Fraud Friday – OIG Advises Against Ending Collections on EIDLs $100,000 or Less

October 6, 2023

Delaney Sexton
Contributing Editor

Fraud Friday – OIG Advises Against Ending Collections on EIDLs $100,000 or Less

The Office of Inspector General issued a management advisory highlighting their concerns with the SBA ending active collections on COVID-19 Economic Injury Disaster Loans with an outstanding balance of $100,000 or less. Three major concerns include:

  1. By ending collections on these EIDLs, the SBA risks violating federal law prohibiting agencies from ending collections on fraudulent, false, or misrepresented claims.
  2. To maximize return to taxpayers, SBA should evaluate the EIDL portfolio in collaboration with the Treasury to determine if selling the portfolio, including delinquent loans of $100,000 or less, is in the government’s best interest.
  3. SBA’s cost-benefit analysis used a dissimilar loan program and a private-sector loan servicing model to estimate proceeds from collections and collection costs. The analysis did not include periodic comparisons of costs incurred and amounts collected as federal regulations require.

Earlier this year, SBA decided to cease active collection activities, such as foreclosure on property collateral and wage garnishment, on all delinquent EIDLs with a balance of $100,000 or less. Their reasoning was that the cost to collect delinquent EIDLs, over $250 million a year, would surpass the recovery amount.

For loans $100,000 or less, SBA indicated that 51% of COVID-19 EIDLs were either past due, delinquent, in liquidation, or charged off as of May 9, 2023. That totals more than $33.4 billion and 1.34 million loans. The OIG says that SBA’s calculation “uses data that does not sync with the loan accounting system of record and data that OIG does not have access to.” The OIG is unable to validate this data, so it is possible this number could exceed what the SBA indicated.

The Inspector General’s advisory states that “SBA’s decision not to pursue all available collection activities for these loans does not hold those who borrowed upon the public trust accountable and could incentivize other COVID-19 EIDL recipients to stop paying on their loans, creating a larger chain of delinquency.”

Additionally, it was pointed out that SBA needs to identify all borrowers with multiple loans of $100,000 or less which may exceed $100,000 when combined and subject them to continued collection activities. OIG found that $9.6 billion EIDLs of $100,000 or less were made to borrowers that received multiple EIDLs exceeding $100,000 in total.

Source:
OIG Management Advisory