In a blistering report, the Small Business Administration’s Inspector General said Tuesday that the agency’s COVID-19 Economic Injury Disaster Loan program is an open door for fraudsters seeking easy money.
“OIG has been inundated with contacts to investigative field offices from financial institutions across the nation and the complaint Hotline,” the IG said in a report released Tuesday.
In one instance, the IG said that a federal credit union reported that 59 of the 60 EIDL transactions it reviewed were fraudulent.
As of June 19, the SBA had approved more than $250 million in economic injury loans and payment to potentially ineligible businesses, the IG said. In addition, as of June 6, the agency had made duplicate loans to nearly 300 businesses.
In a response, SBA Administrator Jovita Carranza said she was surprised by the report. “Because of the EIDL Program’s robust internal controls, the concerns raised by OIG in the Draft Management Alert were unexpected,” she said.
Under the EIDL program, businesses are eligible to receive advances of $1,000 per employee, up to a maximum of $10,000 as an interim source of funds while they waited for economic injury loan decisions. Applicants did not have to be approved for a loan before they received the advance.
The loan may be repaid over 30 years; the interest rate for for-profit businesses is 3.75% and for non-profits, it is 2.75%.
The SBA has ended the advance payment program, but the loan program is continuing.
The IG said that financial institutions are in a perfect position to help the SBA confirm the validity of applications but added that the SBA did not have a process in place to work with those institutions.
In the report, the IG also said that as of mid to late June:
- Financial institutions have reported more than 5,000 instances of suspected fraud, with nearly 3,800 of those reports coming from six institutions. The IG did not name the lenders.
- Potentially ineligible businesses had received 6,132 loans and 20,692 advance grants.
- SBA paid out at least 250 loans –totaling about $35 million–more than once. One business had been approved four times and six businesses were approved for three loans.
- Nine financial institutions had reported a total of $187.3 million in fraudulent loans.
- Several fraud rings have used social media to recruit applicants who then split the money with ringleaders. Various romance scams and social media solicitations promised “free money” in exchange for personal information that allow the rings to apply for EIDL loans.
In her response to the report Carranza said that the IG has not been willing to share specific examples of fraud. “Indeed, the Draft Management Alert appears to conclude that the EIDL Program’s internal controls are deficient without considering what the internal controls actually are,” she wrote.”