Title: Federal Efforts to Recover Overpayments of COVID-19 Relief 

Description: Early in the pandemic, the federal government prioritized
swiftly distributing checks to businesses and workers to help meet the
urgent needs they face because of economic disruptions. But this quick
action put billions of dollars at increased risk of fraud and
overpayment. Now that the pandemic is over, how is the federal
government working to recover overpayments and how much has been
recovered? We learn more from GAO's Hannah Padilla. 

Related work: GAO-25-106199, COVID-19 Relief: SBA and DOL Should Improve
Processes to Identify and Recover Overpayments 

Released: November 2024

{Music}

[Hannah Padilla:] It's far better to prevent the overpayment from
happening because recovery is difficult. It is time consuming. And it
isn't very successful.

[Holly Hobbs:] Hi and welcome to GAO's Watchdog Report, your source for
fact-based, nonpartisan news and information from the U.S. Government
Accountability Office. I'm your host, Holly Hobbs.

Early in the pandemic, the federal government prioritized swiftly
distributing checks to businesses and workers to help meet the urgent
needs they face because of economic disruptions. But this quick action
put billions of dollars at increased risk of fraud and overpayment. Now
that the pandemic is over, how is the federal government working to
recover overpayments and how much has been recovered?

We'll find out more from GAO's Hannah Padilla, an expert on federal
payment integrity, who has a new report out today on this issue. Thanks
for joining us. 

[Hannah Padilla:] Thanks for having me, Holly. 

[Holly Hobbs:] So, Hannah, our work looked at kind of the big three
programs during COVID-19. These are the programs that helped workers,
that help small businesses--it's the Paycheck Protection Program, the
Economic Injury and Disaster Loan program, and unemployment insurance,
right? How big was the problem of overpayments under these programs? How
big of an issue was this? 

[Hannah Padilla:] Overpayments at the federal government has
historically been a big issue. And it only became more pronounced during
the pandemic. Actual improper payments identified for recovery by the
federal government as a whole is about $142 billion. And it's important
to note that these identified numbers for recovery are not specific just
to these programs, but they are for those agencies as a whole. The
Department of Labor expended approximately $900 billion in unemployment
insurance. And that includes some of the newer, pandemic related
programs. And they estimate that about 35% of those payments were
improper. They also reported about $23 billion that they've identified
to recover. SBA expended $1 trillion during the pandemic, mostly through
the Paycheck Protection Program and the Economic Injury and Disaster
Loan Program. They have only identified approximately $1 billion in
overpayments to recover. 

[Holly Hobbs:] Can you help us understand how an overpayment or an
improper payment would happen? 

[Hannah Padilla:] Well, there were several reasons that they occurred,
especially during the pandemic. This was a very unprecedented time for
the agencies. And agencies were given large amounts of money to quickly
distribute to individuals and businesses that were in need. And in doing
so, they relied heavily on the states to administer the programs--because
the states administer unemployment insurance programs on behalf of the
Department of Labor. The systems at the states are sometimes very
antiquated. The processes and procedures did not consider the amount of
claims that came through during the pandemic and the fact that they had
to, you know, hit the ground running and get those payments out to the
people in need. SBA, in order to process loans quickly, used new lenders
that weren't familiar with the processes at SBA, the review and approval
processes. And these things contributed to the risk of overpayments
occurring. In addition, there was this new concept of self-certification
where the applicants went in and simply said, 'yes, I meet the
eligibility criteria for these programs.' And those certifications were
not subject to any type of proof or verification by the agencies.

[Holly Hobbs:] So now that the pandemic is over, what is SBA and the
Department of Labor doing to identify and recover these overpayments? 

[Hannah Padilla:] Yes. Well, one thing we noted was both SBA and the
Department of Labor lack sufficient processes and they lack the
appropriate systems to ensure that they are properly identifying and
tracking recoveries. One thing SBA is doing, they're simply relying on
people to start paying their loans back. They're also engaging debt
collection agencies and using certain Treasury offset programs in an
effort to get some of their loans that are in default repaid.
Unemployment Insurance is a state administered program. So the
Department of Labor needs to rely on the processes and the systems at
the state level to collect their overpayments. And some of the systems
at the state level weren't designed or set up to deal with such a large
influx of claims as they had to during the pandemic. So they've
recovered very little. 

[Holly Hobbs:] How much has been recovered so far? 

[Hannah Padilla:] Well, considering how much was expended, not much. For
the 3-year period--from Fiscal Years 2020 to 2023--SBA only recovered
about $20 million of the over $1 billion that they've identified for
recovery. DOL again relies on the states to recover the money. States
have identified about $55 billion in overpayments for recovery. And
they've only recovered about, $3.7 billion of that. And it is important
to note that the states have the ability to waive collection of
overpayments if it was an error made by the agency or the employer, and
they have waived about $11 billion so far. And we expect that number
could grow because they're continuously identifying overpayments.

{MUSIC}

[Holly Hobbs:] Hannah just told us that while the Department of Labor
and the Small Business Administration are working to recover
overpayments of COVID-related emergency funds--so far, very little of the
identified improper payments have actually been returned. So Hannah,
what more do we think the Small Business Administration and the
Department of Labor should be doing to recover payments? 

[Hannah Padilla:] Well, to take a step back, we believe the real focus
should be on preventing the overpayment or the improper payment from
occurring to begin with--because once the payment is made, it is very
difficult to get it back and only a very small amount is actually
recovered. We also found that both the Department of Labor and SBA could
do a better job in developing processes, for tracking overpayments and
for tracking recoveries in order to maximize the potential to actually
recover these funds.

SBA has recently made a change to, an existing decision, which was not
to collect loans with balances under $100,000. And they've since
rescinded that decision. We think that's a very positive course of
action for SBA. For Department of Labor, the states continue to struggle
with recovery of pandemic-related Unemployment overpayments. And one
thing we believe would help them is to establish some baseline measures
for the states to follow so the states would have a goal to reach. And
we believe that would help incentivize the states to actually recover
more of these funds. 

[Holly Hobbs:] Has SBA, has Labor, changed their approach at all?

[Hannah Padilla:] The Department of Labor is in process of implementing
an unemployment modernization plan. And we think as they continue that
effort, they'll be better prepared to react to future economic shifts
like what happened during the pandemic. 

[Holly Hobbs:] You said that not making a payment in the first place is
far easier than having to go get the payment back afterward. Is there
something that SBA or Labor could do next time to prevent these
overpayments or improper payments?

[Hannah Padilla:] Yes, we think there is. GAO released a report in July
of 2023, and that report really focuses on managing improper payments in
emergency assistance programs, such as those that occurred during the
pandemic. And the report really lays out an overall approach to manage
improper payments and overpayments specifically. One of the things the
report highlights is the importance of applying lessons learned, and
really taking this step back and thinking about the vulnerabilities that
were exploited during the pandemic. And then building controls into
their programs that would mitigate those vulnerabilities. Also
prioritizing prepayment controls, not relying on self-certifications.
Again, it's so much easier to keep the money from going out than to try
to kill all the money back at the end. 

[Holly Hobbs:] And last question, what's the bottom line of this report? 

[Hannah Padilla:] The bottom line of this report is there's upfront
steps that the agencies can take to prevent these overpayments from
occurring in the first place. It's far better to prevent the overpayment
from happening because recovery is difficult. It is time consuming, and
it isn't very successful.

[Holly Hobbs:] That was Hannah Padilla talking about our new report on
COVID-related overpayments. Thanks for your time, Hannah. 

[Hannah Padilla:] Thank you, Holly. 

[Holly Hobbs:] And thank you for listening to the Watchdog Report. To
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