IG: SBA Responsible for $64 Billion in Fraudulent PPP Loans

Report finds 17% of all agency pandemic assistance was fraudulent, doesn’t distinguish credit union loans from others.

The Small Business Administration distributed an estimated $64 billion in fraudulent pandemic Paycheck Protection Program (PPP) loans, the agency’s Inspector General said, in a report issued Tuesday.

When combined with the other pandemic loan programs, the “lack of, or weakened, up-front internal controls” resulted in the disbursement of over $200 billion in fraudulent pandemic-related relief, according to the report. That figure amounts to 17% of all pandemic assistance provided by the agency.

“Since SBA did not have an established strong internal control environment for approving and disbursing program funds, there was an insufficient barrier against fraudsters accessing funds that should have been available for eligible business owners adversely affected by the pandemic,” the IG found.

Many credit unions and CDFIs participated in the PPP program and the report does not separate credit union loans from loans made by others.

More on the Report

The IG said it is working on tens of thousands of investigative leads on pandemic-related waste, fraud and abuse. Those investigations are possible because Congress increased the statute of limitations on pandemic fraud to ten years.

Some of that fraud was possible because of the speed with which lenders distributed loan funds. For instance, the report noted that one lender increased its loan processing volume from 200 loans per year to almost 500,000, without a substantial increase in staff or security measures.

The IG said further that more than 500,000 loans have defaulted and were submitted to the SBA for guaranty purchase as of this month. According to the report, the administration has made payments on more than 425,000 of those loans for a total of $12.9 billion.

SBA Reaction

In response to the findings, the SBA said that the IG did not give it proper credit for tightening fraud control.

“The paper only minimally acknowledges a critical aspect of SBA’s fraud controls—the material fact that SBA’s fraud controls improved dramatically over time,” the agency stated.

And SBA officials took a shot at the Trump Administration.

“SBA acknowledges the prior administration made decisions to prioritize speed and unnecessarily deflated the control environment for PPP and COVID-EIDL for the first several months of the programs,” the agency said. “However, SBA introduced additional fraud controls over time and implemented a strengthened anti-fraud control framework in 2021.”