Report finds significant volume of COVID-assistance loan fraud

At least 17% of all COVID-19 economic injury disaster and payment protection program loans were disbursed to potentially fraudulent actors, the Small Business Administration Office of Inspector General said Tuesday in a report on fraud in the pandemic-era assistance programs. The office estimated at least $200 billion in loans were distributed to fraudsters. At the same time, the report said that OIG investigations have resulted in 1,011 indictments, 803 arrests and 529 convictions related to loan fraud.

“Notwithstanding SBA’s efforts, certain lenders added to the fraud risks by prioritizing quickness and potential profit over a thorough review of applicant eligibility for government aid,” according to the report. “For example, we found one lender escalated its loan processing volume from 200 loans per year to almost 500,000 loans per year during the pandemic—without a substantial increase in staff or security measures. The desire for increased profits not only overshadowed their fiduciary duty, but it also resulted in a higher amount of associated fraud in the lender’s portfolio, harmed taxpayers and compromised the economic aim of the PPP.”

OIG has issued 77 recommendations for the SBA to address pandemic-related fraud, according to the report. SBA has taken corrective action to implement 38 recommendations and it is working to take action on the remainder. “As such, SBA has made progress to reduce fraud risks and prevent further losses in its pandemic loan programs, though the need to establish and use effective internal fraud controls is a continuing challenge,” the report said.