August 4, 2020 at 5:00 am ET
The HEALS Act is attempting to breathe new life into the American economy and fuel the country’s post-pandemic rebound by providing another round of small-business aid. But unless it addresses an issue that was present in its Payroll Protection Program predecessor, the HEALS Act could usher in an onslaught of additional fraud.
Some of the fraud seen during the PPP rollout was the result of individuals inflating the size of payroll to obtain larger loan amounts, deflating employee counts to qualify as a small business and fabricating reports of employees and salaries that never existed. In the first fraud incident, two men tried to get more than $500,000 to support fake employees. Most recently, a Florida man obtained $3.9 million and used it to purchase a Lamborghini.
Other preventable fraud cases were, to the surprise of many, instigated by known criminals. As the Small Business Administration did not require lenders to verify applicants’ self-certified criminal history, hundreds of millions of dollars were stolen from law-abiding individuals who dared to pursue their American Dream — individuals for whom PPP loans aren’t just dollars and cents, but a lifeline.
For those that truly deserve the HEALS Act’s newly introduced relief, the first thing the SBA must do is require lenders to independently verify criminal records for HEALS Act applicants. Granted, this isn’t easy, and explains why the SBA likely steered away from this requirement in the first place: Background checks are expensive, FBI databases require fingerprints and public criminal databases are fraught with inaccurate and incomplete data that make them unactionable.
Therefore, the second thing the SBA must do is help lenders identify and utilize a newer, less expensive and more convenient way to screen for criminal history.
Fortunately, technology has come a long way. Modern quality assurance solutions deploy commercial data, automation and process efficiency to reduce the amount of time and money it takes to fully verify applicants’ criminal history. In some cases, the verification process can be completed for less than the cost of a cup of coffee – and with high accuracy too.
In conducting one such inexpensive verification, a substantial number of fraudulent applicants were found to have had a felony within the last five years. And what were the majority of the felonies for? Approximately half were for fraud or theft; findings suggest an estimated $1 billion in verifiable fraud slipped through the cracks of the first round of stimulus funding due to there being no SBA verification requirement.
The SBA deserves applause for its execution of the PPP program – amazingly, according to SBA Administrator Jovita Carranza and U.S. Treasury Secretary Steven Mnuchin, “SBA processed more than 14 years’ worth of loans in less than 14 days” – but we absolutely cannot allow that much money to go to waste during the rollout of the HEALS Act. The SBA must make lenders verify applicants’ criminal history, and it must make lenders aware of the 21st-century solutions available to help them do so. This is the only way we will see the full benefit of this program realized by the Americans who need it the most, and in the presence of already existing tools, there’s no reason why that shouldn’t happen.
Tom Miller is CEO of ClearForce, an organization that protects businesses and employees through the continuous and automated discovery of pressure, stress, misconduct and high-risk behavior.
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