October 20, 2021
C-Suite Wednesday – OIG Cites $90 Billion in Potentially Fraudulent PPP and EIDL Loans
”In March 2020, the Coronavirus Disease 2019 (COVID-19) pandemic catapulted the U.S. Small Business Administration (SBA) into the spotlight as the primary agency responsible for providing nationwide assistance to small businesses. Since then, SBA has faced a steady stream of unprecedented new challenges,” says the SBA Inspector General, Hannibal Ware, in the most recent OIG report.
In the “Top Management and Performance Challenges Facing the Small Business Administration in Fiscal Year 2022” report, the Office of Inspector General names eight issues that the SBA needs to address. The first challenge in the report focuses on the economic relief programs and their susceptibility to fraud. Due to the speed of the programs’ release, there was not enough time to establish the necessary controls to ensure the programs function as intended and alleviate risk.
As a result, the OIG had received 215,000 hotline fraud complaints about the PPP and EIDL programs and 1.2 million EIDL loan complaints of identity theft by August 2021. They also achieved 307 indictments, 205 arrests, and 69 convictions related to PPP or EIDL fraud as of August 2021. This investigative work is associated with over $460 million. The OIG, in partnership with other agencies, seized nearly $1 billion in funds stolen through EIDL fraud, and another $3.1 billion was returned to the EIDL program.
One of the aspects identified was the abuse and fraud that occurred in the Paycheck Protection Program. The OIG previously identified 70,835 potentially fraudulent PPP loans worth more than $4.6 billion. There have been over 40,000 Hotline complaints of potential PPP fraud by August 2021, and multiple financial institutions contacted the OIG about PPP deposits into personal accounts or made to people whom they do not believe own a business. While the SBA has made substantial progress to reduce the fraud, there is work remaining.
The report noted the deficiencies in internal controls related to the eligibility of a PPP borrower. There were thousands of PPP loans made to be potentially ineligible borrowers that:
• exceeded the maximum loan amounts based on the number of employees and compensation rates
• were in the government’s Do Not Pay database
• exceeded the maximum business size standards, and/or
• obtained a Taxpayer Identification Number after February 15, 2020.
“SBA has made substantial progress in strengthening controls to validate eligibility and ensure eligibility requirements,” states the report.
Finally, the first challenge acknowledges the problems with EIDL fraud. The report claims that the OIG receives hundreds of complaints regarding EIDL fraud every day. There are two OIG reports in the last year with open recommendations for the EIDL program. Their internal control concerns include:
• $14.3 billion in potentially fraudulent EIDL grants to applicants that changed the original bank account listed on the applications to a different account
• $62.7 billion in potentially fraudulent EIDL grants to applicants who used duplicate information
• $1.1 billion in EIDL grants to potentially ineligible entities
• $6.2 billion in EIDL grants and $468 million in advance grants that were associated with identity theft.
The SBA has made some enhancements in system controls and validations, but the volume of potential fraud in the EIDL program will continue to challenge the agency’s ability to reduce the ongoing risk.