SBA Overdrafts $ 4.5 Billion on ‘Irrational’ Small Business Grant Claims

An emergency program hastily released in the early days of the pandemic was so poorly protected from fraud that it misappropriated nearly $ 4.5 billion to the self-employed who said they had extra workers – even to those who made extraordinarily improbable claims such as one million workers.

The $ 20 billion program, called the Injury Disaster Loan, offered small businesses immediate grants of up to $ 10,000 in the months following the pandemic that closed much of the economy. But hundreds of thousands of his grants were inflated because there was no system to capture applications with “defective or irrational information,” wrote Hannibal Ware, inspector general of the Small Business Administration. a report released on Thursday.

The report, which described how the agency could detect obviously false requests by taking even basic anti-fraud measures, was the latest black eye for the SBA, a tiny section on the government’s front line to tackle of the pandemic. The agency also ran the Paycheck Protection Program, which provided $ 800 billion in bank loans, but often left lenders and borrowers struggling to comply with confusing and changing rules. Fraud was also a problem: Tens of billions of dollars could have been misappropriated.

Loan advances were created by Congress in March 2020 as part of the first coronavirus aid package. In order to quickly get money to damaged companies, the program offered grants to companies that applied for a disaster loan – and allowed applicants to keep the money even if their loan application was rejected.

In the 14 weeks that the program ran before the money ran out, nearly 5.8 million applicants received grants based on the number of members of their company: $ 1,000 each for up to 10 employees.

Individual entrepreneurs and self-employed self-employed should have received a maximum grant of $ 1,000 – but many have collected larger checks.

More than 700,000 sole proprietorships received larger grants claiming additional employees. While sole proprietorships may have employees, such an arrangement is unusual. Those who have employees are required to have an Employer Identification Number from the Internal Revenue Service.

However, the SBA omitted an obvious safeguard: It did not require sole proprietors claiming to have employees to enter their employer identification number, instead of allowing them to use their Social Security numbers.

Although some of the oversized payments may be the result of the applicant’s mistake, the majority of the suspicious applications listed in the Inspector General’s report exaggerated their claims: More than 380,000 applicants said they had enough workers to receive the full $ 10,000.

Some of the allegations were completely absurd. Hundreds of applicants received the maximum grants after stating that they employed more than 500 employees, a number that would make them generally ineligible for the small business program. Fifteen said they had a million employees – a number that would put them in agreement with Amazon and Walmart.

The Small Business Administration “has never requested additional information from these sole proprietorships to verify the number of employees referred to in grant applications prior to the approval and disbursement of grants,” Ware said in his report.

According to his calculations, these applicants were eligible for only $ 704 million out of the $ 5.2 billion they received.

Previous surveillance reports have pointed to deep-seated problems with fraudulent loans for the Financial Trauma Disaster Program. Mr Ware’s office warned in July 2020 that “potentially uncontrollable frauddue to the almost non-existent protective railings of the program and Bloomberg article last year he described how almost comically easy it was to cheat the system. Quote videos with instructions that have been released on YouTube with titles like “SBA $ 10,000 Loans and Grants Got The STREETS Going Crazy!”

In a statement, the agency noted that the lending policy started during the Trump administration and said that the Biden administration’s loan team located and worked on risk management improvements.

Sen. Benjamin L. Cardin, a Democrat from Maryland who spearheaded the grant legislation, said the agency had completely confused the program.

“When Congress drafted CARES, our intention was for the SBA to provide $ 10,000 worth of EIDL Advance grants to all businesses,” he said. “The Trump administration has not only reduced grants to $ 1,000 per employee, but has failed to enforce its own policy.”

In a written response included in the report, James E. Rivera, the head of the unit that conducted the project, said that the service had to accept under CARES the applicants’ self-certification that they meet the requirements. He also said that the lack of an Employee ID on the application form was not proof that the applicant did not have one.

Mr Ware criticized those responses.

“The CARES law mandate for the SBA to accept the applicant’s self-certification does not relieve the service of its fiduciary duty to taxpayers to detect and prevent fraud,” he wrote.

Mr Weer advised the government to try to recover the $ 4.5 billion it overpaid. He suggested that the agency seek evidence from applicants who claimed to have employees, seek compensation from those who did not provide it, and refer suspected cases of fraud to the Inspector General’s Criminal Investigation Department, which works with outside agencies such as the Federal Bureau of Investigation.

Mr Rivera said in response that the agency would hire an outside contractor to review the grants and “develop an appropriate plan to rectify cases where the applicant provided false information”.

He said that one option for recovering funds is Offset program of the Ministry of Financewhich seizes tax refunds and other federal debt settlement payments.

The Department of Justice has already prosecuted hundreds of fraudulent claims in government $ 1 trillion pandemic relief programs, claiming more than $ 600 million.

But this is only a fraction of the amount lost by false claims. A March note from the Coronavirus Crisis Body Subcommittee on Identification identified an estimated $ 84 billion in suspected fraud in the PPP and EIDL programs after the Trump administration “refused to implement key controls.”

Mr Wear told a House committee in April that his office had opened more than 400 cases involving the organization’s various aid programs.

“Fraud investigations will be a decades-long endeavor,” he said.

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