Business

Small Business Admin May Have Lost Over $200B In COVID Loans to Fraudsters, Watchdog Finds

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The Small Business Administration (SBA) may have lost over $200 billion in COVID-19 relief payments to fraud, according to a new report from the SBA’s Office of the Inspector General (OIG).

The SBA OIG released the report Tuesday, estimating that the “SBA disbursed over $200 billion in potentially fraudulent” COVID-19 relief payments, according to the report. The OIG estimates that “at least 17%” of all COVID-19 payments the SBA shelled out may have ended up in the hands of “potentially fraudulent actors,” according to the report.

The SBA OIG’s work to combat COVID-19 fraud has resulted in more than 1,000 indictments and 529 convictions as of May 2023, the report states. The report’s findings are not final, as the report acknowledges that overall estimates of the scale of COVID-19 fraud could change over time as their investigations uncover more information and schemes, the report states.

“We strongly disagree with the OIG’s projected fraud total of $200 billion suggested by the OIG report,” an SBA spokesperson said in a statement shared with the Daily Caller News Foundation. “It is vital to clarify that 86% of the likely fraud” in SBA’s COVID-19 relief programs “occurred in the first nine months of those programs when, as the SBA IG has often noted, the rush to get funds out led to unwise decisions to pull down anti-fraud guardrails.” The SBA itself estimates that the potentially fraudulent COVID-19 relief payments amount to approximately $36 billion, according to the statement.

Starting in April 2020, the SBA made various types of relief payments like the Paycheck Protection Program available to small businesses in order to keep them afloat amid the start of lockdowns and other public health measures which strongly inhibited business activity, the report states. The SBA ultimately disbursed about $1.2 trillion over the course of the pandemic, the report states.

Though the SBA imposed some up-front fraud mitigation controls, both the SBA and the OIG recognized the need to get funds into the hands of business owners quickly given the nature of the COVID-19 economic crisis, the report continues.

The OIG estimates that the SBA “executed over 14 years’ worth of lending within 14 days” at the onset of the assistance programs, according to the report. Demand for the assistance programs continued to grow, and the OIG assessed that the “SBA’s internal control environment was calibrated to expedite loans and grants,” according to the report.

The OIG raised concern about widespread and brazen relief payment fraud as early as May 2020, observing that the SBA was generally “responsive to OIG recommendations for corrective action.” However, the OIG assesses “that SBA’s implementation of (OIG’s) recommendations stemmed the tide of fraud, many of the improvements were made after much of the damage had already been done due to the lax internal control environment created at the onset of these programs,” according to the report.

This article has been updated with comment from the Small Business Administration.