The Small Business Administration (SBA) Office of Inspector General (OIG) issued a new report today estimating that of the $1.2 trillion SBA disbursed through its pandemic assistance loan programs, over $200 billion was potentially fraudulent.
The new figure from the OIG means that at least 17 percent of all COVID-19 Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP) funds were potentially fraudulent – specifically, more than $136 billion COVID-19 EIDLs and $64 billion in PPP funds.
“Since SBA did not have an established strong internal control environment for approving and disbursing program funds, there was an insufficient barrier against fraudsters accessing funds that should have been available for eligible business owners adversely affected by the pandemic,” the report says.
Over the course of SBA’s pandemic response, the OIG issued multiple reports and key recommendations to identify weaknesses in SBA’s internal controls to prevent fraud.
For example, while the SBA implemented several layers of controls to prevent foreign entities from perpetrating fraud within the agency’s loan programs, the OIG found that some individuals with foreign-based IP addresses were still able to access the system.
The OIG identified 11 fraud indicators, or fraud groups, which the agency said “are almost like a fingerprint left behind at a crime scene.” These fraud groups include hold codes, Internet Protocol (IP) addresses, Employer Identification Numbers (EIN), bank accounts, defaulted/no loan forgiveness, hotline complaints, sole proprietors/independent contractors without EINs, suspicious phone numbers, suspicious physical addresses, COVID-19 EIDL advances, and suspicious email addresses.
Based on the OIG’s audit, data analytics, and investigative techniques used to analyze the 11 fraud indicators, the OIG said it was able to “verify that SBA’s lack of, or weakened, up-front internal controls resulted in the disbursement of over $200 billion in potentially fraudulent COVID-19 EIDLs, EIDL Targeted Advances, Supplemental Targeted Advances, and PPP loans.”
“Based on our work, we have confidence in our estimate of potential pandemic loan fraud,” the report adds. “Further, we believe loans identified as potentially fraudulent as part of our review warrant investigation by OIG and its investigative partners.”
Thus far, OIG’s collaboration with SBA, the U.S. Secret Service, other Federal agencies, and financial institutions has resulted in nearly $30 billion in COVID-19 EIDL and PPP funds being seized or returned to SBA.
“SBA has been responsive to OIG recommendations for corrective action related to internal controls and gave specific examples of the agency’s actions,” the OIG report says. “We will continue to monitor and assess the effectiveness of SBA’s implemented controls through our ongoing and planned reviews.”