A recent report by the Office of Inspector General of the Small Business Administration (SBA) has revealed that approximately $200 billion, accounting for 17% of the $1.2 trillion federal aid disbursed to small businesses during the pandemic, may have been obtained by scammers.
The report, titled “COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape,” highlights how the urgency to provide financial assistance led to vulnerabilities that fraudsters exploited, resulting in significant losses.
The report emphasizes that the rush to disburse funds quickly made it easier for fraudsters to exploit relief programs. Weakened or removed controls allowed ineligible entities to access funds, with fraudulent loan applications being approved and subsequently forgiven using taxpayer money. The allure of “easy money” attracted a substantial number of fraudsters, leading to an overwhelming influx of scams.
Utilizing advanced data analytics on SBA disbursement data, the Office of Inspector General estimated the staggering $200 billion loss. This analysis demonstrates that the government had the capability to implement stricter measures to prevent fraud in real-time.
Although officials argued that the urgency of the situation justified some vulnerabilities, the report suggests that tighter controls could have been implemented earlier.
In response to the report, the SBA leaders have acknowledged the extent of the fraud and highlighted the anti-fraud measures implemented in early 2021. The report reveals that significant progress has been made in recovering stolen funds, with over $30 billion seized or returned to the government.
The efforts have also resulted in numerous indictments, arrests, and convictions, demonstrating a commitment to holding fraudsters accountable.
Pre-Pandemic vs. Pandemic Fraud: Before the pandemic, SBA programs did not attract organized criminal syndicates or transnational gangs. However, once COVID-19 relief programs were launched in early 2020, fraudulent actors seized the opportunity to exploit the system for personal gain.
The report notes that the majority of estimated fraud, 86%, occurred during the initial nine months of the pandemic under the Trump administration, with subsequent distributions during the Biden administration seeing a decline in fraudulent activities.
The inspector general’s office has been actively investigating fraud cases, sifting through more than 250,000 fraud tips and identifying 90,000 actionable leads. Red flags, such as loan applications from foreign countries, multiple loans from the same IP addresses, and borrowers who did not apply for forgiveness and are in default, have helped identify fraudulent activities.
The ongoing investigations and convictions demonstrate the commitment to pursuing justice and recovering misappropriated funds.