Sunday Nov 29

EVERYBODY’S BUSINESS: Corporate Culprits Receiving Covid Bailouts

More than one million businesses and non-profits have been identified as recipients of grants and loans awarded through the Paycheck Protection Program and other provisions of the CARES Act passed by Congress to deal with the economic fallout from the Covid-19 pandemic. My colleagues and I at Good Jobs First determined that more than 43,000 of those recipients have been involved in some form of corporate misconduct over the past decade, paying a total of $13 billion in penalties to federal and state regulators. These companies have received $57 billion in grants and $91 billion in loans through the CARES Act.

We reached that conclusion through a careful match of the data collected for our Covid Stimulus Watch database, which covers 20 CARES Act programs, to our Violation Tracker database, which combines enforcement data from more than 50 federal and 200 state and local agencies.

More than 85 percent of the CARES Act recipients with a record of misconduct are small businesses, while the other 15 percent are units and subsidiaries of larger companies. The larger companies received $55 billion in covid grants and $53 billion in loans, while the smaller companies received $2 billion in grants and $38 billion in loans. The large companies account for 90 percent of the penalty dollars.

For the entire group of companies, the largest portion of the penalties comes from government contracting violations: $5.6 billion, or 42 percent of the total. Employment-related penalties and consumer protection penalties each add up to $3 billion (23 percent), while environmental and safety penalties total $1.6 billion (12 percent).

Hospitals (both for-profit and non-profit) and other providers participating in CARES Act programs aiding the healthcare sector account for $8.3 billion of the penalties. More than half of their penalties are related to government contracting, which includes Medicare and Medicaid billing.

Recipients of small-business loans account for $3.3 billion of the penalties, with the largest portions coming from wage theft and workplace safety violations.

Two other significant categories of recipients with a history of misconduct are for-profit colleges receiving aid through the Higher Education Emergency Relief Fund and airlines receiving massive levels of assistance through the Payroll Support Program.

Seventy CARES Act recipients were involved in cases that included criminal charges. Of these, 33 of the defendants were large companies, which paid total penalties of $3 billion.

The revelation that tens of thousands of CARES Act recipients have records of misconduct raises the question of whether the application procedures for the programs were rigorous enough. It appears that not much screening of companies was done by federal agencies before grants
and loans were awarded, partly because there were no strict eligibility requirements written into the law. In some programs such as the Provider Relief Fund, the money was apportioned by formula rather than choosing some recipients over others.

In the Paycheck Protection Program there was an application process, but it was handled by banks – which received commissions for their efforts – rather than the Small Business Administration. The application form required business owners to state whether they personally had been convicted or pled guilty to felonies such as fraud and bribery, while for the companies the only issue seemed to be whether they had been debarred by a federal agency.

Some argue that the gravity of the economic situation during the pandemic made it more important to get money out the door quickly than to screen out bad actors. Some also claim that excluding businesses with bad track records from aid programs would have jeopardized the jobs of employees who had nothing to do with the misconduct.

While widespread exclusion may not be feasible, there are two categories of recipients whose records of misconduct should not be ignored: those companies and non-profits which were accused of defrauding the federal government and those involved in cases that were serious enough to be brought with criminal charges.

Given that companies involved in contracting fraud cases are usually allowed to go on doing business with the federal government after paying their penalty, it would be difficult to debar them from future covid stimulus programs. These companies should, however, be subject to additional scrutiny to make sure they do not resume their fraudulent behavior while receiving grants and loans.

The most compelling case for excluding a group of companies from participation in future covid aid concerns those with a history of criminal misconduct. Denying them assistance is a reasonable policy that would protect taxpayer funds and serve as a deterrent against future corporate criminality.

PHILIP MATTERA heads the Corporate Research Project in Washington, DC, and writes the blog Dirt Diggers Digest.

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