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More than $200 billion in COVID-19 relief loans and grants for small businesses may have been stolen by fraudsters, according to new estimates from a federal watchdog report.
The report, published Tuesday by the Office of the Inspector General for the U.S. Small Business Administration, marks the highest estimate yet in the office’s ongoing investigation into federally funded programs that helped small business owners and entrepreneurs in the wake of the pandemic.
“The pandemic presented a whole-of-government challenge,” Inspector General Hannibal “Mike” Ware said in the report. “Fraudsters found vulnerabilities and coordinated schemes to bypass controls and gain easy access to funds meant for eligible small businesses and entrepreneurs adversely affected by the economic crisis.”
At least 17% of the $1.2 trillion disbursed through the SBA’s pandemic assistance loan programs were potentially stolen by fraudulent actors, according to the report. The office estimated fraud in the COVID-19 Economic Injury Disaster Loan program is more than $136 billion — representing 33% of total disbursed funds — and the Paycheck Protection estimate is $64 billion.
These new numbers are a significant increase in previous fraud estimates made by the office. The SBA inspector general previously estimated fraud in the COVID-19 disaster loan program at $86 billion and the Paycheck Protection program at $20 billion.
The SBA Office of the Inspector General has investigated over 1,000 cases since March 2020, according to the report. The office said it anticipates that “the overall potential fraud estimate could fluctuate” and has already found over $400 billion worth of loans that need further investigation.
Ware said in a statement Tuesday that the report “utilizes investigative casework, prior (inspector general) reporting, and cutting-edge data analysis to identify multiple fraud schemes used to potentially steal over $200 billion from American taxpayers and exploit programs meant to help those in need.”
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Senior SBA official says report overestimates fraud
In a lengthy letter attached to the report, a senior SBA official disputed the inspector general’s report and said it overestimates the amount of pandemic relief fraud.
Bailey DeVries, SBA’s acting associate administrator for capital access, said the inspector general’s “approach contains serious flaws that significantly overestimate fraud and unintentionally mislead the public to believe that the work we did together had no significant impact in protecting against fraud.”
DeVries said the estimate of a 34% potential fraud rate for COVID-EIDL “does not stand up against” the SBA’s current repayment data.
As of June 2023, DeVries said SBA data showed that only 12% of loan dollars went to borrowers who are overdue. And 74% of businesses have either full repaid or have begun to repay their loans while 14% of business are still in the deferment period, she said.
DeVries underscored that the majority of fraud, the SBA estimated 86%, occurred in the first nine months of PPP and COVID-EIDL programs.
She also said the Trump administration prioritized speed and “unnecessarily deflated the control environment for PPP and COVID-EIDL for the first several months of the programs,” but the SBA introduced additional fraud controls in 2021.
Han Nguyen, a spokesperson for the SBA, said in a statement Tuesday that it is “vital to clarify that 86% of the likely fraud in the PPP and COVID-EIDL programs occurred in the first nine months of those programs when, as the (inspector general) has often noted, the rush to get funds out led to unwise decisions to pull down anti-fraud guardrails.”
Pandemic relief programs vulnerable to fraud
The SBA inspector general’s new report highlights how vulnerable COVID-EIDL and PPP programs were to fraudsters, especially in the first several months of the pandemic.
To avert an economic crisis, the federal stimulus package was intended to provided emergency assistance to small business owners and entrepreneurs impacted by lockdowns and business closures.
But Ware said in the report that an “overwhelming number of fraudsters” were allured by “easy money” from the relief programs and that fraudsters were able to easily gain access to these programs because the SBA weakened or removed controls.
Last year, the Biden administration sought to strengthen oversight of more than $5 trillion in pandemic relief funding passed by Congress over the past two years. The administration also announced a series of measures earlier this year, targeting the fraudsters who stole billions in pandemic relief funds.
“I think the bottom line is regardless of what the (total fraud) number is, it emanates overwhelmingly from three programs that were designed and originated in 2020 with too many large holes that opened the door to criminal fraud,” Gene Sperling, the White House American Rescue Plan coordinator, told the Associated Press.
Contributing: Ken Alltucker, USA TODAY; The Associated Press
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