Fraud Friday – SBA Ignored Fraud Risk in PPP Loans Says SBA Inspector General

May 27, 2022

Delaney Sexton
Contributing Editor

Fraud Friday – SBA Ignored Fraud Risk in PPP Loans Says SBA Inspector General

“SBA did not have an organizational structure with clearly defined roles, responsibilities, and processes to manage and handle potentially fraudulent PPP loans. In addition, the agency did not establish a centralized entity to design, lead, and manage fraud risk because the agency did not establish a sufficient fraud risk framework,” reads a new OIG report. “In addition, lenders were not always clear on how to handle PPP fraud or recover funds obtained fraudulently from the PPP that remained in the borrower’s account.”

SBA agreed with the Office of Inspector General’s first recommendation to establish detailed roles, responsibilities, and processes for SBA offices and officials. While SBA stated that the procedures and actions they developed aided in detecting and combatting fraud, they have not met the recommendation to create a sufficient fraud risk framework. OIG claims that it has caused SBA to confront a “pay-and-chase environment”. SBA Management plans to complete final action by the end of fiscal year 2022 (September 30, 2022).

The second recommendation that the Office of Inspector General issued stated that the SBA should provide lenders with formal guidance to handle potentially fraudulent PPP loans and have guidance when implementing future programs. Over the course of the program, SBA management developed multiple procedural notices and standard operating procedures, but SBA did not meet the recommendation to give lenders specific and sufficient guidance. Similar to the first recommendation, SBA will complete final action by the end of the fiscal year.

“Because PPP lending is closed to new applications, SBA’s challenge is to effectively handle potentially fraudulent PPP loans to reduce the risk of financial loss and ensure only eligible borrowers receive forgiveness in accordance with program requirements. In February 2022, we reported that SBA changed its process to review loans in June 2021, prioritizing by risk level instead of the order the forgiveness application was submitted.”

In SBA’s response, they agreed to meet the recommendations, but they did assert that they have already employed efforts to address OIG’s recommendations.

Source:
OIG Report