SBA IG warns of 'widespread potential fraud' in Economic Injury Disaster Loan program

SBA IG warns of 'widespread potential fraud' in Economic Injury Disaster Loan program
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The Small Business Administration's (SBA) inspector general released a report Tuesday saying it received complaints of more than 5,000 instances of potential fraud in the Economic Injury Disaster Loan (EIDL) program.

 “Our preliminary review reveals strong indicators of widespread potential fraud in the program,” SBA Inspector General Hannibal “Mike” Ware wrote in the report. 

The EIDL is a long-standing SBA program that Congress expanded in response to the novel coronavirus pandemic. It has usually been used as long-term loans for businesses damaged during hurricanes, tornadoes and other natural disasters. The loans have a cap of $10,000 and are meant to keep businesses afloat as they apply for larger loans.

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Through a series of coronavirus-related bills passed by Congress, approximately $373 billion in loans is available through the EIDL. 

According to the report, nine financial institutions have reported a combined total of $187.3 million in suspected fraudulent transactions through the program. The review also found $250 million in economic injury loans and advance grants given to potentially ineligible recipients and gave nearly 300 duplicate loans. 

In one case, a federal credit union reported to the Criminal Division of the Department of Justice that it has received $15 million in SBA deposits in recent weeks. The credit union audited 60 of the transactions and found 59 of them appeared to be fraudulent. 

"We are alarmed by these reports, but they are consistent with our investigations, which indicate pervasive fraudulent activity,” Ware wrote. 

The SBA IG also identified phishing scams where fraudsters have collected sensitive data and applied for EIDL loans with it.

“Swift management action could reduce or prevent additional losses to the taxpayer, because the associated economic injury loan applications may still be unapproved or undisbursed,” Ware wrote.

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Lawmakers and watch dogs have been worried that the Paycheck Protection Program, a small business loan program created by Congress in the CARES Act, is susceptible to fraud. 

Last month the Government Accountability Office (GAO) released a report saying the $670 billion program was vulnerable to fraud and waste.

“Because of the number of loans approved, the speed with which they were processed, and the limited safeguards, there is a significant risk that some fraudulent or inflated applications were approved,” the GAO report stated.