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Risk Fraud & Compliance

Pandemic-related fraud crosses multiple sectors in Q3

Melissa D. Berry  Lead Compliance Attorney Editor / Regulatory Intelligence / Thomson Reuters

· 5 minute read

Melissa D. Berry  Lead Compliance Attorney Editor / Regulatory Intelligence / Thomson Reuters

· 5 minute read

Although the COVID-19 pandemic public health emergency ended earlier in 2023, the consequences of relaxed screening and approval standards for relief funds are still reverberating throughout every sector as fraud in this area is still rampant

In the healthcare industry, a perennial target for fraudsters, saw enforcement actions for old standards as well as new schemes that sought to take advantage of pandemic-related fraud opportunities. Other pandemic-relief programs are still seeing the impact of fraud schemes that stole millions in taxpayer funds.

From the beginning of the pandemic public health emergency in March 2020 through June 2023, approximately 1,399 individuals or businesses were “found guilty or liable” in pandemic-related fraud cases, according to the U.S. Government Accountability Office (GAO). And more fraud schemes are uncovered every day.

Pandemic-related relief program fraud often involves two common methods: i) beneficiary fraud, which involves “willful misrepresentation in order to improperly obtain a benefit for a beneficiary or at their expense”; and ii) identity fraud, which “uses the theft of personal information to obtain benefits.” Of course, many schemes combine both methods to perpetrate the fraud.

Enforcement actions in Q3

Below are a few examples of pandemic-related fraud enforcement actions from the third quarter.

On July 31, a New Jersey tax preparer was charged with seeking more than $124 million from the Internal Revenue Service (IRS) by filing more than 1,000 tax returns falsely claiming pandemic-related employment tax credits. According to the allegations, from November 2020 to May 2023, the tax preparer prepared and submitted 1,387 false forms to the IRS claiming pandemic-related tax credits for himself and his clients. He also misrepresented to his clients that the “government was giving out pandemic-relief money for businesses and that they were eligible for the money simply because they had a business.” He then submitted forms on behalf of their businesses that “grossly overstated” the number of employees and the amounts of wages paid. He also charged his clients a fee up to 15% of the refund they received based on his false filings.

On August 4, a federal jury in Baltimore convicted a Maryland doctor for his role in submitting more than $15 million in false claims to Medicare and a commercial insurer for patients who received COVID-19 tests at his testing sites. The physician owned and operated “multiple drive-through COVID-19 testing sites” and directed employees at the testing sites to bill for “high-level evaluation and management visits” for each patient in addition to the COVID-19 tests. However, the patients were not receiving any care at the visits and were only being tested for COVID. The jury convicted the physician of five counts of healthcare fraud.

On August 23, the U.S. Department of Justice released the results of a nationwide pandemic-related enforcement action that included 718 enforcement actions for offenses related to more than $836 million in alleged pandemic-related fraud. The actions included criminal charges, civil charges, forfeitures, guilty pleas, and sentencings. Criminal charges were filed against 371 defendants and another 119 defendants pleaded guilty or were convicted at trial during the sweep. Courts also ordered more than $57 million in restitution, and prosecutors secured an additional $231.4 million through forfeiture. More than $10.4 million in judgments resulted from 117 civil actions. The enforcement actions included charges related to pandemic-related unemployment insurance benefit fraud as well as fraud against pandemic-related Small Business Administration (SBA) programs. Other actions involved healthcare and tax fraud.

On September 7, two brothers pleaded guilty to their roles in a scheme to “file fraudulent loan applications” for approximately $7.6 million in forgivable Paycheck Protection Program (PPP) loans that the SBA guaranteed under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Between April and September 2020, the brothers allegedly conspired to submit eight fraudulent PPP loan applications that contained false statements about the payroll expenses of companies they owned or controlled. As part of the scheme, they submitted IRS forms that had never been filed with the IRS and “fraudulent payroll registers.” The brothers pleaded guilty to conspiracy to commit bank fraud and wire fraud.

Unemployment insurance fraud during the pandemic

The estimated total fraud across all unemployment insurance programs during the pandemic was 11% to 15% of the total benefits paid, according to a recent GAO report. This amounts to between $100 billion and $135 billion for the period from April 2020 to May 2023.

Unfortunately, recovery from these pandemic-era programs has been “more challenging” because of the “large amounts of identity fraud in which unknown suspects used stolen identities to receive unemployment insurance benefits.” Recoveries from unemployment insurance fraud are also more difficult because benefits are paid at the state level, so enforcement actions require interagency cooperation. To that end, the federal government has provided significant funding to the states to support their fraud prevention and recovery efforts.

As of May 1, states have identified about $5.3 billion in fraudulent unemployment insurance overpayments and have recovered about $1.2 billion.

Through January 1, the federal government provided more than $4.6 trillion to help the country respond to and recover from the global COVID-19 pandemic. With that amount of money spent, it is certain that more fraud schemes will be uncovered in the months and years to come.

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