Over $200B in COVID-19 business loans paid to ‘potentially fraudulent actors’: watchdog estimates

The Small Business Administration’s (SBA) oversight office released new findings, estimating that tens of billions of dollars disbursed by the agency through pandemic loans programs intended to help small businesses were paid to “potentially fraudulent actors.” 

The SBA’s Office of Inspector General (OIG) said in a report on Tuesday that the agency disbursed about $1.2 trillion in COVID-19 Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP) funds during the pandemic.

But the OIG found “at least 17 percent of all COVID-19 EIDL and PPP funds were disbursed to potentially fraudulent actors.” That includes over $136 billion in EIDLs and $64 billion in PPP funds, the report found.

The government watchdog said it identified multiple schemes that criminals used to steal taxpayer funds and saw some using the dollars to purchase “luxury homes, gold coins, diamonds, jewelry, luxury watches, fine imported furnishings, designer handbags, clothing, and a luxury motorcycle.”

“Since SBA did not have an established strong internal control environment for approving and disbursing program funds, there was an insufficient barrier against fraudsters accessing funds that should have been available for eligible business owners adversely affected by the pandemic,” the OIG stated in the report, while also citing the “rush” by the agency to “swiftly disburse COVID-19 EIDL and PPP funds” for businesses in response to the pandemic. 

However, in a statement on Tuesday, SBA spokesperson Han Nguyen pushed back on the report’s estimate, saying the agency “vehemently” disagrees “with the OIG’s projected fraud total of $200 billion.” He said the agency also estimated that a chunk of the likely fraud took place during the previous administration.  

“We also believe it’s important to note the agency estimates that 86 percent of the fraudulently obtained loans originated in the first nine months of the first pandemic relief program,” Nguyen noted, adding that “total likely fraud in SBA pandemic relief programs is estimated at $36 billion.”

The agency also took issue with what the report identified as “potential fraud” as opposed to “likely fraud,” while saying it “significantly over states the degree of even potential fraud under COVID-EIDL by ignoring or discounting COVID-EIDL repayment data.”

However, the OIG asserted in its report that it has confidence in its estimate of potential pandemic loan fraud and said the loans identified as potentially fraudulent in the review warrant investigation.

As of May, the office said in its report that its collaboration with SBA, the U.S. Secret Service, among other federal agencies and financial institutions, has led to about $30 billion in funds for the programs “being seized or returned to SBA.”