In what was one of the first hearings of the new Congress, the House Committee on Oversight and Accountability convened to investigate the “rampant waste of taxpayer dollars in [COVID-19] relief programs.” Chief among the programs considered was the Paycheck Protection Program, or PPP. As I explained in a new briefing paper, there was a clear failure of federal oversight for the PPP during the pandemic and an evaluation of the issues has been long overdue.
Gene Dodaro, Comptroller General of the U.S. Government Accountability Office (GAO), set the hearing off on the right foot when he said the primary issue was that “Agencies should have been much better prepared in order to prevent fraud in the first place.” Small businesses shouldn’t have had to navigate what Zachary Warmbrodt at Politico described as a “roller coaster” of “ever-changing rules and shifting deadlines.” In fact, Representative Nancy Mace (R‑SC) pointed out this issue well while noting how “guidance was vague” and led to “integrity concerns” that likely exacerbated the risks of fraud.
Unfortunately, the root of the issue has been clear since the programs were first launched. As Representative James Comer (R‑KY) noted, “Congress…spent far too much time pushing money out the door and far too little time conducting meaningful oversight of how that money [was] being spent.”
To get a better understanding of just how obvious the issue was, consider the following statements from officials who immediately warned about the risks of fraud and waste in the PPP when it was first getting off the ground:
“To streamline the process, [the] SBA required minimal loan underwriting from lenders…leaving the program more susceptible to fraudulent applications. [Reliance on] applicant self‐certifications can leave a program vulnerable to exploitation.” — GAO
“[The] SBA’s management continues to insist that its controls are robust despite overwhelming evidence to the contrary.” — Office of Inspector General (OIG)
“Management did not adequately design and implement controls to ensure PPP loans guarantees approved [were in existence and accurate.]” — KPMG LLP (an independent auditor hired by the SBA)
These warnings should not have been ignored, but they were time and time again. In fact, Dodaro told Representative Gary Palmer (R‑AL) that it was so hard for the GAO to get information and responses from the Small Business Administration (SBA) in 2020 and 2021 that he had to go to the Congressional small business committees to get help.
This type of conduct is exactly why the lack of oversight for the PPP should have never been allowed to persist. It is unfortunate that a representative of the SBA was not present for the hearing, but Representative Comer deserves credit for opening the 118th Congress with a hearing dedicated to the oversight of the PPP and other pandemic programs—especially considering the previous leadership never held such a hearing with the Committee on Oversight and Accountability.
With that said, there is still much to be done to establish accountability for the pandemic programs. As Congress moves forward it will be critical that it keeps in mind both its role and the role of agencies in creating an environment so conducive to fraud. More so, although the PPP was a half-step removed from the government directly offering loans to American citizens, the program should serve as a cautionary tale for why the government should stay out of retail services. Central bank digital currencies (CBDCs), FedAccounts, and Postal Banking have all been increasingly proposed in recent years. However, the fraud and waste within the PPP suggests that the federal government has neither the capacity nor the ability to safely and efficiently offer these services.
To read my briefing paper (Fintech Fraud or Federal Failure? How the Paycheck Protection Program Became a Source of Confusion and Crime) click here.
