Legislation intended to reward pandemic fraud whistleblowers highlights clawback challenges

The OIG has estimated that the SBA gave out $200 billion in fraudulent COVID-19 loans. A fraction of that amount has been recovered.

Published: June 16, 2024 11:04pm

(The Center Square) -

A bill designed to help authorities claw back federal pandemic aid lost to fraud underscores the challenges associated with getting money back after it has been sent out.

The Congressional Budget Office estimated H.R. 7129 could bring in $123 million through new civil penalties over the next decade, but the report highlighted uncertainty about how much of that money would realistically be collected.

The Office of Inspector General has estimated that the Small Business Administration gave out $200 billion in fraudulent COVID-19 loans. A fraction of that amount has been recovered. For cases of COVID-19 loan fraud between March 2020 and March 2024, the government has collected $1.2 billion in asset forfeitures and recoveries, according to the OIG and CBO report. In addition, $673 million in restitution and $4 million in fines were ordered, but not necessarily collected.

"The SBA has not provided CBO with information on the amounts of COVID loans involved in convictions, settlements, or plea agreements," according to the report. "As a result, CBO cannot determine the amount of fraudulent loans that have been recovered, nor the civil or criminal penalties that have been collected rather than merely imposed."

H.R. 7129 would establish the Office of Whistleblower Awards within the Small Business Administration. The office would collect information from the public about financial misconduct related to certain COVID relief loan and grant programs and submit that information to the SBA's Office of Inspector General. The measure also would direct the Treasury to establish a Whistleblower Award Fund for civil monetary penalties and other amounts collected when the information leads to a conviction, settlement, or plea agreement. The whistleblower would receive a portion of the amount recovered from information they provided if certain conditions are met. For any conviction, settlement, or plea agreement for fraud related to loans or grants for COVID relief, H.R. 7129 would impose a new civil monetary penalty equal to 30% of the grant or principal amounts of the relevant loans.

Those new civil penalties would bring in an estimated $123 million over the next decade. But there are some caveats.

"The additional civil monetary penalties that would be collected under the bill depend on future convictions and recoveries related to fraud in the SBA's COVID relief programs," according to the CBO report. "The number of fraud cases that will be successfully prosecuted in the future is uncertain, as is the share of ordered penalties that the government will actually collect."

The bill also comes with costs. It would increase direct spending by $15 million over the next decade. CBO estimated it would cost $9 million over the 2024-2034 period to administer the office and another $6 million in payments to whistleblowers. Operating the newly-minted office would cost about $1 million a year or roughly $250,000 per year per employee for four employees.

The measure has 16 co-sponsors, but has yet to advance in the legislature.

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