Fraudsters have stolen more than $200 billion in aid distributed by the Small Business Administration (SBA) during the COVID-19 pandemic.
This staggering figure was announced on Tuesday in a report from the Office of the SBA Inspector General who assessed how the SBA handled the Economic Disaster Loan (EIDL) and Paycheck Protection Program (PPP). The report concludes that the SBA “has weakened or removed the controls necessary to prevent fraudsters from easily winning
access to these programs” and that “the lure of ‘easy money’ in this pay and hunt environment has drawn overwhelming numbers of fraudsters to the programs”.
Ultimately, more than a sixth of the $1.2 trillion disbursed under the two programs was stolen, according to the report.
Although much attention has been paid to potential fraud within the PPP, the $136 billion stolen from EIDL represents a shocking 33% of the total amount spent under this program, which was intended to help businesses to cover non-wage operating expenses during the pandemic. .
The new data on COVID-related fraud at the SBA is a long-awaited update – and a significant increase – for previous screenings who estimated fraud levels at $86 billion in fraud in the EIDL program and $20 billion in the PPP.
Even the new, higher figures may underestimate the amount of money lost: a recent Associated Press review of pandemic-related spending estimated that $400 billion was stolen or wasted. That analysis included $123 billion that the AP determined was wasted or misspent, while the updated SBA OIG report focuses only on funds lost to fraud.
THE new report emphasizes once again how completely outdated the SBA was by the volume of spending that Congress had asked it to distribute in the early days of the pandemic. The SBA “executed over 14 years of loans in 14 days, and that was just the beginning,” the auditors noted.
In this environment, it was impossible to avoid fraud. Yet the SBA has made the situation fundamentally worse. For example, the agency did not execute loan applications through the Treasury Department’s “Do Not Pay” database – a list of known criminals and con artists – until 2021, long after the bulk of pandemic-related expenses have been spent. In May 2021 reportthe SBA inspector general noted that the agency did not have “a centralized entity to design, direct and manage fraud risk” until February 2022, nearly two years after it began distributing loans PPP.
“Because the SBA did not have a strong internal control environment for approving and disbursing program funds, there was not a sufficient barrier preventing fraudsters from accessing funds that should have been available to eligible business owners impacted by the pandemic,” the SBA OIG report concludes.
In total, the SBA issued more than 4.5 million loans to fraudulent recipients. In one case highlighted in the report, a group of eight people submitted at least 150 fraudulent loan applications and obtained more than $18 million in PPP and EIDL funds, then used the funds to buy “luxury houses, gold coins, diamonds, jewelry, luxury watches, fine imported furniture, designer handbags, clothes and a luxury motorbike”. In another casea single person managed to “scam the system 150 times, getting $3 million for themselves and those involved in the conspiracy.”
We only know of these situations because the perpetrators have been arrested. Many others remain on the run. So far, COVID-related fraud investigations have resulted in 1,011 indictments, 803 arrests and 529 convictions. Joint efforts by the SBA, the US Secret Service and other federal agencies have resulted in the seizure or return of nearly $30 billion in COVID funds to the SBA, according to The report.
This leaves a simple $170 billion, roughly equivalent to the gross domestic product of Kuwait– who disappeared without a trace.