rates at all levels over $200K in return AGI and over 2% audit rates for all ranges at/over $1M.)
      - ceejayoz 5y ago
        https://projects.propublica.org/graphics/eitc-audit https://projects.propublica.org/graphics/eitc-audit > In a baffling twist of logic, the intense IRS focus on Humphreys County is actually because so many of its taxpayers are poor. More than half of the county’s taxpayers claim the earned income tax credit, a program designed to help boost low-income workers out of poverty. As we reported last year, the IRS audits EITC recipients at higher rates than all but the richest Americans, a response to pressure from congressional Republicans to root out incorrect payments of the credit. https://www.propublica.org/article/irs-sorry-but-its-just-easier-and-cheaper-to-audit-the-poor https://www.propublica.org/article/irs-sorry-but-its-just-ea... > On the other hand, auditing the rich is hard. It takes senior auditors hours upon hours to complete an exam. What’s more, the letter says, “the rate of attrition is significantly higher among these more experienced examiners.” As a result, the budget cuts have hit this part of the IRS particularly hard. > For now, the IRS says, while it agrees auditing more wealthy taxpayers would be a good idea, without adequate funding there’s nothing it can do. “Congress must fund and the IRS must hire and train appropriate numbers of [auditors] to have appropriately balanced coverage across all income levels,” the report said.
deleted 5y ago
[deleted]
onlyrealcuzzo 5y ago
For farms specifically? Or for most small businesses? In that environment, what realistically was going to happen if someone didn't have money for a few weeks? If you couldn't pay your rent - it's not like your landlord would immediately evict you. If you couldn't pay your suppliers, presumably, you wouldn't be able to place more orders - but if you were expecting a major cutback - you were probably planning to cut your orders. What I don't get is... Everyone acts like it would've been the end of the world if we didn't stuff everyone full of money immediately. Why would it have been? I could see it would've been bad if 95% of people would've been able to carry on as usual, and a small number of businesses wouldn't have. They would've got evicted, put into bankruptcy, and so on. Didn't EVERYONE have an interest in not putting EVERYONE into bankruptcy at the exact same time?
- atonse 5y ago
  I don't know what the research shows, but my intuition says that especially for people in lower socioeconomic classes, many of these things just don't apply, because of the scarcity of money all around. A landlord in a lower income housing situation might be themselves strapped for cash and rely more on that income (as opposed to this being their second investment home), so might be less forgiving of you missing your rent. And people live more paycheck to paycheck. It's hard to remember how much uncertainty there was last spring, about how long this would last, how many would die, or just how catastrophically our economy would collapse. I don't fault the government at all for hastily putting this together. But as others have said, that doesn't mean they shouldn't go after fraudsters now that we have some breathing room. Full disclosure: my 2 person company received a PPP loan and it helped us for the period that it did, especially because our city government client took all of our contract's funds for COVID relief.

jeffrallen 5y ago

Cheaters gonna cheat. That's the cost of a fast system that saved jobs right away. The "technical unemployment" system used in done places in Europe is slightly more robust to these things, but only slightly. I'm glad the governments acted quickly even with fraud as a result.

fdroidmstrrce 5y ago

COVID caused people to avoid their cancer screening until it's too late, wealth inequality up, drug addictions, but we flattened the curve! Half of our city's daycares went out of business, I now pay an extra $5000/year. And flattening the curve didn't save my 80 year old relatives. Both red and blue team should be fired. Elect scientists that won't overreact at fractions of a percent.

JoeAltmaier 5y ago

It's easy to cry "Somebody cheated! So the whole program was worthless." It's rarely true. Sure people cheat. We don't close stores because people shoplift, or shut down the insurance industry when a false claim is discovered. The appeal to indignation is powerful, and the first tool used by bloggers and pundits.

h2odragon 5y ago

I know of a business that asked for $15k, got 10% of that, and was gone within a month back when this stuff opened up. They needed $50k but they were trying to have civic awareness and dharma. "Corruption" used to be understood as corrosive to society...

thoughtstheseus 5y ago

This is why we need direct fed bank accounts.

55555 5y ago

Everyone is defending the gov here. Fair enough. But I think most of you are being optimistic about the enforcement side of things. Probably billions of dollars of fraud were committed. They won't charge or prosecute even 1% of the fraudsters, either by capita or volume of fraud. We have a serious enforcement problem, and the root of that is that the gov is dealing with OPM (other people's money).