WASHINGTON—The Government Accountability Office (GAO) has released a report on the Federal Government’s COVID-19 response, including a review of the Paycheck Protection Program, offering new findings and suggesting “uncertainties” remain for many lenders.
The GAO report also provides an additional statistical breakdown of the PPP loans, addresses some of the SBA’s oversight plans, and further states there is a need for more guidance on the PPP forgiveness process.
First, the statistics. According to GAO, most of the largest PPP loans (those over $2 million) were made during the first phase of the program, between April 3-26, with 75% of loans for more than $2 million approved in the first phase. The report suggests that this may have been due to increased scrutiny from the public, Treasury and SBA.
GAO said the vast majority of PPP loans were made to borrowers with 10 or fewer employees (73.6% of the loans) while the majority of PPP loan dollars went to businesses with 100 or fewer employees (67.6%). While borrowers with more than 500 employees were granted limited access to participate in the program, less than 0.1% of borrowers had more than 500 employees, GAO found.
According to GAO, 4% of loans (and 7% of the PPP money) went to non-profits; 24% (and 4%) went to sole proprietorships, independent contractors and self-employed; 14% (and 19%) went to Subchapter S companies; 28% (and 26%) went to LLCs, and 29% (and 40%) went to Subchapter C companies. The GAO Report also found 96% of the loans to independent contractors and self-employed individuals were approved from April 27-Aug. 8, as SBA guidelines for these groups weren’t published until two days before funding in the first phase was exhausted.
SBA Oversight
The GAO said the Small Business Administration provided it with limited information on how it would implement safeguards against fraud in the forgiveness process. SBA said it plans to review all loans of more than $2 million, both for the borrower’s good faith certification concerning the economic necessity of the loan request and, as necessary, for compliance with general program requirements. The SBA told GAO the review will initially be conducted by a third party contractor using an automated review tool, with additional manual reviews on some loans based on risks detected by the automatic tool. SBA and Treasury told GAO they are still working to finalize the specific review procedures.
As CUToday.info has reported, millions of dollars in PPP loan fraud has already been uncovered and analysts have suggested there may be billions more to be found.
The GAO Report notes that any use of data analytics could be of limited utility given questions regarding the reliability of the underlying data. The GAO further pointed out it and others had identified gaps, outliers, duplicates, and anomalies in the PPP loan-level data.
Loan Forgiveness
GAO said in its report that while the SBA has published guidance on the loan review process, “uncertainty remains about some aspects of lenders’ role in the process.” Specifically, GAO said the extent of the lender review required is unclear, with no details as to what a “‘good-faith review’ in a reasonable amount of time” would look like, particularly with other guidance indicating that an accurate calculation is the responsibility of the borrower and that lenders may rely on borrower representations.
Despite that, the GAO Report found the SBA had received about 56,000 loan forgiveness decisions from lenders as of Sept. 8, representing about 1% of loans.
The GAO Report said there are potential benefits to be had for lenders and borrowers if proposed legislation providing for a simplified process for loan forgiveness for loans under $150,000.