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Fed Analysis of Pandemic EIDL Loans: Up to $78B Could Be Fraud

By Kerry Smith

The SBA issued Economic Injury Disaster Loans (EIDL) to small businesses in the early days of the pandemic, but a new federal analysis suggests that up to 37% of the money SBA doled out, about $78B, has red flags in borrower applications that hint at possible fraud.

WASHINGTON – Some Realtors took advantage of a forgivable business loan program under the U.S. Small Business Administration (SBA) in the early days of the pandemic, but even more were turned down or found out that the dollar amounts changed after the program’s debut. Now a federal audit suggests that over one-third of the money doled out went to borrowers who submitted applications that included red flags for fraud.

The SBA, however, disagrees with some of the findings announced by the Office of the Inspector General (OIG) in its report, Small Business Administration’s Initial Disaster Assistance Response to the Coronavirus Pandemic.

The OIG report looked for red flags in borrowers’ applications, and it says it found suspicious activity in loans totaling about $78 billion, or about 37% of the money SBA loaned during the program.

The report from Inspector General Hannibal “Mike” Ware says SBA “lowered the guardrails” in its effort to rush money to businesses, and it opened the program up to fraud after it relaxed internal controls, resulting in “in billions of dollars in potentially fraudulent loans and loans to potentially ineligible businesses.”

While the Paycheck Protection Program (PPP) was a top government response to pandemic-hurt businesses, the EIDL played a notable role. The government issued $525 billion under the PPP program, $192 billion under EIDL, and $20 billion in related disaster grants.

In response to the report, SBA Administrator Jovita Carranza called the findings “hasty, incomplete conclusions.”

However, Ware disagreed, saying in the report that OIG “highlights strong indicators of ongoing fraudulent activity in the COVID-19 EIDL program.”

Red flags in EIDL loans according to OIG

• About $14.3 billion (disbursed $13.4 billion) in potentially fraudulent loans used different bank accounts than the account listed on the application

• About $62.7 billion (disbursed $58.0 billion) in potentially fraudulent loans went to different applicants that used the same IP address, the same email address, the same bank accounts, or two businesses listed at the same address

• sses that registered an Employer Identification Number after the cutoff date of Jan. 31, 2020, suggesting they might not have been in business by the application deadline

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