WASHINGTON--Of the $1.2 trillion in federal aid disbursed on an emergency basis to small businesses during the pandemic, at least $200 billion — or 17% — may have gone to scammers, according to a new government report.
The assessment was released in an analysis of potential fraud by the Office of Inspector General of the Small Business Administration, which oversaw the disbursement of the aid, NPR reported. The analysis did not break out the specific institutions, such as credit unions, through which the aid was distributed.
The report, called "COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape," details how the rush to make the money available made it easier for fraudsters to apply for loans to keep non-existent businesses afloat, and then have those loans forgiven and covered by tax dollars, the NPR analysis reported.
"The agency weakened or removed the controls necessary to prevent fraudsters from easily gaining access to these programs and provide assurance that only eligible entities received funds," the report states. "However, the allure of 'easy money' in this pay and chase environment attracted an overwhelming number of fraudsters to the programs."
‘Advance Data Analytics’
According to the OIG, the $200 billion estimate is the result, in part, of "advanced data analytics" of SBA data on the pandemic cash disbursements.
At the time, NPR noted, government officials said the potential economic emergency posed by the pandemic shutdowns of 2020 necessitated quick loans — despite the likelihood of fraud.
"There is something to that argument, especially when it's applied to the very early weeks of the program," Sam Kruger, an assistant professor of finance at the University of Texas who has studied pandemic fraud, told NPR. But he added the government did have the ability to tighten up the system.
According to NPR, the current administration of the SBA estimates that almost 90% of the potential fraud happened during in 2020, during the first nine months of the pandemic, and that since then, the Biden Administration has implemented more real-time, anti-fraud checks.
The SBA Response
"SBA did in fact do that, when we put our anti-fraud control framework in place," Katie Frost, Deputy Associate Administrator in the Office of Capital Access at SBA, told NPR. As examples, Frost says, the SBA now checks the mismatches of names and employer identification numbers.
“They also say there's a large gap between the Inspector General's estimate of the size of potential fraud, versus the SBA's estimated amount of likely fraud, once cases have been looked at more closely,” NPR added.
"Potential fraud is a little like the metal detector going off," Gene Sperling, senior advisor to the President and White House Coordinator for the American Rescue Plan told NPR. "It means you should investigate further, because sometimes it's a gun, but other times it's a big buckle on your belt."
The SBA puts the amount of likely fraud at approximately $36 billion, the report added, and the agency has also already clawed back some of the funding.
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