$39 billion of stimulus unemployment benefits were likely wasted by inefficient state governments, watchdog finds

unemployment insurance weekly benefits stimulus checks recession job losses coronavirus pandemic
Carlos Ponce joins a protest in in Miami Springs, Florida, asking senators to continue unemployment benefits past July 31, 2020.

  • The Office of the Inspector General estimated $39 billion in unemployment benefits from the CARES Act were wasted.
  • The watchdog cited insufficient staffing and antiquated technologies that failed to detect improper payments.
  • GOP-led stated are ending Biden’s $300 weekly benefits early to get people back to work.
  • See more stories on Insider’s business page.

Under the CARES Act in March, Americans received $600 weekly unemployment benefits to help offset the financial strain brought on by the pandemic. But a recent report from the federal watchdog found states had difficulty distributing those benefits and likely ran up $39 billion in improper payments.

On May 28, the Office of the Inspector General released a report analyzing how states implemented key unemployment insurance programs from the CARES Act, including Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC), and Federal Pandemic Unemployment Compensation (FPUC).

The report noted that since 2008, unemployment benefits programs have run an improper payment rate of 10%, and if that continues, “at least $39.2 billion in CARES Act funds will have been improperly paid and wasted, instead of benefitting those for whom the new UI [unemployment insurance] programs were intended.”

It also found that the Labor Department’s oversight did not ensure states implemented the programs and paid benefits promptly. “As a result, unemployed individuals experienced financial hardships due to delays in receiving benefits,” the report said. “As of January 2, 2021, we estimated at least $39.2 billion in improper payments, including fraud, were at risk of not being detected and recovered, and could have been put to better use.”

Here are the main findings of the report:

  • From the passage of the CARES Act to to the first payment claim, it took on average 50 days for PEUC, 38 days for PUA, and 25 days for FPUC to be distributed;
  • 40% of states did not perform required crossmatches to detect improper payments;
  • 42 states did not report overpayments, and
  • Of the states that did report, the total amount reported was understated by 89%.

The watchdog said the problems with the program were likely due to insufficient staffing levels and antiquated technology that hindered detection of fraudulent payments.

While this report analyzed unemployment benefits distribution under President Donald Trump, it comes at a time when an increasing number of GOP-led states are ending President Joe Biden’s $300 weekly benefits early following a weak April jobs report, with the argument that the benefits disincentivize work.

However, Insider reported last week that May saw an increase in payrolls, and that data was collected before the benefit cuts went into effect, suggesting they might not be discouraging work as much as Republicans argue.

Some Democrats are even pushing for continued unemployment benefits tied to economic activity beyond the pandemic, although Biden said in a speech on Friday that while the benefits have been effective thus far, “it makes sense” for them to expire in September.

“A temporary boost in unemployment benefits that we enacted helped people who lost their jobs through no fault of their own, and who still may be in the process of getting vaccinated,” the president said in brief remarks following the May jobs report. “But it’s going to expire in 90 days – it makes sense it expires in 90 days.”

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PPP paid over 4,000 businesses twice, government watchdog says – and they’ll have to pay it back

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  • The Paycheck Protection Program distributed over 4,000 duplicate loans in 2020, the OIG found.
  • Between April and August 2020, 8,731 PPP loans were duplicates, totaling about $692 million.
  • Of the 4,260 duplicate borrowers, 2,689 had the same tax ID and 1,571 had the same name and address.
  • See more stories on Insider’s business page.

The Paycheck Protection Program was established under the CARES Act to provide aid to small businesses suffering during the pandemic. But it provided too much aid, it turns out.

But the Office of the Inspector General (OIG) found that the Small Business Administration’s program has a major flaw: duplicate loans.

A report released on Monday by the Office of the Inspector General (OIG), a government watchdog, found that of the PPP loans approved between April 3 and August 19, 2020, lenders made more than one loan disbursement to 4,260 borrowers, including 2,689 borrowers with the same tax identification number and 1,571 borrowers with the same name and business address. Those potential duplicate disbursements totaled about $692 million and involved 8,731 PPP loans.

The SBA responded to the findings in the report by saying it will resolve duplications by recovering improper payments and and preventing loan forgiveness on the duplicate loans. That means small businesses will have to give back the duplicate loans, if they can.

According to the report, the SBA identified issues in 2020 that had caused duplicate loan applications to be processed. The SBA had turned off controls for its electronic loan application system, leading to duplication, even though the office had said it would rely on loan reviews to eliminate the issue. The report looked at the PPP’s first round in August 2020.

“Establishing strong controls to prevent improper or duplicate disbursements from occurring during initial loan processing is more effective than attempting to identify and resolve improper disbursements in the loan review phase,” the report said. “SBA’s efforts should focus on safeguarding funds up front, as it is more prudent and effective to prevent a loan from occurring than attempting to recover funds after the loan has been disbursed.”

The OIG recommended that the SBA:

  1. Review potential duplicate loans and take action to recover any improper payments;
  2. Review controls related to all PPP loans to ensure duplicate loans are not forgiven;
  3. Strengthen the SBA’s loan servicing portal controls for future PPP-type programs;
  4. And strengthen controls and guidance for lenders to ensure lenders meet program requirements.

The House Select Subcommittee on the Coronavirus Crisis had requested that the OIG conduct the report to review the vulnerabilities in the SBA’s loan processing system.

Along with the duplicate loans, the PPP faced issues shortly after it was implemented in March, famously including fast-food chain Shake Shack receiving a $10 million loan it ultimately gave back, despite the loans being intended for businesses with 500 employees or fewer.

However, lawmakers have advocated for the PPP and its importance in helping small businesses recover financially from the pandemic. In the $1.9 stimulus plan President Joe Biden signed on Thursday, $50 billion was set aside for small businesses, with $7.25 billion to be used specifically for the PPP.

And the House Small Business Committee on Thursday introduced legislation to extend the PPP through May 31, ahead of its current expiration date on March 31.

“The demand for PPP loans right now is a testament to the program’s effectiveness and the lingering impacts of this pandemic,” Small Business Committee Chair Nydia Velázquez said in a statement. “That’s why we cannot cut off aid now and this short-term extension is so important.”

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