Sometimes last month, a bank in Rhode Island bank was given an application for the sum of $144,050 loan under the Paycheck Protection Program (PPP). PPP happens to be an enormous federal effort that is designated to assist many small businesses that are severely affected by the Coronavirus pandemic. PPP loan application was assumed to be on behalf of the Remington House’s proprietors, a restaurant located at Post Road in Warwick, R.I. with about 18 staffs boasting an average monthly payroll of a $46,000.
Many indications arose after one of the bank officials drove past the building, indicating that the restaurant had already been closed before the pandemic. Lots of dumpsters were seen on the property, and notices ordering the halting of works were seen posted on the door and windows. This formerly popular restaurant had been shut down two years ago [precisely in November 2018] based on the federal prosecutors who recently charged two men with conspiracy to commit bank fraud.
The case was the first criminal fraud prosecution related to the paycheck program. As a result, the Industry officials caution that it will not be the last most likely. People who are working with banks to tackle misconduct in the $660 billion programs, and also Walter Mix, the previous California banking commissioner calculated that fraud rates can increase as much as 10% to 12%. Derek Cohen, a former federal prosecutor who currently represents white-collar defendants at the Goodwin Procter, stated that History reveals that the rate of fraud is distinctly rampant when government relief programs are assembled rapidly in response to any disaster.
A few weeks ago, many banks started accepting applications from new small business customers. And this has made them more vulnerable to fraud. Towards the ending of March 2020, the Coronavirus relief law (cares act) was enacted as the economic destruction caused by the pandemic spread speedily addressed the certainty of fraud. This law demands SBA to register loans with the use of their Taxpayer Identification Number (TIN) in other to stop the same lender from receiving more than one SBA loan, an issue known as loan stacking.
Immediately the loan has been submitted, the SBA’s E-Tran system gives a specific application number to the lender that is assumed to abolish most of the dangers of duplicate applications. Meanwhile, questions have been arising about the SBA loan system for examining taxpayer ID numbers. It was stated that it is possible for fraudsters to quickly manipulate the system when E-Tran captures essential forms of loan stacking.
Recently, the Office of the Comptroller of the Currency held a listening session with bankers concerning the fraud in the PPP. Most people who participated talked on the condition of anonymity stated that there remained to misunderstand about a host of problems, such as fraud checks and payroll verification. In the course of securing Paycheck Protection Program (PPP) funds, small businesses have encountered misunderstandings, distress, and, most times, an absence of clarity when collecting the capital if at all. The procedure was chaotic for the lenders, too, developing the excellent ability for fraud amidst an unprecedented SMB stimulus struggle. The urgency with which these lenders were expected to get applications and dish out funding developed lots of fraudulent activity opportunities.