August 17, 2022

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Small Business Administration: Actions Needed to Improve COVID-19 Loans’ Internal Controls and Reduce Their Susceptibility to Fraud

What GAO Uncovered

In April 2020, the Tiny Enterprise Administration (SBA) speedily carried out the Paycheck Protection System (PPP) and expedited the processing of Economic Injury Catastrophe Financial loans (EIDL) and a new EIDL advance program. These essential applications have aided enterprises endure in the course of the quite hard COVID-19 pandemic. In an effort and hard work to transfer swiftly on these initiatives, SBA set restricted inner controls in location, leaving the two applications inclined to fraud. GAO identified the pursuing:

  • PPP oversight. Presented the immediate need to have for PPP loans, SBA applied constrained safeguards for approving PPP financial loans. Since ongoing oversight is very important, GAO advised in June 2020 that SBA develop plans to evaluate PPP hazards. SBA has considering the fact that formulated ideas to review PPP financial loans and has not too long ago provided us specific information and facts about its oversight approach.
  • Evaluation of EIDL facts. GAO documented in January 2021 that SBA had delivered about 5,000 developments totaling about $26 million and accredited at the very least 3,000 loans totaling about $156 million to possibly ineligible businesses. For that reason, GAO encouraged that SBA perform portfolio-degree assessment to detect possibly ineligible programs.
  • Assessment of fraud challenges. Whilst SBA has taken some techniques to mitigate fraud threats to PPP and EIDL, such as conducting PPP financial loan assessments and employing new EIDL controls, the agency has not however carried out a formal fraud hazard assessment for either method.
  • Suspicious activity stories. From April via Oct 2020, fiscal establishments filed a lot more than 21,000 suspicious exercise stories connected to PPP. From May possibly by means of Oct 2020, monetary institutions filed additional than 20,000 this sort of stories connected to EIDL. These experiences identified suspicious action, these types of as indicators of id theft and the fast motion of cash.
  • Office of Justice prices. From Might 2020 by way of February 2021, the Office of Justice publicly declared fees in more than 100 fraud-connected cases related with PPP loans and 30 fraud-relevant circumstances related with EIDL loans. The charges include financial institution and wire fraud, earning fake statements, identification theft, and revenue laundering.
  • SBA Office of Inspector Standard. The SBA Workplace of Inspector Basic (OIG) been given more than 70,000 hotline complaints relevant to CARES Act systems, which include PPP and EIDL, in comparison to the 700 to 800 it normally gets in a year. In October 2020, the OIG documented that its initial review exposed sturdy indicators of widespread opportunity fraud in the EIDL software. The OIG and other legislation enforcement companies had seized more than $450 million from around 15,000 fraudulent EIDL financial loans, in accordance to the report.
  • Fiscal statement audit. In December 2020, SBA’s independent money statement auditor issued a disclaimer of belief on SBA’s fiscal yr 2020 consolidated economic statements for the reason that SBA could not provide adequate documentation to aid a sizeable quantity of transactions and account balances associated to PPP and EIDL.

Why GAO Did This Study

SBA has designed or confirmed a lot more than 17 million loans and grants through PPP and the EIDL system, delivering about $910 billion to aid compact enterprises adversely impacted by COVID-19. PPP supplies potentially forgivable financial loans to tiny companies, and EIDL gives lower-curiosity financial loans of up to $2 million for working and other expenses as perfectly as improvements (grants). Nonetheless, the velocity with which SBA applied the plans left them prone to fraud. Supplied these considerations, GAO additional these unexpected emergency personal loan systems to its Significant-Possibility Checklist in March 2021.

This testimony discusses fraud challenges associated with PPP and the EIDL application. It is dependent mostly on GAO’s June 2020 – January 2021 reports on the federal response, which include by SBA, to the financial downturn triggered by COVID-19 (GAO-20-625, GAO-20-701, GAO-21-191, GAO-21-265). For these studies, GAO reviewed SBA documentation and OIG reports analyzed SBA info and interviewed officers from SBA and the Office of the Treasury.