Confronted with the economic catastrophe of the Covid pandemic, the federal government agreed in 2020 to pump out the astonishing amount of more than $6000 for every American man, woman and child to prop up and revive the country’s then-stalled financial system.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 and a subsequent appropriation at the end of that year provided unprecedented fast and direct economic assistance for individuals, organizations, small businesses, and industries.
Well-intentioned CARES legislation was passed in a panic, explained California general counsel for fraud investigation McGregor Scott. “It created wide lanes for fraudsters to drive down.”
One California man took this metaphorical explanation more literally than most. An IRS release described a guy who obtained five million dollars in CARES money for sham businesses and then spent the proceeds on Ferrari, Bentley and Lamborghinis. He’s been sentenced to four and a half years in prison.
By most measures, the $2.3-trillion CARES intervention worked. The American economy has rebounded faster than any other, and the Federal Reserve seems on course to achieving the “soft landing” to which it has aspired, taming inflation while keeping the unemployment rate low.
The path to recovery hasn’t been painless, though. Large segments of the population report feeling worse off than before and intend to express their discontent at the ballot box this November.
“What’s going on in the present always influences interpretations of the past,” said Harvard history professor Alexander Keyssar. “But it’s the interpretations of the past that shape how you see the present.”
Biggest fraud in history
An article by Christa Case Bryant in the April 3, 2023 Christian Science Monitor estimated that as much as $560 billion – or nearly 20 percent of the CARES total – could have been stolen, the biggest fraud in U.S. history. Most estimates have been lower. In June of that year, the Associated Press came up with a figure of $403 billion. There’s no question that CARES-related losses caused by fraud have been enormous.
What has the government been doing about the massive maldistribution of public monies?
Two things, said Bryant’s article. Catching those who committed fraud, particularly the sophisticated criminals and syndicates that saw easy opportunities. And secondly, “seeking to address longstanding vulnerabilities in government benefit systems that such cases have brought into stark relief.”
The Government Accounting Office (GAO) reported last November that 2191 cases of fraud had been initiated by June 2023, resulting at that time in at least 1525 convictions — the median penalty being more than one year in jail and less than five. Conspiracy (shell entities), conspiracy (fabricated documents), mislabeling (selling products that didn’t do what they promised) were rampant. Identity theft and mail fraud were common.
Partaking in the illicit pandemic gold rush were foreign criminal syndicates, federal prisoners applying under fake names like Poopy Pants, and individuals buying personal data for pennies in the dark corners of the Internet.
Tales of the brazen behavior of many of the fraudsters have caught the public fancy. The salacious details of this past need little interpretation. Thievery rarely does, unless, of course, it is perpetrated by a presidential candidate promising a populist crusade of retribution against a thoroughly corrupt society of which he has long been an enthusiastic member.
Audit slams county program
Ulster County comptroller March Gallagher’s audit of the local CARES I grant program to small businesses, which came out March 11, said several significant issues had been uncovered. “Deviations from eligibility requirements and misalignment of expenditures with legislative intent were identified,” Gallagher wrote. “Findings revealed grants awarded to ineligible recipients, including those who exceeded the income threshold and those residing outside of Ulster County.”
It’s the job of a comptroller to find fault with programs and to call for increased oversight and greater accountability. The local media picked up on the censorious tone customary in any thorough audit.
“Nearly one-quarter of Ulster County awardees in a federal grant program designed to help small and medium businesses through the pandemic were not eligible for the funding,” repeated the reliable Philip Pantuso of the Albany Times-Union.
The fact that much worse rascallery was being committed elsewhere is scant excuse.
National, state objectives met
“We believe it is important to stress that the CARES I grant program successfully provided $932,075.59 of funding to 32 businesses located in Ulster County who met the national and New York State objectives of job creation or retention in the immediate wake of the Covid-19 pandemic,” responded deputy county executive and CEO of the county Economic Development Alliance Amanda LaValle the day after the audit report became public. “It is also critical to note that the award set up reimbursement request and payment documentation as well as [that] two annual performance reports were submitted to and approved by New York State. All but one awarded business was able to document their use of grant funding in meeting those objectives.”
The ineligibility for funding was in all except possibly one case not because of lack of adherence to national and state objectives but because adopted county law required owner residency and/or stipulated income thresholds. LaValle disagreed with the audit’s criteria of eligibility. She said her office felt that applications that met state and national – but not county — objectives were eligible for awards.
The funds for a 33rd grant, a $15,000 approved award to a tee-shirt company, had to be reimbursed to the state by the county government because of a lack of documentation. This potentially fraudulent application continues under review. The company’s business agent was Vincent Cozzolino, an Ulster County resident sentenced in 2021 to five years’ probation and a million-dollar fine for corrupting the government in Orange County.
The audit identified one grantee as an out-of-county business owner who used the funds to furnish an Airbnb facility, including the purchase of an antique armoire bookcase, a washer-dryer combo, bed linens and outdoor teak furniture.
LaValle said the inclusion of facilities for short-term rentals as an eligible business type “could be seen, in hindsight, [as] ill-advised.” But she noted that the county legislature hadn’t specifically excluded businesses with impacts contradictory to legislative priorities, and that the county resolutions authoring the contracts “contained no additional legislative priorities or additional program intent.”
Whether county legal transgressions require criminal trial is for the district attorney to decide. Prior to last November, contender Mike Kavanagh expressed interest in pursuing the question. Elected district attorney Manny Nneji hasn’t yet returned an email asking for his view.
Learning from the past
We all try to learn from the past so that we don’t make the same mistakes again. But new variations of old mistakes and new mistakes lurk around every corner.
Last March, president Joe Biden proposed an expenditure of $1.6 billion to cut down on those who committed fraud and more generally all those who were taking illegal advantage of government-benefit systems. He proposed $600 million for prosecuting serious offenders, $600 million for better prevention of identity theft and fraud involving public-benefit programs, and $400 million for help to victims of identity theft.
As the White House sought to explain it, “past underinvestment in basic government technology and the crush of demand during the pandemic, combined with ill-considered decisions to take down basic fraud controls at the onset of the pandemic led to a historic degree of outright fraud and identity theft of emergency benefits.”
The administration said its proposal was intended to support further cooperative efforts to prevent fraud from taking place in the first place rather than the present chase-and-pay system. What Washington was seeking was “a model for how to manage large-scale emergency spending initiatives and balance the need for robust independent oversight with timely program implementation.”
Join the family! 
