No Good Deed Goes Unpunished – The Harsh Realities of Pandemic Fraud

Written by Anam Lotia. Updated Jul 20, 2022.

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Even in crisis, there is wrongdoing. This is an unfortunate truth in the world, and the COVID-19 pandemic is no exception. Since the beginning of the health crisis in 2020, the world has faced numerous negative impacts related to health, education, and the economy. Here in the United States, to minimize the impact to the economy, the Federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Specifically, this new law sought to provide emergency financial assistance to help millions of impacted small businesses and American families get back on their feet, as well as stimulate the economy. Although created with good intentions, these relief packages and economic aid tools brought about individuals and businesses who took advantage, initiating pandemic fraud activity.

Alleged fraud exceeds billions of dollars

Fraudulent activity became widespread, with individuals and businesses scheming the government out of billions of dollars in various types of pandemic relief packages, including COVID-19 Economic Injury Disaster Loan (EIDL) programs, Paycheck Protection Program (PPP) funds, and unemployment insurance (UI) benefits. Based on reports from the U.S. Department of Justice and news releases from the IRS Criminal Investigation Unit, fraudulent cases involved employers submitting false documentation about their companies' state of financial health, including the number of employees, amount of total payroll, and related tax information.

Learn More: The CARES Act Cares about Non-Profits - Have you considered the ERC?

 

Other cases involved exaggerating financial aid needs or fabricating additional companies that had no actual operations, in order to obtain larger loans. Further egregious offenses included identity theft and diversion of relief funds to use the money towards the purchase of luxury items. Unfortunately, various schemes also involved the exploitation of health insurance policies and medical care access to misappropriate funds towards personal and unrelated healthcare. This included lab testing arrangements where COVID-19 testing was allegedly offered to obtain Medicare related patient information. That information was then used to submit medical claims for unrelated and expensive testing procedures. Further, various individuals took advantage of telehealth hotlines that were set up to provide greater access to medical care providers, by hacking and stealing personal information, setting up fake vaccination record sites, and using consumer information in illegal ways.

Investigations to combat fraud

To address and combat the rising fraud, government-initiated investigations arose across the board. The IRS Criminal Division began looking into tax and money laundering related cases and the U.S. Department of Justice set up a COVID-19 Fraud Enforcement Task Force to monitor relief aid resources and help capture fraudulent activity related to pandemic aid and UI stolen money. Furthermore, these investigations led to prosecution and ultimately prison sentences for the criminal activity. The U.S. Department of Treasury also audited the IRS’s issuance of stimulus payments to American individuals in relation to the American Rescue Plan Act to ensure the accuracy and correct use of those funds. This was in direct response to the previous identification of erroneous payments that were sent to ineligible individuals, based on changes in filing status, programming errors, or falsified tax document submissions.

Overall, the government continues to monitor relief aid channels to ensure that financial support intended for the millions of Americans who were directly impacted by the pandemic is not diverted or misused. As we continue to navigate through a new economic landscape in the post-pandemic nation, guidance from a Tax Consultant may be good for planning purposes.

For more information on these changes and other tax questions, please consult a  CTI tax specialist today.

 

 Work Opportunity Tax Credit (WOTC) Guide

Topics: COVID-19

Anam Lotia

Written by Anam Lotia

As a senior R&D consultant for CTI, Anam provides a breadth of knowledge and client services to the firm. Anam earned a J.D. from Loyola University Chicago - School Law. She also studied for one year at the University of Houston Law Center and is now a licensed Texas attorney with specialization certificates in tax and advocacy. Utilizing her tax law background, Anam applies her skills towards identifying maximum credit opportunities for her clients as well as assisting in audit support efforts to protect each taxpayer's claims.