❮ Return to Our Work

Op-Ed | The American Prospect | June 15, 2023

Pandemic Fraud Is Really, Truly, Not A Big Deal

CoronavirusExecutive BranchIndependent Agencies
Pandemic Fraud Is Really, Truly, Not A Big Deal

Congress’s response to the COVID-19 economic downturn was the greatest success story of domestic economic policy in our lifetimes. Even as millions couldn’t work, poverty fell to its lowest level since 1967 thanks to three stimulus bills geared toward helping workers first. Millions earned more from unemployment insurance than their minimum-wage jobs, and for perhaps the first time ever, they had the time and opportunity to trade up into better-paying, more fulfilling work. Americans got a brief glimpse of what a better, kinder economy might look like.

But as soon as (thank God) mass vaccination arrived, that world was ripped away. The Supreme Court ended the federal eviction moratorium. Sen. Joe Manchin’s wild imagination about parental drug use killed the Child Tax Credit, and child poverty predictably shot back up to shameful levels. The end of increased federal funding for Medicaid will eventually kick nearly 20 million of the poorest Americans off health insurance; millions more also lost increased nutrition assistance benefits. America’s “pop-up welfare state,” in the memorable words of Eric Levitz, has tragically closed up shop.

This has made life materially worse for millions of people. It’s also gone almost entirely unreported. The endings of each individual policy got some write-ups, but the impact of an expanded welfare state receding just a few years after it was cobbled together hasn’t really been explored as a unified event, as inflation rates and the debt ceiling standoff have taken up the economic media’s focus.

However, there is one aspect of these programs to which the media has shown consistent, obsessive attention.

On Monday, the Associated Press published a blockbuster feature titled “The Great Grift: How Billions in COVID-19 Relief Aid Was Stolen or Wasted.” The feature opens with cinematic scene-setting: “Much of the theft was brazen, even simple.” We’re told that “criminals and gangs grabbed the money” as part of “the greatest grift in U.S. history.”

The feature is part of a whole subgenre of journalism about the scourge of pandemic program fraud. Last August, The New York Times published a front-page, above-the-fold story decrying “billions of dollars stolen by thousands of people.” The story is rife with salacious anecdotes about fraudsters buying rare Pokémon cards and posting YouTube raps about their crimes. “The fraudsters are bold,” warned NBC’s Lester Holt last March, over images of Lamborghinis and private jets. “The immense sums being dispersed proved irresistible for criminal gangs,” scolded the Bloomberg Editorial Board last JulyFox News was predictably the least subtle about it: Harris Faulkner grumbled that “despite those stolen billions, Americans are not going back to work.”

The extraordinary prevalence of these stories would imply that the fraud rates in the pandemic programs are one of their most notable aspects. But how much of the panic around fraud is warranted?

According to the AP, “Combined, the loss represents 10% of the $4.2 trillion the U.S. government has so far disbursed in COVID relief aid.” Meanwhile, under non-pandemic conditions, U.S. unemployment insurance systems lose about 10 percent of their annual funds to fraud every year.

The AP arrives at its 10 percent number by combining $115 billion in unemployment “mistakes,” which “went to people who should not have received the benefits,” with a smaller amount of unemployment fraud. It also adds in a professor’s study of $117 billion in “questionable and possibly fraudulent loans” from the Small Business Administration’s Paycheck Protection Program, when only $20 billion has been documented by the SBA’s inspector general.

If you focus solely on what’s actually named as fraud in the story, you get a little over 4 percent of the total amount disbursed. Given the lack of coverage on the other 96 percent, this seems like a misplaced focus.

An even more absurd admission comes a few paragraphs later: “An $837 billion IRS program, for example, succeeded 99% of the time in getting economic stimulus checks to the proper taxpayers, according to the tax agency.” Why on earth are we criticizing a program with a 99 percent success rate? That’s not a scandal, it’s an inspiration!

By focusing on the (inflated) total defrauded, reporters are using big-sounding numbers without any context to try to scare the public. The fraud numbers are higher than ever because the total amount disbursed through these programs was higher than ever. As each of these stories eventually admits, the relative amount of money defrauded from each pandemic program is minuscule. Compare the amount of money that reached the people who needed it to the amount lost to fraud, and the pandemic programs look like a truly phenomenal accomplishment.

