Steps Needed to Address the Vulnerability of COVID-19 Loans to Fraud
What GAO found
In April 2020, the Small Business Administration (SBA) quickly implemented the Paycheck Protection Program (PPP) and expedited the processing of Economic Disaster Loans (EIDL) and a new EIDL Advance Program. These important programs have helped businesses survive during the very difficult COVID-19 pandemic. In an effort to act quickly on these initiatives, SBA has put in place limited internal controls, leaving both programs vulnerable to fraud. GAO found the following:
- PPP monitoring. Given the immediate need for PPP loans, the SBA has implemented limited guarantees for the approval of PPP loans. Because ongoing monitoring is crucial, GAO recommended in June 2020 that SBA develop plans to assess PPP risks. The SBA has since developed PPP loan review plans and recently provided us with detailed information on its monitoring process.
- Analysis of EIDL data. GAO reported in January 2021 that the SBA had provided around 5,000 advances totaling around $ 26 million and approved at least 3,000 loans totaling around $ 156 million to potentially ineligible businesses. Therefore, the GAO recommended that the SBA conduct a portfolio-level analysis to detect potentially ineligible applicants.
- Fraud risk assessment. Although the SBA has taken some steps to mitigate the risk of fraud for PPP and EIDL, such as performing PPP loan reviews and implementing new EIDL controls, the agency has yet to proceed to a formal fraud risk assessment for either program.
- Reports of suspicious activity. From April to October 2020, financial institutions filed over 21,000 P3 suspicious activity reports. From May to October 2020, financial institutions filed over 20,000 such reports related to EIDL. These reports identified suspicious activity, such as indicators of identity theft and rapid movement of funds.
- Accusations by the Ministry of Justice. From May 2020 to February 2021, the Department of Justice publicly announced charges in more than 100 PPP loan fraud cases and 30 EIDL loan fraud cases. The charges include bank and electronic fraud, misrepresentation, identity theft and money laundering.
- Office of the Inspector General of the SBA. The Office of the Inspector General (OIG) of the SBA has received more than 70,000 complaints over the hotline regarding CARES Act programs, including PPP and EIDL, compared to the 700 to 800 it typically receives in one. year. In October 2020, the OIG reported that its initial review revealed strong indicators of potential widespread fraud in the EIDL program. The OIG and other law enforcement agencies had seized more than $ 450 million on more than 15,000 fraudulent EIDL loans, according to the report.
- Audit of financial statements. In December 2020, SBA’s independent auditor of financial statements issued a disclaimer on SBA’s Fiscal Year 2020 Consolidated Financial Statements as SBA could not provide adequate documentation to support a significant number of transactions. and account balances related to PPP and EIDL.
Why GAO carried out this study
The SBA has made or guaranteed more than 17 million loans and grants through PPP and the EIDL program, providing approximately $ 910 billion to help small businesses affected by COVID-19. PPP provides forgivable loans to small businesses, and EIDL provides low-interest loans of up to $ 2 million for operating and other expenses as well as advances (grants). However, the speed with which SBA implemented the programs made them vulnerable to fraud. In light of these concerns, GAO added these emergency loan programs to its high-risk list in March 2021.
This testimonial discusses the fraud risks associated with PPPs and the EIDL program. It is largely based on GAO reports from June 2020 to January 2021 on the federal response, including the SBA, to the economic downturn caused by COVID-19 (GAO-20-625, GAO-20-701, GAO-21- 191, GAO-21-265). For these reports, GAO reviewed SBA documentation and OIG reports; analyzed SBA data; and interviewed officials from the SBA and the Treasury Department.