Government Watchdog Report Finds SBA Scrambled To Prevent Disaster Loan Fraud

Internal emails show the Small Business Administration struggled to stop fraud in July and August in its disaster business loan program, despite leading the public to believe otherwise, a report published Wednesday by the Project on Government Oversight revealed.

The government watchdog group said the emails concerned the agency's Economic Injury Disaster Loan program, which has provided more than $188 billion through 3.5 million loans to help businesses impacted by coronavirus pandemic shutdowns.

The finding contrasts statements made by SBA Administrator Jovita Carranza that safeguards were in place to prevent fraudulent loans.

The SBA Inspector General reported in late July that there is “potentially rampant fraud” in the program. In response, Carranza said the watchdog is wrong “to portray SBA’s loan review process as one without a filter, approving everything coming through,” adding the SBA “is doing all it can to reduce the risk of fraud on the loan side.”

The inspector general’s report states the SBA’s Office of the Inspector General received complaints of more than 5,000 instances of suspected fraud, with nine financial institutions reporting a combined total of more than $187 million in suspected fraudulent transactions.

An SBA insider told the watchdog group the agency could have prevented much of the fraud through better training, systematically verifying applicants’ tax information and requiring photo identification from all loan applicants.

"The lack of any kind of robust fraud mitigation on the front end before the money went out the door was extremely concerning to the source, and they supplied this documentation to back up their claims," Nick Schwellenbach, a senior investigator with the project, told Politico.

The emails demonstrate a call for rapid response to ongoing widespread fraud.

The companion Paycheck Protection Program has also been subject to widespread fraud, with the Department of Justice releasing information on individuals attempting to obtain millions in fraudulent small business loans for personal use.