Colorado officials know widespread fraud siphoned off millions of dollars from COVID-19 relief programs that poured into the state over the past two years. Now it’s a matter of what to do about it.

Perpetrators seized on the deep-pocketed programs like boosted unemployment benefits and the Paycheck Protection Program. Those relief efforts were deployed rapidly with few guardrails early on to deter fraudsters as leaders focused on getting money out to people in need quickly.

Exactly how much money was stolen in Colorado may never be known. A state audit report found that between March 2020 and April 2021, the Colorado Department of Labor and Employment (CDLE) paid out more than $73 million in unemployment claims that were likely fraudulent. That report covers just the first year of the pandemic and only the unemployment program.

In April 2021, the CDLE estimated it had uncovered 1.2 million fraudulent claims compared to only 1 million legitimate claims since March 2020. A large majority of bogus claims were stopped, but some may have gotten through and siphoned off an unknown portion of the $11.8 billion in state and federal unemployment benefits paid out during the pandemic in Colorado.

The Paycheck Protection Program, which provided businesses with forgivable loans intended to help them stay afloat and keep workers on their payrolls after the virus decimated the economy, brought more than $15 billion in federal money into the state. It was also a prime target for scammers. Experts cited in a recent NBC News story estimated that $80 billion — roughly 10% of all PPP money distributed across the country — was snatched up by fraudsters. If that estimate is accurate, it would mean $1.5 billion was stolen in Colorado.

With the state and municipalities still planning to pass on more grants and loans funded by the federal government as part of COVID relief packages, more fraud is likely, Colorado Attorney General Phil Weiser said.

“It’s not a question of whether there’s fraud. We know from experience there’s fraud,” Weiser said earlier this month. “It’s a question of how do we create the structures to detect the fraud and go after it. This is a top priority for us, to identify these fraudsters and hold them accountable.”

Holding perpetrators accountable may depend on the hemisphere in which they reside.

Jason Zirkle, training director for the Association of Certified Fraud Examiners, expects the full scope of fraud related to COVID-19 relief programs to take years to come into focus. He is confident the total will be in the billions. In his opinion, much of the theft was the work of fraud rings with multiple people working in tandem to rip off any relief program that could tap into. He’s also confident that many of the rings were not based in the U.S. That means prosecution and recovery will be difficult, to say the least.

“This is complete speculation on my part but I am willing to bet, just knowing what I know about consumer fraud in general, that half that money has gone overseas,” Zirkle said. “At that point, it is virtually impossible.”

The attorney general’s office has a task force dedicated to investigating potential criminal activity in the state’s unemployment system. Four staff members are dedicated to that work on a regular basis, Weiser said. The task force is working with the labor department and the Colorado Bureau of Investigation to comb through data sets, identify suspicious activity, set up cases for prosecution and, hopefully, restitution.

“I believe we have a responsibility to recover that money and ensure it’s spent properly,” Weiser said.

The task force referred 17 cases to prosecutors during its first year, the AG’s office announced last month. The cases are being handled by the U.S. Attorney’s Office and local district attorney’s offices, sometimes with assistance from the attorney general’s office, Weiser said.

Added together, those 17 cases amount to more than $300,000 in unemployment benefits that may have been obtained illegally. That’s a tiny sliver of the amount the state audit report estimates scammers took in the first year of the pandemic alone, but some of that investigative work is expected to yield bigger returns.

Two cases handled by the U.S. Attorney’s Office in Colorado covered not just unemployment fraud but also PPP fraud and fraudulent applications for Economic Injury Disaster Loans, or EIDL, from the U.S. Small Business Administration, according to the Weiser’s office. The defendants in both cases entered guilty pleas. Pending the results of a sentencing hearing in one of those cases later this month, they could result in the perpetrators being ordered to pay more than $1.5 million in combined restitution to the federal government and almost $70,000 to the state labor department.

The Small Business Administration doesn’t typically publicize information about active fraud investigations because legal action could be pending, Chris Chavez, a Denver-based spokesman for the agency, said. With that in mind, the SBA had no information it could release on potential scams impacting COVID relief programs in Colorado.

There are warning signs that investigators can and likely are taking a look at, Zirkle said. With unemployment fraud, a major red flag would be multiple claims from the same or similar addresses. With PPP, any application for a company formed in March 2020 or later would warrant at least some investigation, he said.

In Colorado, 6.4% of PPP loans, more than 12,300 in total, were issued to businesses that were two years old or newer, according to a Denver Post analysis. That’s just in cases where the loan recipient disclosed the age of the business. Just shy of 5% percent of PPP recipients in the state did not list the length of time their companies had been operating. Even if a vast majority of those loans went to legitimate businesses, the sheer volume of loans creates a sizeable haystack for fraud investigators to comb through.

On April 1, SBA chief Isabella Casillas Guzman announced new steps the agency was taking to crack down on fraudsters and protect its taxpayer-funded programs. Those included hiring a legal adviser that specializes in the field and creating a fraud risk management board dedicated to oversight. The agency is also supporting the Department of Justice and its own COVID-19 fraud enforcement task force.

“Throughout the first year of the Biden-Harris Administration, the SBA has taken important steps to close the door on fraud, waste and abuse and ensure billions of dollars in taxpayer-funded COVID relief make it into the hands of small business owners,” Guzman said in a statement.

It’s a national-scale approach to creating the structures Weiser is focused on at the state level. With the state unemployment program under scrutiny last spring, the Colorado Department of Labor and Employment contracted the company ID.me to verify the identity of every claimant.

That cut down on new fraud and freed up investigators to go after existing cases, Weiser said.

The next step Weiser is hoping the state will take will come at the capitol. There, the bi-partisan backed Colorado False Claims Act, House Bill 22-1119, is making its way through the legislative process. Modeled after the federal False Claims Act, if passed the law would provide an incentive to whistleblowers who report fraudsters targeting the state.

Even without that bill on the books, Weiser hopes Coloradans are taking fraud seriously. He welcomes suggestions for better fraud mitigation practices. Those can be submitted through the site stopfraudcolorado.gov. He also hopes people will contact law enforcement if they know of suspicious activity.

“I often say our democracy is a team sport. We need people engaged,” he said. “(Our) most impactful work is when people step up and report wrongdoing they see.”

Denver Post staff writer Aldo Svaldi contributed to this report. 

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