Forensic Finance

Government Program Fraud
Government program fraud, waste, and abuse are major concerns, with recent studies highlighting issues in program design and administration. While U.S. government fraud has decreased over time, recent analyses of the Paycheck Protection Program (PPP) and other COVID relief efforts reveal significant fraud, particularly involving FinTech lenders. Forensic finance plays a crucial role in uncovering these fraudulent activities, emphasizing the need for improved data transparency and research to address and mitigate such issues effectively.
Overview
Government program fraud, waste, and abuse are key concerns in the design and administration of public programs. Historical data from Glaeser and Goldin (2006) indicates a significant decrease in government fraud in the United States over time. However, Bandiera, Prat, and Valletti (2009) and Duflo (2017) highlight that poor program design and administration can lead to considerable waste and inefficiencies. Chetty, Friedman, and Saez (2013) specifically examine tax fraud related to the Earned Income Tax Credit, finding that income manipulation grew from one percent in 1996 to about three percent in 2009, illustrating how fraud can slowly increase over time.
In recent times, the Paycheck Protection Program (PPP), which distributed $793 billion, has been scrutinized for fraud. Griffin, Kruger, and Mahajan (2023) identified $64.2 billion in suspicious loans, primarily from FinTech lenders, and estimated total fraud could be as high as $117 billion. Their findings suggest that the scale of fraud in 2021 was four times greater than initially observed, indicating that fraudsters adapted and that FinTech lenders did not sufficiently improve their screening processes. Additionally, audits and inquiries have revealed significant issues with safeguards and screening mechanisms, with similar concerns arising in the Economic Injury Disaster Loan (EIDL) program and unemployment insurance.
Fraud during the pandemic also had broader economic impacts, as Griffin, Kruger, and Mahajan (2024b) found that fraud spread through social connections, leading to localized pockets of fraud. Their research in 2024a indicates that this fraud contributed to inflated housing prices in high-fraud areas due to increased house purchases and consumer spending. The limited independent examination of the $4.2 trillion in COVID relief spending underscores the need for greater data transparency and more in-depth research to better understand and combat fraud in government programs.
Relevant Papers
Corruption and Reform: An Introduction
Glaeser and Goldin (2006)
Did FinTech Lenders Facilitate PPP Fraud?
Griffin Et Al. (2022)
Is Fraud Contagious? Social Connections and the Looting of COVID Relief Programs
Griffin Et Al. (2024)
Using Differences in Knowledge Across Neighborhoods to Uncover the Impacts of the EITC on Earnings
Chetty Et Al. (2013)