Misuse of taxpayer funds happens for a variety of reasons. Sometimes the government doesn’t achieve a goal in the most efficient way. Sometimes, efforts are duplicated, or work is lost and has to be performed again. Identifying misuse of funds, and preventing future misuse of funds, is one of the most important jobs of Inspectors General.
In many cases of misuse, the government is on the losing end of a transaction. When the government duplicates efforts, for instance, contractors are paid twice. A recent GAO report on the SBA’s Paycheck Protection Program (PPP) identifies a rare instance of misuse of funds where everyone may end up losing.
The PPP program was rolled out at breakneck speed due to the impending economic crisis following the COVID-19 shutdown. Businesses were desperate for the forgivable loans to avoid bankruptcy, but the program was launched before even the broad outlines were clear. As a result, the GAO has found that the it’s likely that many recipients will “misuse or improperly receive loan proceeds.”
What’s unique about this situation is that many businesses using these funds improperly may have no idea they’re doing so. The banks that underwrote the loans were discouraged from extensive financial scrutiny to determine ability to repay the loans, so businesses who shouldn’t have qualified may have been granted a loan anyway. The businesses who received these loans and used the proceeds improperly may have used them in good faith but been confused about the requirements. In fact, the terms on how the money could be used and when it must be repaid both changed after the loan program initiated, leading to many businesses dropping out of the program out of fear they may end up with a ‘forgivable’ loan on the books instead.
Some businesses who ‘misused’ these loans applied for them thinking that they would be forgiven and will discover they must be repaid. The extra financial burden of a loan repayment during a recession may be enough to tip the business into bankruptcy. And while some of this misuse may be legitimate fraud, much of it will likely be due to confusion and misunderstanding, which is unfortunate for business owners facing a challenging enough environment without having to deal with this as well.
Despite the large amount of money at risk of improper use, it’s unfair to place too much blame on the SBA. They simply weren’t given enough time to design and implement a massive and complex loan program. But one lesson that may come out of the PPP is that it’s difficult to define misuse of taxpayer money unless proper use is defined before the program launches.
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