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Watchdogs: More than $80 billion of fraud in small business stimulus

New IdentityTheft Scam

WASHINGTON — Within days of the launch of the Small Business Association’s new pandemic loan programs, the agency’s inspector general started getting calls from banks trying to report fraud.

“We sat down with the executives at SBA to say we have a problem,” Hannibal Ware, inspector general for the Small Business Administration, testified to the U.S. House of Representatives on Thursday.

Now almost a year later, Ware and his team have identified $78.1 billion in potentially fraudulent Economic Injury Disaster Loans and $3.6 billion in Paycheck Protection Program loans to potentially ineligible recipients. Ware said the fraud identified in the EIDL program in particular was “rampant.”

Government watchdogs testified that the SBA ignored repeated warnings about fraud in the programs as it reduced or eliminated controls designed to root out abuses.

Law enforcement have launched at least 98 publicly-announced investigations into EIDL and PPP loan fraud, Michael Horowitz, the Department of Justice Inspector General testified Thursday.

The Department of Justice has charged an Atlanta reality TV star with bank fraud after he got a $3.7 million PPP loan and allegedly used the proceeds to purchase $85,000 in jewelry, including a Rolex Presidential watch, a diamond bracelet, and a 5.7 carat diamond ring for himself, to lease a 2019 Rolls Royce Wraith, to make loan payments, and to pay $40,000 for child support.

In September, a National Football League player from Florida, Joshua Bellamy, was charged for his alleged participation in a scheme to file fraudulent loan applications seeking more than $24 million in forgivable PPP loans. Last month, a Texas man and woman were indicted by the DOJ for filing hundreds of fraudulent EIDL applications.

Non-partisan government watchdogs told Congress this is likely tip of the iceberg. The SBA inspector general’s office has received over 150,000 complaints regarding potential loan fraud from these taxpayer-funded programs — that’s 150 times more complaints than they usually receive in a year, Ware said. They’ve had to start using new data analytics technology just to examine the complaints.

“It is going to take us months and years to pursue it,” Horowitz testified.

In 2020 and 2021, the SBA has administered to date over 8 million PPP loans totaling $718 billion, including over 33,000 in Connecticut. PPP is the forgivable small business loan program created to help struggling businesses get through the pandemic.

The SBA moved quickly to get this money out the door, approving millions of loans in the weeks after Congress approved the money. The funds are widely believed to have stimulated the economy and kept unemployment from reaching higher levels.

The program has been so popular that Congress repeatedly voted give more money and more time to accept loan applications to the SBA. On Thursday, the Senate voted 92-7 to allow the SBA an extra two months to accept PPP loans. The program will now expire on May 31.

But the watchdogs, including William Shear, director of Financial Markets and Community Investment at the Government Accountability Office, testified that the SBA repeatedly ignored their warnings that the PPP and EIDL programs were extremely vulnerable to fraud.

Ware testified that the SBA “reduced” its standard fraud mitigation procedures before launching the programs to expedite the ability of the agency to distribute the money. Ware said his office offered the SBA “dozens” of recommendations to reduce the risk of fraud in the program and improve their internal controls, without jeopardizing speed, and those recommendations were not implemented.

Fraud controls were especially weak for EIDL loans, Ware said. The SBA has approved over 3.7 million EIDL loans totaling over $200 billion, including over 36,000 in Connecticut. These loans are low-interest business loans that companies will have to pay back over time.

“It wasn’t taken as seriously,” Ware testified about why the EIDL program had more fraud than PPP. The inspector general found the SBA under President Donald Trump lowered normal fraud-control guard rails and removed some procedures before launching this program.

The Treasury Department under Trump said any program of this size and launched with such speed would encounter some problems and they would work quickly to uncover them.

Rep. Jim Clyburn, D-S.C., chair of the House Select Committee on the Coronavirus Crisis, chastised the Trump administration for their lack oversight Thursday. Rep. Jim Jordan, R-Ohio, defended the PPP program as highly successful, said fraud should be prosecuted, but spent much of his time highlighting what he viewed as other wrongdoing, including calling for Congressional hearings on Gov. Andrew M. Cuomo’s nursing home reporting and criticizing his decision to shut down businesses in the state.

Ware testified that identity theft is “probably the most common underlying cause of fraud we found in the EIDL program,” adding they are now identifying other cases of identify theft in the PPP program too.

Rep. Jamie Raskin, D-Md., told the committee that he had several constituents who received letters from the SBA about EIDL loans that they never applied for, only to find out later their identities were stolen.

Ware also described how people on the dark web reached out to unwitting people, told them the government was handing out “free money,” encouraged them to apply and then took a cut of the funds.

The SBA inspector general also found that many instances of multiple EIDL loans issued to “businesses” that had the same email addresses, IP addresses or physical addresses. The found loans that were sent to different bank accounts than the ones listed on the loan applications.

The inspector general reported they also found thousands of borrowers incorrectly received more than one PPP loan payment from lenders.

Ware said he could not rule out that fraudulent borrowers coordinated their activities with SBA employees or that EIDL loans were obtained by foreign actors or minors.

Congress has appropriated millions of dollars to help government inspector generals and the Government Accountability Office continue their oversight and investigations of these pandemic programs and others.

President Joe Biden in February said he would increase oversight of the PPP loan program.

“I invite any inspector general in this program, with jurisdiction over this program, to closely look at these loans and report — publicly report on any issues they uncover,” he said. “We will ensure every dollar is spent well.”

[email protected]; Twitter: @emiliemunson

Source: on 2021-03-26 14:56:15

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