WASHINGTON, DC — A watchdog report is calling for improvements to one of the government’s pandemic relief programs meant to help small businesses after findings showed millions of dollars were approved for potentially ineligible businesses.
The report by the U.S. Government Accountability Office (GAO) said that the Small Business Administration (SBA) provided about 5,000 advances through the Economic Injury Disaster Loan (EIDL) program to ineligible businesses in industries that included adult entertainment, casino gambling and marijuana retail as of July 2020, which totaled about $26 million.
“We observed businesses that are in adult entertainment which by statute is not allowed to be funded under this program,” said Bill Shear, a Director in GAO’s Financial Markets and Community Investment team.
The report also said the SBA approved at least 3,000 loans through EIDL to ineligible businesses like real estate developers and multilevel marketers as of September 2020, which totaled about $156 million.
It also pointed to “strong indicators of fraud, such as loans going to potentially fraudulent accounts; loans to applicants with the same internet protocol address, email address, bank account, or mailing address.”
Shear said the total number of potentially ineligible or fraudulent applications approved is still unclear as the review process is ongoing.
“It will probably be a very long period of time before we really know how many of those who obtained these loans were actually ineligible and how many committed fraud,” said Shear.
The GAO said the SBA has made some changes to address the issues, including actions to improve loan officers’ ability to withhold funding for applicants suspected of fraud.
But it said the SBA did not implement other recommendations previously made by GAO, including one calling for the SBA to “conduct data analytics across the EIDL portfolio to detect potentially ineligible and fraudulent applications.”
In response to the findings, the SBA said: “SBA reported to GAO that the agency is in the process of developing analysis to apply certain fraud indicators to all application data. SBA is also working on an enterprise approach to implement a comprehensive oversight plan for COVID EIDLs and ensure that a fraud risk assessment is completed and that fraud risks are monitored on a continued basis.”
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