A recent Government Accountability Office (GAO) report has exposed shocking levels of incompetence by the Small Business Administration (SBA) in its investigation of pandemic fraud. According to SBA officials, the agency's four-step process for managing fraud risks in its pandemic loan programs—specifically the Paycheck Protection Program (PPP) and COVID-19 Economic Injury Disaster Loans (COVID-19 EIDL)—was supposed to follow a thorough system. Yet, the GAO found significant failures in oversight, leaving taxpayers vulnerable and millions of dollars in fraudulent loans unaccounted for. This failure highlights the SBA's inability to protect taxpayer funds and demonstrates the risks inherent in poorly managed government programs.
According to the GAO report, the Small Business Administration (SBA) demonstrated a staggering incompetence in investigating pandemic fraud. The SBA used a four-step process to manage fraud risks in the COVID-19 Economic Injury Disaster Loan (COVID-EIDL) program, which involved screening, data analytics, human-led reviews, and Office of SBA Inspector General (OIG) referrals. Despite overseeing over $1 trillion in loans and grants to over 10 million small businesses during the pandemic, this fraud prevention process wasn't fully implemented until more than half of the PPP and COVID-EIDL funds had already been approved.
For the COVID-EIDL, more than $210 billion of an eventual $385 billion, 55 percent, had already been disbursed before the complete process was implemented. Over $525 billion of an eventual $800 billion, 66 percent, had already been approved for the PPP.
More from the report:
The four-step process as applied to COVID-19 EIDL and the PPP had weaknesses, as several audit entities, including GAO, SBA's OIG, and SBA's independent financial statement auditor, have previously reported. For example, as part of its screening step, SBA compared loan applications against the Treasury's various Do Not Pay (DNP) databases and public records. A June 2024 SBA OIG report found, however, that SBA awarded and disbursed funds to potentially ineligible entities listed in DNP without sufficient evidence to support the loan decision. In response to this report, SBA agreed, among other things, to review and address those loans and grants with an alert in the file that was not previously addressed. According to SBA's OIG, the proposed action did not fully meet OIG's recommendation to review all loans identified as potentially ineligible.
In its work, GAO identified a weakness in SBA's process for referring cases of likely fraud to its OIG—that is, step four of its four-step process. As part of its referral step for COVID-EIDL, SBA submitted almost 3 million referrals to its OIG. SBA OIG officials told GAO that of these referrals, about 2 million were not actionable because they did not contain enough data elements to allow for further investigation or had quality issues, such as duplicates or incorrect information. Without an effective referral process, the SBA OIG is not able to fully investigate instances of likely fraud and make follow-on referrals to, for example, the Department of Justice for prosecution, as necessary.
Despite the four-step process, it proved ineffective. One of the steps involved referring potentially fraudulent applications to the Inspector General (IG) for investigation. However, the IG could not thoroughly investigate nearly 2 million of the 3 million referrals because the SBA failed to provide sufficient or accurate information in its referrals.
The estimated total fraud from COVID programs exceeds $200 billion.
Sen. Joni Ernst (R-Iowa) previously found that $5.4 billion in loans were made to people using fraudulent social security numbers.
“The scale of incompetence at the Biden SBA is absolutely staggering,” Ernst said. “Even when bureaucrats thought there might be fraud, they failed to take the basic steps required to investigate these claims. I will not let these criminals get away. I will be working with SBA Administrator Kelly Loeffler and DOGE to hold these criminals accountable and recoup every cent stolen from taxpayers.”
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