Serial fraudsters, global cyber thieves and simple opportunists may have stolen more than $200 billion from two federal small business aid programs during the COVID-19 pandemic, according to a new watchdog report.
The estimates from the U.S. Small Business Administration's inspector general suggest that fraud in the programs was more pervasive than has previously been reported.
The report said that the SBA's haste to disburse small business aid at the onset of the pandemic were a key factor in one of the largest-ever grifts against the U.S. government.
"There was an insufficient barrier against fraudsters accessing funds that should have been available for eligible business owners adversely affected by the pandemic," the inspector general wrote.
The SBA, which administered the government's efforts to get funding to small businesses quickly, took issue with the report's findings.
Bailey DeVries, the agency's acting associate administrator for capital access, said in the SBA's response that the review "contains serious flaws" and overstates the amount of funds lost from the Paycheck Protection Program and the Emergency Injury Disaster Loan program.
DeVries also wrote that the report "only minimally acknowledges" the SBA's response to reports of fraud in the two programs.
The inspector general's estimate that 33% of EIDL funding was potentially fraudulent does not match the SBA's current repayment data, DeVries wrote. The data shows that only 12% of the program's loans went to borrowers who are past due and yet to make payments, according to DeVries.
The SBA inspector general's office relied on a process called "link analysis," which identifies trends in shared data attributes. Investigators zeroed in on 11 common indicators of potentially stolen money, including false bank account and employer identification numbers, complaints made to a COVID-19 fraud hotline and suspicious phone numbers.
The report found that fraudsters potentially stole 17% of the funding from the two programs between March 2020 and the end of 2021.
Last June, Department of Justice Inspector General Michael Horowitz estimated that at least 10% of both EIDL and PPP applicants may have obtained loans "that were inconsistent with income eligibility requirements."
Tim McInnis, a lawyer representing PPP whistleblowers, suggested that the total amount of fraud from the two SBA programs "could be a lot more" than the inspector general's latest estimate.
McInnis said the federal government chose "the lesser of two evils" by quickly disbursing small business aid at the onset of the pandemic, despite the risk of funding falling into the wrong hands.
The inspector general's report acknowledged that "the complexity of fraud schemes" has challenged the numerous federal agencies that have sought to recoup lost funding.
To date, enforcement actions and joint investigative efforts have recovered $399 million in seized or forfeited assets and $509 million in restitution orders, according to the inspector general's report.
The House Small Business Committee, chaired by Rep. Roger Williams, R-Texas, has scheduled a July 13 hearing on the report's findings.
"When COVID-19 hit the United States, the SBA was tasked with taking on an oversized role to help save small businesses and our nation's job creators," Williams said in a statement. "Unfortunately, these after-action reports show the agency was not up to the task."
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