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COVID Fraud: An Education (Hunter Field Editor’s Note)

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$43,796.20 at Sissy’s Log Cabin.

$119,000 at Everett Ford.

A home on the White River.

That’s how one Little Rock businesswoman spent part of the $2 million she received that was intended to help small businesses during the COVID-19 pandemic, according to a federal indictment unsealed April 4.

Chandler Wilson Carroll, who owns several businesses focused on helping medical companies navigate the regulatory environment, faces counts of wire fraud and money laundering. I emphasize that these are accusations, and Carroll will have the opportunity to defend herself.

If found guilty, she’ll join the ranks of an alarming number of people who, as my predecessor likes to say, saw the pandemic as an opportunity to defraud their fellow Americans.

Carroll, allegedly, took from two early-pandemic programs, but the bulk came from Paycheck Protection Plan loans, which were forgivable.

The audacity of the behavior described in the indictment is breathtaking. Carroll, investigators say, drastically inflated details about her company when applying for aid. This information, of course, could be easily checked by cross-referencing the companies’ tax filings, which is exactly what the U.S. attorney’s office did.

Federal watchdogs estimate more than $200 billion was collectively stolen from the two programs. And as Carroll’s case shows, investigators are still looking.

But fraud might not have even been the most wasteful part. A National Bureau of Economic Research study of the PPP loan program found that only about a quarter of the funds made it to the workers who would have otherwise lost their jobs: “We estimate that the program cumulatively preserved between 2 and 3 million job-years of employment over 14 months at a cost of $170K to $257K per job-year retained.” That is far above the average annual wages ($58,200) paid to small-business employees in 2020.

So where did the remaining three-quarters of the money go? Mostly shareholders and business owners.

Stimulus payments and enhanced unemployment benefits were far more efficient at getting money to those in greatest need.

What’s interesting is other countries implemented similar programs with far better success. The difference? A targeted approach. In Canada for instance, businesses had to show a 30% drop in revenue year-over-year. In contrast, nearly all U.S. small businesses (93%) received PPP loans.

But it’s hard to fault Congress. Businesses were put in precarious positions through no fault of their own and often at the hands of government. And jobs were undoubtedly saved.

What is clear: We must begin to build our administrative capacity now so aid can be more targeted in the future. As the NBER researchers put it, we should spray with a fire extinguisher rather than a fire hose.

I have no doubt such aid will be needed again, whether in an economic downturn or another pandemic. Hopefully, we’ll be better prepared to deploy aid more efficiently, and maybe we can detect more fraud on the front end.

Email Hunter Field, editor of Arkansas Business at hfield@abpg.com
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