January 19, 2021

Caity Roach
Editor

SBA Hot Topic Tuesday — Nearly 55,000 PPP Loans Went to Potentially  Ineligible Businesses

“SBA’s efforts to hurry capital to businesses were at the expense of controls that could have reduced the likelihood of ineligible or fraudulent business obtaining a PPP loan,” says the SBA OIG in a report issued last Thursday. “As a result, there is limited assurance that loans went to only eligible recipients.”

An SBA OIG analysis of PPP loans made prior to June 30, 2020, identified thousands of potentially fraudulent loans. According to the report, lenders approved more than $402 million in PPP loans to businesses not in operation on or before February 15, 2020. Additionally, 43,000 PPP loans totaling $11.7 billion exceeded the per employee maximum loan amount, and 355 businesses were approved for loans despite exceeding the 500 employees limit (some of which reported having more than 10 times the CARES Act threshold).

However, data provided to the SBA OIG may be an imprecise representation of the true amount of fraud within the program. “We determined that SBA’s publicly reported and loan-level PPP data was inaccurate and incomplete,” says the OIG. “Without accurate and complete data, SBA cannot reliably and accurately inform SBA management and Congress about program effectiveness and measures needed to inform program decisions.” 

To reduce the risk of financial loss from PPP loans being made to ineligible or fraudulent borrowers and improve SBA’s ability to obtain information necessary for critical program decisions, the OIG made six recommendations:

  1. Review the loans identified as potentially ineligible to determine if the businesses met eligibility requirements. If not, take appropriate action related to loan guaranty and forgiveness.

  2. Assess vulnerabilities in internal controls and strengthen or implement necessary internal controls to address ineligible loans and potential fraud.

  3. Revise the borrower application to include the critical “jobs retained” field to ensure SBA reports accurate and complete job numbers.

  4. Revise the application to include the demographic information of borrowers.

  5. Update the borrower application to include a field for the borrower’s NAICS code to prevent potentially ineligible loan approvals.

  6. Update the PPP forgiveness application to include the borrower’s NAICS code to ensure that previously recorded information is accurate.

SBA fully agreed with five of the six recommendations, only disagreeing with number three. According to the Administrator, jobs retained should not be captured at the application stage and should instead be included during the forgiveness phase. This alternative solution satisfied the OIG’s intent of the recommendation. 

The SBA has not yet announced whether it will be rescinding the loan guaranty on ineligible loans that were inadvertently approved.

Source:
OIG Report-21-07