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GAO Tells SBA to Act on COVID-19 Loan Fraud – Homeland Security Today

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Through its Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL), the Small Business Administration (SBA) has provided about $910 billion to small businesses hurt by COVID-19.

The Government Accountability Office (GAO) says SBA has streamlined the programs to speed fund distribution, which meant less oversight and left the programs more susceptible to fraud. There have been reports of fraud in both programs.

In April 2020, the Small Business Administration (SBA) quickly implemented PPP and expedited the processing of EIDL and a new EIDL advance program. These important programs have helped businesses survive during the very challenging COVID-19 pandemic. But in an effort to move quickly on these initiatives, SBA put limited internal controls in place, leaving both programs susceptible to fraud. GAO found the following:

PPP oversight. Given the immediate need for PPP loans, SBA implemented limited safeguards for approving PPP loans. Because ongoing oversight is crucial, GAO recommended in June 2020 that SBA develop plans to assess PPP risks. SBA has since developed plans to review PPP loans and has recently provided us detailed information about its oversight process.

Analysis of EIDL data. GAO reported in January 2021 that SBA had provided about 5,000 advances totaling about $26 million and approved at least 3,000 loans totaling about $156 million to potentially ineligible businesses. Therefore, GAO recommended that SBA conduct portfolio-level analysis to detect potentially ineligible applications.

Assessment of fraud risks. Although SBA has taken some steps to mitigate fraud risks to PPP and EIDL, such as conducting PPP loan reviews and implementing new EIDL controls, the agency has not yet conducted a formal fraud risk assessment for either program.

Suspicious activity reports. From April through October 2020, financial institutions filed more than 21,000 suspicious activity reports related to PPP. From May through October 2020, financial institutions filed more than 20,000 such reports related to EIDL. These reports identified suspicious activity, such as indicators of identity theft and the rapid movement of funds.

Department of Justice charges. From May 2020 through February 2021, the Department of Justice publicly announced charges in over 100 fraud-related cases associated with PPP loans and 30 fraud-related cases associated with EIDL loans. The charges include bank and wire fraud, making false statements, identity theft, and money laundering.

SBA Office of Inspector General. The SBA Office of Inspector General (OIG) received over 70,000 hotline complaints related to CARES Act programs, including PPP and EIDL, compared to the 700 to 800 it typically receives in a year. In October 2020, the OIG reported that its initial review revealed strong indicators of widespread potential fraud in the EIDL program. The OIG and other law enforcement agencies had seized over $450 million from over 15,000 fraudulent EIDL loans, according to the report.

Financial statement audit. In December 2020, SBA’s independent financial statement auditor issued a disclaimer of opinion on SBA’s fiscal year 2020 consolidated financial statements because SBA could not provide adequate documentation to support a significant number of transactions and account balances related to PPP and EIDL.

GAO anticipates making four recommendations on fraud risks in PPP and EIDL and one on EIDL oversight in its March 2021 report on the federal COVID-19 response. SBA agreed with the recommendations, stating it would implement fraud risk assessments for both programs and an oversight plan for EIDL.

Read the full testimony at GAO

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Source: on 2021-03-27 08:45:00

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