Demystifying the Misuse of Stimulus Package in the USA

As the USA is grappling with financial crisis, the misuse and fraud of stimulus package would be another wound in its already battered economy.

With the COVID 19 outbreak, many strong and medium businesses were rendered to either close their businesses or to rely on small or minimal income. These two business sectors has bore the maximum brunt of the coronavirus outbreak. That’s why economies around the world rushed to revive these sectors by passing stimulus package for Small and Medium Businesses.

A stimulus package is issued by the various economies at the time of emergency to provide tax rebates and incentives for stimulating the economies and preventing financial crisis. The aim of providing stimulus package by any country is to boost spending, proportionally increasing the employment rate, and income. This is a cyclical process and is applied until the effect of the crisis doesn’t wear off.  The countries like India, USA, Germany, and UK amongst many others have had already released the stimulus package as soon as the COVID 19 was classified as a pandemic. The stimulus package by these countries includes billions and trillions of cash for reinvorgating the economy. However, as the Stimulus package was ushered to be passed by the parliaments, to be widely acceptable, experts have shown scepticism regarding its effectiveness, and has warned about the possible fraud and misuse of these stimulus packages.

A press release issued on April 2020, by KPMG Ghana, has advised businesses to be cautious against the misuse of the government stimulus package. However, a month after this press release, the first case of misuse of stimulus package was reported in the USA, which has been generous enough to issue largest stimulus package in any country.


The Stimulus Package of USA

The stimulus package of the USA, comes under the Coronavirus Aid, Relief, and Economic Security (CARES) act. On March 27th, 2020, US lawmakers passed a stimulus bill granting US$2 trillion for combating the impact of COVID 19. It includes:

  • A loan of US$367 billion for grant program of small businesses.
  • Expansion of unemployment benefits to include people furloughed, gig workers, and freelancers, with benefits increased by $600 per week for a period of four months
  • Direct payments to families of $1,200 per adult and $500 per child for households making up to $75,000
  • Over $130 billion to hospitals, health care systems, and providers
  • $500 billion fund for loans to corporate America (which Democrats called a slush fundwhen the Treasury was solely in charge) overseen by an inspector general and a congressional panel, with every loan document made public
  • Cash grants of $25 billion for airlines (in addition to loans), $4 billion for air cargo carriers, $3 billion for airline contractors (caterers, etc.) for payroll support
  • Ban on stock buybacks for large companies receiving government loans during the term of their assistance plus one year
  • $150 billion to state and local governments


The Paycheck Protection Program

The Pay Protection Program (PPP) is the main highlight of the stimulus package of USA. It includes fund worth US$659 billion under the Business Loans Program Account for supporting businesses with eight weeks of guaranteed payroll.


From Techies to JP Morgan

In a report by the CNBC, the experts have warned that the USA stimulus package will fall into prey of misuse and Fraud. The report released on May 7, cited that just after a month of its release, the US department of Justice has already charged three men, for their involvement in the fraud and misuse of the stimulus package.

In another incident that was reported, a man in Miami was arrested for spending US$521 in Lamborghini, jewelleries and hotel funds.

However, the misuse of the stimulus package is not limited to these three individuals. JP Morgan, one of the leading banks of USA, has also set up a committee for investigating the misuse and fraud of stimulus package by the employees and the customers, after Bloomberg reported about the evidence of wrongdoing in the banks. The bank in a memo said “instances of customers misusing” PPP loans, unemployment benefits and other programs”, and that “some employees have fallen short too.”

The bank’s committee issued a statement saying, “Unfortunately, we’ve also seen conduct that does not live up to our business and ethical principles — and may even be illegal”


The Brookings Report

In a study, “Addressing the Other COVID Crisis: Corruption” the Brookings stated that in most of the cases, the rampant corruption is the reason of the political engagement and mismanagement. The report listed the political engagement of the businesses to be amongst the primary reasons for the misuse of the stimulus package. It also states that to prevent further misuse of the package, three prinicipal points must be stand out:

  • Providing fast Disclosure
  • Making Complete Disclosure
  • Deconflicting Oversight


Introspection of Banks

As JP Morgan is investigating the misuse of PPP funds in its organization, it is time for other organizations, to introspect their businesses as well. Even though the JP Morgan was the first big organization for reporting misuse, the chances of ongoing misuse and fraud are very probable.

As experts have repeatedly warned about the possible misuse of stimulus package, it becomes imperative for big organizations and banks to form  a committee that would regulate and analyse the PPP for customers and employees, thus reducing the possibility of fraud and misuse of stimulus package.