GAO Blasts Trump Administration Implementation of PPP, Says Potential for Fraud is Huge

The Trump Administration’s poor oversight of the Paycheck Protection Program has placed billions of dollars at risk, left lenders confounded and invited fraud, the Government Accountability Office said Thursday.

“Because of the number of loans approved, the speed with which they were processed, and the limited safeguards, there is a significant risk that some fraudulent or inflated applications were approved,” the GAO said in a blistering report. “In addition, the lack of clear guidance has increased the likelihood that borrowers may misuse loan proceeds or be surprised they do not qualify for full loan forgiveness.”

The GAO report evaluated all facets of the administration’s implementation of the response to the coronavirus crisis—ranging from access to health programs to the individual economic stimulus program.

In the report, the GAO said the Small Business Administration has refused to provide it with sufficient information to evaluate the PPP program. While the SBA said it had fully cooperated with the GAO, administration officials said Thursday they will provide Congress and the GAO with additional data.

GAO said that in order to streamline the process, the SBA required minimal loan underwriting from lenders, instead relying on borrower certifications about information they submitted. “As we have previously reported, reliance on applicant self-certifications can leave a program vulnerable to exploitation by those who wish to circumvent eligibility requirements or pursue criminal activities,” GAO said.

In the report, the GAO said that lenders have struggled to keep up with the evolving nature of agency guidance. Two lender trade associations told the GAO that they were told in a phone call with SBA that they must disburse loan proceeds within five days of approval. SBA officials told the GAO they did not recall the phone call. Eventually the agency said that loan funds had to be distributed within 10 days.

In addition, the SBA’s answers to “frequently asked questions” contain no dates on which they were issued, confusing lenders even more. “Without the time listed, lenders cannot know the guidance that is in place when they make loans,” GAO said.

Borrowers and lenders did not have information about loan forgiveness before loans were approved, leaving them unable to evaluate whether those loans were likely to be forgiven, GAO said.

The GAO also said that telephone calls to phone numbers established to answer lender and borrower questions have gone unanswered and when phone calls were accepted, agency officials were unable to answer questions about the program.

The SBA has said it will audit all PPP loans exceeding $2 million, but the GAO noted that the agency has not announced the process for the audits or established an oversight process for more than four million loans under that threshold.

In a response to the report, Treasury Department officials said that the “iterative” process used to release loans was necessary because borrowers needed the funds quickly. They added that the law creating the PPP has detailed information about the forgiveness process.


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