A recent Government Accountability Office (GAO) report has exposed shocking
levels of incompetence by the Small Business Administration (SBA) in
its investigation of pandemic fraud. According to SBA officials, the
agency’s four-step process for managing fraud risks in its pandemic loan
programs—specifically the Paycheck Protection Program (PPP) and
COVID-19 Economic Injury Disaster Loans (COVID-19 EIDL)—was supposed to
follow a thorough system. Yet, the GAO found significant failures in
oversight, leaving taxpayers vulnerable and millions of dollars in
fraudulent loans unaccounted for. This failure highlights the SBA’s
inability to protect taxpayer funds and demonstrates the risks inherent
in poorly managed government programs
According to the GAO report, the Small Business
Administration (SBA) demonstrated a staggering incompetence in
investigating pandemic fraud. The SBA used a four-step process to manage
fraud risks in the COVID-19 Economic Injury Disaster Loan (COVID-EIDL)
program, which involved screening, data analytics, human-led reviews,
and Office of SBA Inspector General (OIG) referrals. Despite overseeing
over $1 trillion in loans and grants to over 10 million small businesses
during the pandemic, this fraud prevention process wasn’t fully
implemented until more than half of the PPP and COVID-EIDL funds had
already been approved.For the COVID-EIDL, more than
$210 billion of an eventual $385 billion, 55 percent, had already been
disbursed before the complete process was implemented. Over $525 billion
of an eventual $800 billion, 66 percent, had already been approved for
the PPP. More from the report:
ryThe
four-step process as applied to COVID-19 EIDL and the PPP had
weaknesses, as several audit entities, including GAO, SBA’s OIG, and
SBA’s independent financial statement auditor, have previously reported.
For example, as part of its screening step, SBA compared loan
applications against the Treasury’s various Do Not Pay (DNP) databases
and public records. A June 2024 SBA OIG report found, however, that SBA
awarded and disbursed funds to potentially ineligible entities listed in
DNP without sufficient evidence to support the loan decision. In
response to this report, SBA agreed, among other things, to review and
address those loans and grants with an alert in the file that was not
previously addressed. According to SBA’s OIG, the proposed action did
not fully meet OIG’s recommendation to review all loans identified as
potentially ineligible.In its work, GAO identified a
weakness in SBA’s process for referring cases of likely fraud to its
OIG—that is, step four of its four-step process. As part of its referral
step for COVID-EIDL, SBA submitted almost 3 million referrals to its
OIG. SBA OIG officials told GAO that of these referrals, about 2 million
were not actionable because they did not contain enough data elements
to allow for further investigation or had quality issues, such as
duplicates or incorrect information. Without an effective referral
process, the SBA OIG is not able to fully investigate instances of
likely fraud and make follow-on referrals to, for example, the
Department of Justice for prosecution, as necessa
Despite the four-step process, it proved ineffective. One
of the steps involved referring potentially fraudulent applications to
the Inspector General (IG) for investigation. However, the IG could not
thoroughly investigate nearly 2 million of the 3 million referrals
because the SBA failed to provide sufficient or accurate information in
its referrals.The estimated total fraud from COVID programs exceeds $200 billion.Sen.
Joni Ernst (R-Iowa) previously found that $5.4 billion in loans were
made to people using fraudulent social security numbers.“The
scale of incompetence at the Biden SBA is absolutely staggering,” Ernst
said. “Even when bureaucrats thought there might be fraud, they failed
to take the basic steps required to investigate these claims. I will not
let these criminals get away. I will be working with SBA Administrator
Kelly Loeffler and DOGE to hold these criminals accountable and recoup
every cent stolen from taxpayers.”
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