Once SBA did implement a fraud-detection protocol, its fraud referrals lacked the necessary information for further action, the GAO found.
The Small Business Administration failed to implement fraud detection measures until after it had distributed hundreds of billions of dollars in Covid relief and, once the agency did start flagging fraud, most of its fraud referrals lacked the necessary information for further action, according to an explosive government watchdog report.
The Government Accountability Office, (GAO) an independent agency that audits the federal government, released a report earlier this week detailing the gaps in the SBA’s fraud detection process for its two major Covid-19 loan initiatives, the Paycheck Protection Plan (PPP) and Economic Injury Disaster Loan (EIDL) program.
To detect Covid-relief fraud, the SBA created a four step process consisting of screening applications to find potential inconsistencies, data analytics to examine data anomalies, human-led reviews of files with data anomalies, and referrals of likely fraud to the agency’s inspector general. But, the SBA failed to fully implement its four step process until over $525 billion of PPP funds and over $210 billion of EIDL funds were already distributed, the GAO determined.
“SBA did not implement the process until more than half of the programs’ funding had been approved, thus limiting its impact in preventing fraud. Specifically, for COVID-EIDL, over $210 billion of an eventual $385 billion (or about 55 percent) had already been disbursed before the full process was implemented. For the PPP, over $525 billion of an eventual $800 billion (or about 66 percent) had already been approved,” the GAO report reads.
Once the fraud detection process was implemented, the fourth step proved ineffective because the SBA did not include enough information in 2 million of the 3 million fraud referrals it submitted to the agency’s inspector general, the GAO observed. The ineffective referrals meant the inspector general could not fully investigate the potential fraud and refer it to the Justice Department for prosecution.
From 2020 to 2022 the SBA distributed over $1 trillion of pandemic loans to more than 10 million small businesses to help them stay afloat. Total Covid fraud estimates have varied widely, from $200 billion to $1 trillion worth of taxpayer funds, when considering the small business loans, expanded unemployment benefits, and other forms of government assistance.
“Bad actors stole hundreds of billions because the SBA completely failed to enact basic safeguards for fraud,” said Senator Joni Ernst (R., Iowa), chair of the Senate Small Business Committee.
“Thankfully, DOGE, Administrator Loeffler, and I have been quite busy uncovering every dollar stolen. I will work to ensure that the criminals are held accountable and taxpayers get their money back.”
SBA Administrator Kelly Loeffler has promised to crack down on Covid-relief fraud and other fraudulent loan disbursements under the Biden administration. She has expressed enthusiasm for working with the Trump administration’s Department of Government Efficiency to detect hundreds of millions of fraudulent loans sent out by the SBA.
The GAO recommended the SBA work with its inspector general’s office to create a plan for likely EIDL fraud. In response, the agency agreed with the recommendation and has begun taking steps to implement it.