Billions In COVID-19 Relief Loans May Have Gone To Fraudsters, Report Finds

“The Small Business Administration may have granted billions of dollars in fraudulent COVID-19 relief loans after relaxing its approval standards in response to an unprecedented amount of applications, the agency’s internal watchdog said in a report published Wednesday. The SBA “lowered its guardrails” to keep up with the demand and quicken the loan approval process during the economic disaster caused by the coronavirus, according to the agency’s office of the inspector general (OIG). Doing so “significantly” increased the risk of fraud, the OIG reported. After the U.S. government declared COVID-19 a disaster in early March, the SBA was authorized to provide loans of up to $2 million to small businesses, nonprofits, farms and other eligible entities. As of July 31, the agency had received over 14 million COVID-19 relief loan applications, according to the report. (By comparison, the SBA averaged about 65,000 applications per year before the pandemic.) It approved 3.2 million of those applications for a total of $169.3 billion and disbursed 5.8 million COVID-19 relief grants worth $20 billion.  Of those loans, the SBA approved $14.3 billion to accounts that differed from the original bank accounts listed on the loan applications, according to the OIG report. Over $13 billion of those loans were disbursed. The SBA also approved $63 billion in loans to applicants who used the same information ― IP addresses, email addresses, mailing addresses or bank accounts ― for multiple loan applications. About $58 billion of those loans were disbursed, according to the OIG. The agency also reportedly granted over $1 billion in loans and grants to potentially ineligible businesses. “We recognize that some of the loans in these subgroups could be legitimate and for eligible businesses,” the OIG said in its report. “An example would be an accounting or law firm filling out multiple applications for their clients.” But the SBA should have had a stronger vetting process in place to research instances of duplicative information or suspicious activity, the OIG said. In one instance, the SBA approved 10 loans for different farms requested by an applicant at one IP address, according to the report. Some of the addresses used for the farms were residential homes or apartments. The SBA disbursed over $500,000 for these potentially fraudulent farms, the report determined. In another example of potential fraud, the SBA approved 10 loans for 10 different bathroom renovation businesses in the same city. But the loan applications all used the same email address — and the OIG was unable to locate any bathroom renovation companies with that company’s name in that particular city. The OIG report made several recommendations to reduce the risk of fraud and recover funds disbursed to ineligible businesses, including strengthening vetting processes to ensure loan deposits are made to legitimate bank accounts. SBA Administrator Jovita Carranza has pushed back on the OIG’s findings, writing in a letter to the office that she’s “concerned” that the report “grossly overstates the risk of fraud, waste and abuse” in the loan program. “OIG mistakenly identifies legitimate loans and advances as examples of ‘potential fraud’ and ‘potential ineligibility’ because OIG did not complete its analyses,” Carranza wrote. “Yet, the report] touts figures that erroneously count these legitimate loans and advances as fraud.” In its report, the OIG said it “strongly” disagrees with Carranza’s accusations. “SBA attempts to diminish this review’s findings that point to internal control weaknesses that our investigative results have confirmed,” the report stated. “Unfortunately, SBA officials did not provide most of the information presented in their response at any point during the inspection process. While it would have been helpful to have this information, none of the information presented in SBA’s response alters our findings.” The OIG report continued: “Despite management disagreeing with the findings and only partially agreeing with 9 of the recommendations, in most cases, the agency is taking corrective actions to fully implement our recommendations.” Read the OIG’s full report here.

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