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In the most recent episode of Fraud Talk, the ACFE’s monthly podcast, Mike Ware, CFE and Inspector General for the U.S. Small Business Administration (SBA), discusses the challenges his office faced in preventing and detecting fraud affecting COVID-19 stimulus programs.

In this excerpt from the full transcript, our guest discusses how previous disaster relief programs prepared the SBA for the pandemic as well as some takeaways for other organizations. Download the full transcript of “An Insider’s Look at Combating COVID-19 Stimulus Fraud” in PDF form or listen to the episode at the bottom of this post.

Sarah: Each year that the new Report to the Nations comes out, tips are always the number-one way and the most effective way that fraud gets caught, whether it's tips from employees, tips from vendors, all sorts of different avenues. Your office, I noticed, along with other oversight offices are strongly encouraging the public to use hotlines and other reporting mechanisms.

How much of an impact do you think that those hotlines, or different reporting mechanisms, have made on you catching or even just being able to have data and a realistic picture of how much fraud is going on as a result of the pandemic?

Mike: Right, right. Oh boy. All of the Offices of Inspectors General have hotlines that get information from the public, federal employees, contractors. And that helps us to further our mission. Since we’re [talking with] the ACFE… to prevent and detect fraud, waste and abuse in those programs. These tips, through our hotline, are of critical importance to the success of our ongoing and future criminal investigations and other work.

The main reason for it, when you think about it, it serves as a force multiplier, if you will, in terms of detecting fraud, and we'd be nowhere without it. The tips have been super critical to our early detection of fraud and fraud trends and have allowed us to move quickly to inform the agency in a way for them to shore up their vulnerabilities.

Just to provide you some context of what we're dealing with as an office.

We normally…I think if you added up the last year and a half in terms of hotline tips that we received the last year and a half before the pandemic, before the CARES Act, we probably had about 1,500 complaints of tips. Believe it or not, over the past five months alone, we've received over 26,000 online complaints and 42,000 phone calls.

Sarah: Wow.

Mike: The total has climbed to more than 75,000 complaints. Now, we're in a process of evaluating all the complaints. I had to reassign staff to the hotline to deal with it. We have a system that serves to identify the most critical ones, and that has resulted in leading to the faster investigations and to the analysis of fraud schemes. It’s verifying. It verifies what we're finding in terms of the data. When the data says, this is going on.

Let me see if I could provide an example. Well, you know what? I'm not sure if I could speak about that yet because that one is ongoing, so I'll hold and I'll just keep it at, “It verifies what we're finding through the data.”

Sarah: Speaking also, you're talking about the data and talking about the use of data analytics. I also saw that you had spoken a little bit earlier, I believe in the summer, to the media about how you've also been able to use social media in addition to data analytics, to uncover fraud in real time.

How are you using these types of tools? Is there any certain type of tool, whether it's a certain type of data analytic program or like I've mentioned, social media, what are you finding to be most effective?

Mike: Let me start with social media, just to give some context on that. What we were finding early on, the data was pointing to the fact that there were a ton of applications coming from single IP addresses, for example. There may be a reason for that, but there might not be a reason for that. As the agents and the data analytics group started to pour over social media, they were finding that there were people out there advertising their services, basically saying that the government was giving away money , and they were teaching you how to go about obtaining these funds illegally.

Telling you to show up at certain places, we have 30 laptops, and all you have to do is… We'll walk you through your application process, and then they charge a fee. We started to see that on the back end when the bank started to call us to say, "When we ask a secondary question to the person who was coming to immediately withdraw the money, they have no idea what the funds were, what the source of the funds were.”

They said, "Well, we were just told that if we applied for this, maybe we get to keep $8,000 and they'll keep $2,000 of the $10,000 grant, the initial grant that went out on EIDL." That really started to trip the banks, and that's when we started to work with them a lot more closely. That type of thing was going on, but in terms of data analytics, we were so fortunate that we made a case before our appropriators and Office of Management and Budget to have an investment made into the data analytics capability of our office.

This was a couple of years ago, and man, that's a timely investment because of the incoming loan data and the weaknesses that we’re helping to identify in the SBA's internal controls. But the data matching tools and authorities, they have been critical for us. The way it's working, we currently use a data matching tool in coordination with the Department of Treasury or IRS data, and of course, we're analyzing plenty of data from SBA systems.

This is what has allowed us to focus on the most egregious fraud and to maximize our effectiveness upfront because, like I say, this is moving in warp speed in comparison to what normal investigative efforts look like.

I think you asked about some examples. I could talk about a case or two, because they've been pretty public. One was where someone got over $1 million in PPP funds. Upon our reviews, we found that, or the investigation found that he actually bought a Lamborghini with it, Rolex watches, and had many visits to the strip clubs, using the money. I don't think they counted as employees.

Another one, the most recent one I think we've announced, or DOJ has announced with us, is the arrest of the person that had over $6 million in PPP loans, for companies with Game of Thrones names. Nothing to do with saving employee jobs. Might have saved a dragon or two, but definitely didn't save employee jobs.

The data analytics function is helping to drive this type of work. They work closely with the audit teams and with investigations to help improve overall efficiency and effectiveness. Right now, it's being used to get a higher quality audit and investigative evidence and better correlating audit and investigative approaches to risk as well. We're just at the tip of the iceberg on this. Much, much more will follow.