According to the Office of the Inspector General, fraudsters may have stolen more than $200 billion in federal loans intended to assist struggling small businesses during the Covid pandemic. In a new report, the inspector general estimated that approximately 17% of the $1.2 trillion disbursed by the Small Business Administration (SBA) could have been fraudulently obtained. The report revealed that potentially $136 billion from the Economic Injury Disaster Loan (EIDL) program and $64 billion from the Paycheck Protection Program (PPP) loans were stolen. The SBA distributed a total of $400 billion in EIDL funds and $800 billion in PPP loans during the lifespan of these programs.
SBA’s Loosened Internal Controls Facilitated Fraud
The inspector general attributed the rampant fraud to the SBA’s relaxation of internal controls in its haste to provide assistance to struggling small businesses during the pandemic shutdowns. However, the SBA disputed these conclusions, stating that the report overestimated the extent of fraud in the programs. Bailey DeVries, a senior official at the SBA, claimed that the Trump administration quickly disbursed loans during the initial months of the program but implemented additional fraud controls in 2021. DeVries also argued that the inspector general’s finding of a 34% potential fraud rate in the EIDL program contradicted the SBA’s current repayment data. According to SBA figures, 12% of the loans went to borrowers who are past due, likely due to genuine businesses being closed or unable to repay. DeVries stated that 74% of businesses have either fully repaid or started repaying their loans, while 14% are still in the deferment period.
The inspector general’s investigations have resulted in over 1,000 indictments, 803 arrests, and 529 convictions related to fraud in the loan programs, leading to the recovery of nearly $30 billion in stolen loans by federal law enforcement agencies. However, the office is still actively working on tens of thousands of investigative leads regarding waste, fraud, and abuse in the loan programs, with many of these investigations expected to continue for years.
The PPP offered guaranteed loans to small businesses, individuals, and nonprofits that could be forgiven if certain conditions were met. On the other hand, the EIDL program provided low-interest, fixed-rate loans to help small businesses and organizations cover their operating expenses. As of May, the report revealed that approximately 1.6 million EIDL loans worth $114 billion were either past due, delinquent, or in liquidation. Out of these, more than 69,000 loans worth $3.2 billion have been written off. Additionally, over 500,000 PPP loans have defaulted. The report also emphasized that while nonpayment often indicates loan fraud, not all loans that are past due, delinquent, or charged off will be fraudulent.