In April 2020, during the early days of the pandemic, the U.S. Small Business Administration (SBA) greenlit two emergency assistance loan programs for individuals and small businesses. The speed at which the loans were approved, however, left little time for proper controls to be implemented that could have prevented fraudsters from cashing in on the suffering of millions.
One was the Paycheck Protection Program (PPP), which issued loans meant to help small businesses cover their expenses despite expected downturns in profits. Up to 100 percent of any given PPP loan could be forgiven if certain requirements were met.
Also created was the Economic Injury Disaster Loan (EIDL) program, meant to expedite low interest and fixed-rate loans that would allow borrowers to meet their operating expenses.
The unchecked speed at which the loans were approved, however, drew the attention of the Office of Inspector General, which warned that a lack of strong internal controls stood little chance of catching fraudulent claims.
Ultimately, roughly $1.2 trillion in aid was distributed; $400 billion through the EIDL and $800 billion through the PPP. But despite the fact that the funds were meant to save millions of families pushed to their limits, many individuals were drawn to the allure of easy money and swarmed in like locusts.
One open case concerns a group that fabricated tax and business records to submit no less than 150 fraudulent loan applications and obtain more than $18 million in emergency funds. The group used this money, the SBA alleges, to purchase luxury homes, vehicles, gold, diamonds, and designer goods, among other things.
Another investigation, which at the time focused on $500,000 and only three suspects, soon ballooned into a kickback conspiracy that implicated hundreds in the theft of more than $750 million across 1,300 non-existent businesses.
In such a conspiracy, the principal suspects instructed their co-conspirators on how to file fraudulent claims with the SBA and then make it appear as if the funds were paid to their employees so that the government would forgive the loans. In reality, however, the money stayed with them.
Afterwards, the masterminds would take a percentage of the stolen relief funds as a fee, all at the expense of millions of taxpayers suffering through a pandemic not seen since the 1918 Spanish Flu.
The federal watchdog has flagged more than $136 billion in EIDL claims and $64 billion in PPP claims as potentially fraudulent. In the pipeline, as of May 2023, are 1,011 indictments, 803 arrests, and 529 convictions related to fraudulent claims from the two programs.
Amongst the absent controls noted by the inspector general’s office was proper verification that the businesses did indeed exist and that it was in operation before the onset of the pandemic.
Other controls noted was the verification of legitimate bank accounts and applicant identities via photo ID and tax records. The absence of any face-to-face contact between applicants and SBA officials, from submission to payment, was also highlighted.
No measures were in place to check for any duplications in claims, nor did the SBA mandate that claims be signed off by more than one official before the loans were issued.
These controls, the inspector general’s office said, would’ve gone a long way to mitigating the $200 billion in damages.
Authorities have so far recovered only 15 percent of the stolen funds.
