March 13, 2023
State Spotlight: Freedom Foundation Exposes Fraud in Paycheck Protection Program
As COVID-19 spread across the country, there were countless stories about people taking advantage of the pandemic to line their own pockets. One of the most troubling examples of these stories was how more than 220 labor unions across the country bilked taxpayers out of nearly $37 million in Paycheck Protection Program (PPP) loans they were ineligible to receive.
One of the first major programs Congress passed during the pandemic was the Paycheck Protection Program. This provided, “$349 billion in fully guaranteed SBA loans—which can be forgiven if used in accordance with the Act—for certain eligible small businesses, individuals and non-profit organizations to cover payroll, rent, utility payments, and other limited uses.”
PPP loans were intended to help small businesses stay afloat during the pandemic and prevent employers from having to lay off staff. For many businesses and nonprofits, receiving a PPP loan represented the difference between staying open or closing their business.
But for too many, actually getting a PPP loan was a maze of bureaucracy and confusion. Reports soon surfaced showing how the PPP funds Congress first allocated ran out in just 13 days. But while thousands of small business owners and entrepreneurs were locked out of the loan program, countless ineligible companies and organizations were raking in millions in PPP loans.
And thanks to their groundbreaking report, the Freedom Foundation revealed that nearly $37 million in PPP loan money was given to unions who weren’t eligible to receive any money at all.
In February 2022, the Freedom Foundation released their report “Profiting from a Pandemic: How ineligible unions collected millions in federal COVID relief funds.”
The results were troubling.
Between March 2020 and March 2021, PPP loans were primarily intended for small businesses and 501(c)3 nonprofit organizations. Because most labor unions are registered as 501(c)5 organizations, they weren’t eligible to receive loans. But the Freedom Foundation report exposes how 226 labor unions improperly received $36.7 million in forgivable PPP loans.
While this is troubling on its own, it also exposes the potential for fraud, a blatant lack of oversight, and a clear misallocation of funds that were desperately needed by so many businesses. As Maxford Nelson, Director of Labor Policy at the Freedom Foundation, puts in the report, “Disconcertingly, the apparently inappropriate PPP loans may have been granted due to fraudulent loan applications or other questionable conduct by applicants or the private lenders operating under the SBA’s delegated authority to approve loan applications.”
Because most labor unions weren’t eligible to receive PPP loans until March 2021, the unions that applied for the loans either knowingly lied on their applications, or the Small Business Administration (SBA) authorized hundreds of ineligible applications for loans that were quickly running out.
And to add insult to injury, as Adam Andrzejewski of Open the Books wrote in Real Clear Policy:
“The irony of public sector unions receiving funds is that unions are funded by taking a percentage of members’ pay, so as long as the members kept their jobs, the unions would not see a change in revenue. Of course, the government didn’t lay anyone off because of the pandemic, so this was free money for them. The largest recipient was the Michigan Education Association, which received $6.4 million in forgivable PPP loans. Unions took money that could have been used to keep neighborhood restaurants open and used it to pad their bank accounts.”
Dozens of media outlets, including the Washington Free Beacon, Daily Wire, and Real Clear Policy covered the Freedom Foundation’s report after it was released.
Also, after they published their report, the Freedom Foundation submitted formal complaints with their findings to the SBA Inspector General and to the U.S. Department of Justice’s National Center for Disaster Fraud. The Freedom Foundation also discussed their findings with House Education and Labor Committee Republican Leader Virginia Foxx (R-NC), Small Business Committee Republican Leader Blaine Luetkemeyer (R-MO), Health, Employment, Labor, and Pensions Subcommittee Republican Leader Rick Allen(R-GA), and Oversight, Investigations, and Regulations Subcommittee Republican Leader Beth Van Duyne (R-TX). After learning about Freedom Foundation’s report, these Congressional leaders wrote a joint oversight letter to the SBA seeking additional information about how so many ineligible labor unions were issued scarce PPP loans at the height of the pandemic.
There will unfortunately always be people and organizations willing to take advantage of a crisis for their own personal gain. But thanks to organizations like the Freedom Foundation, those wrongdoings are being exposed and the people who let them happen are being forced to answer for their actions.
