SALT LAKE CITY — Did a hurried process to make available hundreds of billions of dollars in federal emergency COVID-19 funding open the door for scammers in Utah and across the country?
It’s not clear how much of the $5.2 billion in potentially forgivable Paycheck Protection Program loans disbursed in Utah may have gone to fraudulent applicants, but the first of those cases popped up in federal court last week.
And the watchdog charged with overseeing how taxpayer money is doled out through federal efforts like the Paycheck Protection Program warned in a report released last month that the stimulus-backed $670 billion effort embraced an application process that made it ripe for grifters.
“Because of the number of loans approved, the speed with which they were processed, and the limited safeguards, there is a significant risk that some fraudulent or inflated applications were approved,” wrote the U.S. Government Accountability Office. “In addition, the lack of clear guidance has increased the likelihood that borrowers may misuse loan proceeds or be surprised they do not qualify for full loan forgiveness.”
In its review of the Paycheck Protection Program, an effort overseen by the U.S. Small Business Administration and U.S. Treasury Department, the GAO’s report titled COVID-19: Opportunities to Improve Federal Response and Recovery Efforts noted concerns about the program’s reliance on a self-reporting process that was not subject to verifications ahead of loan approvals.
“As we note in the report, we have previously reported that reliance on applicant self-certifications can leave a program vulnerable to exploitation by those who wish to circumvent eligibility requirements or pursue criminal activities,” the GAO report stated.
Officials from the Small Business Administration have disputed some of the report’s findings and claimed, according to the GAO, that the leap the oversight agency takes from streamlined obligations during the loan approval process to fraudulent applications is unsupportable.
But, the fraud cases themselves are already appearing.
Last week, a Utah trucking company owner already under federal indictment in a pay-to-play fraud case was charged with allegedly lying on an application to get a Paycheck Protection Program loan.
Hubert Ivan Ugarte, of Draper, also illegally used more than half of the $210,000 he received to make lease or purchase payments on trucks rather than on employee wages, according to an indictment filed in U.S. District Court.
According to the complaint, Ugarte, with help from Lisa Bradshaw Rowberry, of Provo, answered “no” to questions on the application asking whether he was under formal criminal charges in any jurisdiction. His answer was false because he had been indicted in a Utah fraud case when he answered the question, the complaint alleges.
Ugarte, 52, also circled “no” on the loan application when asked if he had ever been placed on pretrial diversion. According to the complaint, he entered into a two-year pretrial diversion agreement in 1988 to resolve a felony drug possession charge.
The filing also alleges Ugarte ignored the requirements stipulated for Paycheck Protection Program loan recipients to spend at least 60% of their funds on payroll expenses, and instead spent nearly $127,000 — or about 60% — to make payments on 13 Kenworth tractors, according to the indictment.
According to the U.S. Department of Justice, the first case of alleged fraud was filed against a Paycheck Protection Program applicant on May 5 and, since then, numerous other cases have arisen around the country. The latest is a case filed Monday in Washington, D.C., in which a contractor there is accused of submitting several fake and fraudulent documents to a financial institution in support of two Paycheck Protection Program loan applications seeking more than $400,000 in forgivable loans for a construction firm that he owned.
A representative of the Small Business Administration told the Deseret News in an email that data detailing the number of fraud cases pending or under investigation in Utah was not available. Nor was similar information on a national basis.
Utah Bankers Association President and CEO Howard Headlee said it remains unclear how liability will be parsed when it comes to losses generated by fraudulent manipulation of the Paycheck Protection Program. Headlee said it was his belief that the U.S. Treasury will back those loans as long as local loan originators adhered to the process, one that relied almost entirely on self-reported information, as laid out by the federal backers. And, he noted, the failure to do so would have deep repercussions.
“I think fraud allegations will be thoroughly investigated and especially the process by which it occurred,” Headlee said. “I believe that as long as the lender is found to have done everything the program required, which was a pretty minimal process, then you would assume Treasury is on the hook for it.
“It would be devastating to our local communities if somehow the government ... left the local banks on their own that were trying to do the best they could with what they were asked to do. I can’t imagine that would be the outcome.”
Other potential misrepresentations in self-reporting were unveiled in reporting by the Washington Post Tuesday. A data check performed by the newspaper showed the number of U.S. jobs “supported” by Paycheck Protection Program loans, touted by President Donald Trump as 51 million, may be significantly lower, due to misreporting of “jobs retained” by Paycheck Protection applicants. In Utah, the total number of retained jobs, as reported by applicants, came in just under 800,000.
The Small Business Administration has stated it will conduct reviews of every Paycheck Protection Program loan at or above $2 million. But, the agency did not respond to the GAO’s request for a policy decision on what, if any, review would be conducted of the sub-$2 million loans, which comprise the majority of the 4.9 million loans made across the country.
The Small Business Administration did not respond to a Deseret News inquiry about whether those loan reviews have begun in Utah or elsewhere.
Out of almost 51,000 loans to Utah businesses as of July 6, 281 were for amounts between $2 million and $10 million, and 547 were for amounts between $1 million and $2 million. Around 43,000 of the Utah loans were under $150,000.
Stipulations for companies seeking funding through the Paycheck Protection Program limits access to for-profit and nonprofit businesses with fewer than 500 employees and for loan amounts up to 2.5 times the company’s monthly payroll expenses up to a $10 million ceiling. As to business types, the scope of loan recipients was wide-ranging.
Utah Democrat Rep. Ben McAdams has been a vocal advocate on behalf of transparency and accountability issues related to the Paycheck Protection Program since its launch in early April. Many details of the program, like which businesses were getting loans and for how much, were out of public view until earlier this month when the Small Business Administration released a trove of information. McAdams told the Deseret News that every case of fraud takes money out of the hands of those businesses that legitimately needed help.
“My concerns have always been that those who need and deserve these loans receive them and that taxpayers are able to see where their tax dollars are being spent,” McAdams said. “It’s important now to ask whether companies that received COVID relief funds followed the rules.
“Every dollar that went to an undeserving or fraudulent company is a dollar that didn’t help a hard-working person struggling to get through this crisis. I expect everyone to play by the rules and where there are signs of potential fraud or abuse, those circumstances should be fully investigated by the proper authorities.”
The path to forgiveness for Paycheck Protection Loan recipients has been eased somewhat through changes to the program since its launch, including an extension of the window to spend the money as well as how it can be spent. While initially limited to eight weeks, Congress approved changes last month that should help more businesses earn loan forgiveness.
Those changes include granting businesses up to 24 weeks to spend loan money and allowing business owners to allocate 60% to payroll and up to 40% of the funding on other overhead expenses like utilities, rent, mortgage interest debt and other items. The original terms required borrowers to spend 75% of loan money on payroll to earn payback amnesty.