Colorado officials know widespread fraud has diverted millions of dollars from COVID-19 relief programs that have poured into the state over the past two years. Now it’s a question of what to do about it.
Authors have taken on deep-pocketed programs like increase in unemployment benefits and the Paycheck Protection Program. These relief efforts were rolled out quickly with few safeguards at first to deter fraudsters, as leaders focused on moving money quickly to those in need.
Exactly how much money was stolen in Colorado may never be known. A state audit report found that between March 2020 and April 2021, the Colorado Department of Labor and Employment (CDLE) paid out over $73 million in unemployment claims that were likely fraudulent. This report only covers the first year of the pandemic and only the unemployment program.
In April 2021, the CDLE estimated to have uncovered 1.2 million fraudulent claims compared to only 1 million legitimate claims since March 2020. A large majority of bogus claims have been stopped, but some may have been successful and diverted an unknown portion of the $11.8 billion in federal and state unemployment benefits paid during the pandemic in Colorado.
the Paycheck Protection Program, which provided businesses with repayable loans intended to help them stay afloat and keep workers on their payrolls after the virus decimated the economy, has brought more than $15 billion in federal money into the state. It was also a prime target for scammers. The experts quoted in a recent NBC News story estimated that $80 billion – about 10% of all PPP money distributed across the country – was ripped off by fraudsters. If this estimate is correct, it would mean that $1.5 billion was stolen in Colorado.
With state and municipalities still planning to pass on more federally funded grants and loans under COVID relief programs, more fraud is likely, Colorado Attorney General Phil Weiser said.
“It’s not about whether there is fraud. We know from experience that there is fraud,” Weiser said earlier this month. “The question is how to create the structures to detect and prosecute fraud. Identifying these fraudsters and holding them accountable is a top priority for us.
Holding perpetrators accountable may depend on the hemisphere in which they reside.
Jason Zirkle, director of training for the Association of Certified Fraud Examiners, expects the full extent of COVID-19 relief program fraud to take years to unravel. He is confident that the total will be in the billions. In his view, much of the theft was the work of fraud rings with several people working in tandem to scam any relief program that could be exploited. He is also convinced that many networks were not based in the United States. That means prosecution and recovery will be difficult, to say the least.
“It’s complete speculation on my part, but I’m willing to bet, knowing what I know about consumer fraud in general, that half of that money went overseas,” Zirkle said. “At this stage, it’s practically impossible.”
The Attorney General’s office has a task force dedicated to investigating potential criminal activity in the state’s unemployment system. Four staff members are regularly dedicated to this work, Weiser said. The task force is working with the Department of Labor and the Colorado Bureau of Investigation to comb through datasets, identify suspicious activity, initiate prosecutions and, hopefully, restitution.
“I believe we have a responsibility to get that money back and make sure it’s spent properly,” Weiser said.
The task force referred 17 cases to prosecutors in its first year, the AG’s office announced last month. Cases are handled by the U.S. attorney’s office and local district attorney’s offices, sometimes with assistance from the attorney general’s office, Weiser said.
Together, these 17 cases represent more than $300,000 in unemployment benefits that may have been obtained illegally. That’s a tiny fraction of the amount the state audit report estimates the scammers took in the first year of the pandemic alone, but some of that investigative work should yield bigger returns. .
According to Weiser’s office, two cases handled by the U.S. Attorney’s Office in Colorado covered not only unemployment fraud, but also PPP fraud and fraudulent claims for Economic Injury Loans, or EIDLs, from the U.S. Small Business Administration. The defendants in both cases pleaded guilty. Pending the results of a sentencing hearing in one of those cases later this month, the perpetrators could be ordered to pay more than $1.5 million in combined restitution to the federal government and near $70,000 to the state labor department.
The Small Business Administration generally does not release information about active fraud investigations because legal action may be pending, said Chris Chavez, a Denver-based agency spokesman. With that in mind, the SBA had no information to release about potential scams impacting COVID relief programs in Colorado.
There are warning signs that investigators can and likely are looking at, Zirkle said. With unemployment fraud, a major red flag would be multiple claims from the same or similar addresses. With PPP, any application for a company created in March 2020 or later would warrant at least one investigation, he said.
In Colorado, 6.4% of PPP loans, more than 12,300 in total, went to businesses two years or less, according to an analysis by the Denver Post. This is only in cases where the loan recipient has disclosed the age of the business. Just under 5% of PPP recipients in the state did not state how long their businesses had been in business. Even though a large majority of these loans went to legitimate companies, the sheer volume of loans creates a sizable haystack that fraud investigators have to comb through.
On April 1, SBA Chief Isabella Casillas Guzman announced new steps the agency was taking to crack down on fraudsters and protect its taxpayer-funded programs. These included the hiring of legal counsel specializing in the area and the creation of a fraud risk management board dedicated to oversight. The agency is also supporting the Department of Justice and its own COVID-19 fraud enforcement task force.
“Throughout the first year of the Biden-Harris administration, the SBA has taken significant steps to close the door on fraud, waste and abuse and ensure that billions of dollars in funded COVID relief by taxpayers reach small business owners,” Guzman said in a statement.
This is a nationwide approach to creating the structures that Weiser focuses on at the state level. With the state’s unemployment program under review last spring, the Colorado Department of Labor and Employment has contracted the company ID.me verify the identity of each applicant.
This reduced new fraud and freed up investigators to deal with existing cases, Weiser said.
The next step Weiser hopes the state will take will come to the Capitol. There, the bipartisan-backed Colorado False Claims Act, Internal Bill 22-1119, progresses in the legislative process. Modeled after the federal misrepresentation law, if passed, the law will incentivize whistleblowers who report fraudsters targeting the state.
Even without that bill on the books, Weiser hopes the Coloradans take cheating seriously. He welcomes suggestions for best fraud mitigation practices. These can be submitted through the site stopfraudcolorado.gov. He also hopes people will contact law enforcement if they become aware of suspicious activity.
“I often say that our democracy is a team sport. We need committed people,” he said. “(Our) most impactful work is when people step up and report the wrongdoing they see.”
Denver Post writer Aldo Svaldi contributed to this report.