Federal watchdog says over $200 billion in pandemic business loans look fraudulent

Of the $1.2 trillion in federal aid disbursed on an emergency basis to small businesses during the pandemic, at least $200 billion — or 17% — may have gone to scammers.

That’s the latest, most complete assessment so far by the Office of Inspector General of the Small Business Administration, which oversaw the disbursement of the aid.

The report, called “COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape,” details how the rush to make the money available made it easier for fraudsters to apply for loans to keep non-existent businesses afloat, and then have those loans forgiven and covered by tax dollars.

“The agency weakened or removed the controls necessary to prevent fraudsters from easily gaining access to these programs and provide assurance that only eligible entities received funds,” the report says. “However, the allure of ‘easy money’ in this pay and chase environment attracted an overwhelming number of fraudsters to the programs.”

The OIG says the $200 billion estimate is the result, in part, of “advanced data analytics” of SBA data on the pandemic cash disbursements.

At the time, government officials said the potential economic emergency posed by the pandemic shutdowns of 2020 necessitated a quick loans — despite the likelihood of fraud.

“There is something to that argument, especially when it’s applied to the very early weeks of the program,” says Sam Kruger, an assistant professor of finance at the University of Texas who has studied pandemic fraud. But he says the data analysis behind this new report shows the government did have the ability to tighten up the system.

“Some of the analysis that the SBA [OIG] has done on the back end here, you could conceive of this being done in real time,” Kruger says.

In its response to the OIG’s report, the leaders of the SBA estimate that 86% of the potential fraud happened during the first nine months of the program, and they point to the anti-fraud measures they implemented in early 2021.

The report says the SBA and federal investigators are clawing back some of the stolen money. It points to “1,011 indictments, 803 arrests, and 529 convictions related to COVID-19 EIDL and PPP fraud as of May 2023.” All told, the report says “nearly $30 billion” in aid has been seized or returned to the government.