In a report released by a government watchdog, it was revealed that fraudulent actors may have stolen over $200 billion from federal loans intended to aid struggling small businesses during the Covid pandemic. The Office of the Inspector General estimated that approximately 17% of the $1.2 trillion disbursed by the Small Business Administration (SBA) could have been taken by fraudsters.
The inspector general’s report specifically highlighted that $136 billion from the Economic Injury Disaster Loan (EIDL) program and $64 billion from the Paycheck Protection Program (PPP) loans were potentially stolen. Throughout the duration of the programs, the SBA distributed $400 billion in EIDL funds and $800 billion in PPP loans.
The report attributed the ability of fraudsters to exploit the programs to the SBA’s relaxation of internal controls in their haste to distribute assistance during the pandemic shutdowns. However, the SBA disputed these conclusions, stating that additional fraud controls were implemented in 2021 and that the inspector general’s estimation of a 34% potential fraud rate in the EIDL program did not align with current repayment data.
According to the SBA, 12% of the loans went to borrowers who are past due, likely consisting of real businesses that are closed or unable to repay. They also stated that 74% of businesses have either fully repaid or begun repayment, while 14% are still in deferment.
The investigations conducted by the inspector general’s office have resulted in over 1,000 indictments, 803 arrests, and 529 convictions related to fraud in the loan programs. As a result, federal law enforcement agencies have seized or retrieved nearly $30 billion in stolen loans.
The inspector general’s office is continuing to work on tens of thousands of investigative leads on waste, fraud, and abuse in the loan programs, with many of these investigations expected to span years. The Paycheck Protection Program offered guaranteed loans that could be forgiven under certain conditions, while the Economic Injury Disaster Loan program provided low-interest loans to cover operating expenses for small businesses and other organizations.
As of May, the report stated that approximately 1.6 million EIDL loans worth $114 billion were past due, delinquent, or in liquidation, with over 69,000 of these loans worth $3.2 billion being written off. Additionally, more than 500,000 PPP loans have defaulted. Nonpayment is often an indicator of loan fraud, although not all past due, delinquent, or charged off loans are necessarily fraudulent.
This revelation highlights the significant challenges faced by the SBA in preventing fraud and ensuring that funds reach legitimate small businesses in need. It underscores the importance of implementing robust and effective control measures to protect government assistance programs and support those truly in need during times of crisis.
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