Even the amount lost to fraud is chump change in the world of federal budgets. For instance, the SBA inspector general estimates that $20 billion of the PPP loans were lost to fraud. Compare that to the Pentagon’s F-35 program, which had cost $400 billion as of 2020, and is producing planes so riddled with bugs that experts say they’ll probably never be combat-ready. Just one corner of the military-industrial complex causes 2,000 percent more waste. But because it happens over years, doesn’t involve Lamborghini purchases, but does involve the military, it doesn’t get the same histrionics.

Much of the Pentagon’s budget goes to contractors who famously overcharge for basic products: $640 toilet seats, $7,600 coffee makers, spare parts overpriced by 3,600 percent, and more. The Pentagon in 2016 internally identified $125 billion in administrative waste over five years. And it’s never once passed an audit. If one is on the fraud beat, this is where to look.

Moreover, if one is scandalized by the notion that 10 percent of unemployment insurance funding goes to fraud under even normal circumstances, then one should ask why that is. On the eve of the pandemic, funding for state unemployment systems was at a 30-year low. North Dakota had to hire programmers from Latvia to find anyone trained on the archaic coding language used for its UI systems. Many of the problems with UI are symptoms of the fact that it’s not one federal program but 53 wildly different state and territory-level programs, which all constantly face systematic disinvestment.

Likewise, the Paycheck Protection Program was administered by the Small Business Administration, which had the lowest budget of any federal agency at the time, and has long been a problem child inside the federal government. Generally, failure to catch fraud is a symptom of agency disinvestment—the kind of agency disinvestment at which no one batted an eye in the debt ceiling deal.

These pandemic fraud stories always open with imagery of gaudy criminals making indulgent, tacky purchases, or else they raise the specter of “gangs” stealing taxpayer money. The villains here aren’t just bad because they committed fraud, but because they lack fine taste. The whole thing smacks of 1990s “welfare queen” hysteria. Then as now, mostly middle- and upper-class reporters at large outlets were incensed at the prospect of a tiny handful of undeserving poor people wasting their taxpayer dollars. The millions of lives saved by these safety-net programs are a side story.

There’s also a false-balance aspect to these stories: Mainstream outlets terrified of being called liberal can claim their “View From Nowhere” bona fides by criticizing big government spending programs, especially by decrying fraud, which everyone agrees is bad.

Some reporters also simply fell for a grift. Axios thundered in June 2021 that “unemployment fraud during the pandemic could easily reach $400 billion, according to some estimates”—really just one estimate, from Blake Hall, CEO of ID.me, which sells anti-fraud software to state and federal governments. Legitimate beneficiaries struggled to receive their checks in virtually every state with an ID.me contract, and that was before CyberScoop found that Hall lied about his use of intrusive “one-to-many” facial recognition via Amazon’s Rekognition system, which has been criticized as racially biased.

Finally, there’s the classic media bias toward negativity. Journalism is made up of stories, and stories require conflict. But there is a ready-made conflict in the pandemic response success story: Why haven’t we been doing things like this all along?

Amid a once-in-a-century global pandemic, Congress prioritized helping billions of newly unemployed people and produced some of the best conditions for low-wage people in recent history. In terms of waste, it cost about as much as one would expect for an emergency response of its size with an eye toward accelerating benefits to suddenly needy people. This is wonderful news, an absolutely stunning victory of economic policy. Personally, I’d take fraud rates twice as high to get such a good deal.

To state the obvious, it is bad to defraud the government, and it is good that the money is being recovered. But this is simply less notable than the millions of people whose lives were saved and improved by these programs. More notable still is that these programs were stripped away as soon as mass vaccination arrived, and hardly anyone in politics or media thought to ask whether that makes sense.

It’s a well-known trend that Americans tend not to think of themselves as beneficiaries of government services, while looking down on others who more visibly benefit. There are many reasons for this, but one of them is a media that only talks about the welfare state when it’s castigating the relatively tiny number of people who abuse it. The takeaway from the pandemic response should not be that the needy had it too good, but that we could have provided for the needy all along.

PHOTO CREDIT: “The Counterfeit Caper” by ShellyS is licensed under CC BY-NC-SA 2.0.

CoronavirusExecutive BranchIndependent Agencies

More articles by Max Moran

❮ Return to Our Work