The Office of Inspector General (OIG) of the Small Business Administration (SBA) has released new findings indicating that a significant portion of the funds disbursed through pandemic loan programs aimed at supporting small businesses may have ended up in the hands of potentially fraudulent actors. The SBA disbursed approximately $1.2 trillion in funds through the COVID-19 Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP) during the pandemic, as stated in a report published by the OIG.
The Office of Inspector General (OIG) has uncovered alarming findings, revealing that a significant portion of the COVID-19 Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP) funds disbursed by the Small Business Administration (SBA) went to potentially fraudulent actors. The OIG’s report states that a minimum of 17 percent of the total funds, amounting to over $136 billion in EIDLs and $64 billion in PPP funds, were disbursed to individuals or entities engaged in fraudulent activities.
The report highlights various schemes employed by criminals to misuse taxpayer funds, including the purchase of luxury items such as homes, gold coins, diamonds, jewelry, watches, imported furnishings, designer handbags, clothing, and even luxury motorcycles. The OIG points out that the lack of strong internal control measures within the SBA allowed fraudsters easy access to funds intended for eligible business owners severely impacted by the pandemic. The report also mentions the agency’s rush to swiftly disburse funds in response to the pandemic, potentially compromising due diligence in preventing fraud.
In response to the report, SBA spokesperson Han Nguyen disputed the OIG’s estimated fraud total of $200 billion, vehemently disagreeing with the figure.
In an unsurprising shift of blame, Nguyen further stated that the agency believes a significant portion of the fraud occurred during the previous administration.
The Office of Inspector General (OIG) has uncovered alarming findings, revealing that a significant portion of the COVID-19 Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP) funds disbursed by the Small Business Administration (SBA) went to potentially fraudulent actors. The OIG’s report states that a minimum of 17 percent of the total funds, amounting to over $136 billion in EIDLs and $64 billion in PPP funds, were disbursed to individuals or entities engaged in fraudulent activities.
The report highlights various schemes employed by criminals to misuse taxpayer funds, including the purchase of luxury items such as homes, gold coins, diamonds, jewelry, watches, imported furnishings, designer handbags, clothing, and even luxury motorcycles. The OIG points out that the lack of strong internal control measures within the SBA allowed fraudsters easy access to funds intended for eligible business owners severely impacted by the pandemic. The report also mentions the agency’s rush to swiftly disburse funds in response to the pandemic, potentially compromising due diligence in preventing fraud.
In response to the report, SBA spokesperson Han Nguyen disputed the OIG’s estimated fraud total of $200 billion, vehemently disagreeing with the figure. Nguyen further stated that the agency believes a significant portion of the fraud occurred during the previous administration.
Small business fraud wasn’t the only issue plaguing the COVID relief initiatives, however. An additional $280 billion was stolen by individuals, and an estimated $123 billion was misspent or wasted. All told, nearly 10% of the $4.2 trillion distributed for COVID was grossly mismanaged.
Experts believe the government was too eager to spend the funds and didn’t bother to ensure proper oversight. In addition, there were very few restrictions on those “eligible” for the funding, making it easy for fraudsters to steal the money.
Dan Fruchter, chief of the fraud and white-collar crime unit at the U.S. Attorney’s office in the Eastern District of Washington, noted, “Here was this sort of endless pot of money that anyone could access. Folks kind of fooled themselves into thinking that it was a socially acceptable thing to do, even though it wasn’t legal.”
Michael Horowitz, U.S. Justice Department inspector general, explains that the CARES Act barred the Small Business Association from reviewing tax returns that may have blocked ineligible applicants. Borrowers were invited to “self-certify” that their applications were accurate.
“If you open up the bank window and say, give me your application and just promise me you really are who you say you are, you attract a lot of fraudsters, and that’s what happened here,” Horowitz said.
Horowitz believes that reining in the sending of checks pending deeper investigations of eligibility for recipients, using data the government already had at its disposal. “24 hours? 48 hours? Would that really have upended the program?” Horowitz said. “I don’t think it would have. And it was data sitting there. It didn’t get checked.”
“It’s a false narrative that has been set out, that there are only two choices,” Horowitz added. “One choice is, get the money out right away. And that the only other choice was to spend weeks and months trying to figure out who was entitled to it.”
And, despite it all, the funds were a small, inadequate band-aid to an economic crisis. A one-time payment of a few hundred dollars was hardly even noticed by the average American paying a mortgage and feeding a family.
