On Tuesday, a government watchdog disclosed that fraudsters may have siphoned off over $200 billion in federal loans earmarked to aid small businesses during the Covid pandemic.
According to the Small Business Administration’s Office of Inspector General, an estimated 17% of the $1.2 trillion distributed by the SBA could have been illicitly acquired by fraudulent entities.
Specifically, the report highlighted potential losses of more than $136 billion from the Economic Injury Disaster Loan (EIDL) program and $64 billion from the Paycheck Protection Program (PPP) loans.
Over the course of these initiatives, the SBA dispensed $400 billion in EIDL funds and $800 billion in PPP loans.
The inspector general attributed the widespread fraud to relaxed internal controls implemented by the SBA in its haste to provide swift assistance to struggling small businesses during the pandemic shutdowns.
In response, the SBA countered the inspector general’s assertions in a letter included in the report. Senior SBA official Bailey DeVries argued that the report significantly overestimated the extent of fraud in the programs.
She acknowledged that the Trump administration had expedited loan disbursements early in the program’s inception but asserted that enhanced fraud controls were subsequently introduced in 2021.
DeVries contended that the inspector general’s reported 34% potential fraud rate in the EIDL program contradicts the SBA’s current repayment data.
She cited SBA figures indicating that 12% of loans were delinquent, with the majority likely representing legitimate businesses that are either closed or unable to repay.
DeVries noted that 74% of businesses have either fully repaid or begun repayment, while 14% are still in deferment.
The inspector general’s investigations into fraud in the loan programs have resulted in over 1,000 indictments, 803 arrests, and 529 convictions, leading to the recovery of nearly $30 billion in stolen loans by federal law enforcement agencies.
Despite these efforts, the inspector general’s office continues to pursue tens of thousands of leads related to waste, fraud, and abuse in the programs, with many investigations expected to extend over several years.
The Paycheck Protection Program offered forgivable loans to small businesses, individuals, and nonprofits under specified conditions, while the Economic Injury Disaster Loan program provided low-interest loans to cover operational expenses for qualifying entities.
As of May, the report indicates that approximately 1.6 million EIDL loans totaling $114 billion are past due, delinquent, or in liquidation, with over 69,000 loans worth $3.2 billion written off.
The inspector general highlighted that while nonpayment often signals loan fraud, not all delinquent or charged-off loans are fraudulent.
