This past week, the US Small Business Administration Inspector General published a harrowing report indicating that the SBA believes that more than $200 billion of disaster relief funding was fraudulently disbursed in 2020 and 2021. This article outlines what the SBA found, how the SBA did and is still looking for fraud (indicators), and what the SBA and other governmental agencies are doing about it.
By Thomas Tramaglini, Chief Operations Officer
When the global pandemic took shape, the US government attempted to help small business owners and the economy stay afloat by delivering over one trillion dollars in disaster relief programs, such as the Economic Injury Disaster Loan Program and the Paycheck Protection Program. However, anyone who received or worked on the disbursement of the funds know that these funds were easy money for small business owners, especially those who had been taking Merchant Cash Advances or term loans.
As promised, the SBA Inspector General has been investigating how the SBA implemented EIDL and PPP and the prevalence of fraud. The full report can be found here.
According to the IG report:
Office of Inspector General (OIG) reports issued very early on warned of the importance of a strong internal control environment to mitigate fraud risk. In the rush to swiftly disburse COVID-19 EIDL and PPP funds, SBA calibrated its internal controls. 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. However, the allure of “easy money” in this pay and chase environment attracted an overwhelming number of fraudsters to the programs. OIG’s continuing reviews pertaining to oversight of SBA’s pandemic response have identified multiple weaknesses in controls that allowed fraudsters to take advantage of the economic crisis and divert funding intended for deserving, eligible American small business owners.
Indicators which potentially signified(s) EIDL and PPP fraud.
What the SBA is doing about EIDL and PPP fraud?
There are several ways that SBA has taken on fraudulent disaster relief funding.
1. FBI investigations are currently being conducted and it’s estimated that the number of those being investigated is in the thousands.
2. Data cross checks are being conducted – these include checking if tax data match the loan applications.
3. Fraudulent documents are still being found.
4. A host of schemes such as kickback schemes have been found where people made false applications for others and got a taste of the funds upon funding.
No way will there ever be another EIDL or PPP program.
With the amount of fraud that was associated with disaster relief, it is likely that there will ever be a program like the ones which were so poorly rolled out. Unfortunately, the heart of the programs aimed to help small businesses stay afloat only helped some people and with fraud so prevalent there is no way Congress would approve such a measure. Furthermore, many of the people who received EIDL and PPP did not need the funds, according to the report. While not fraud, once the SBA opened the funding accessing the funds became easy for any small business owner.
Contact Beacon Client Solutions to better understand your situation and how we can help you.
Dr. Thomas Tramaglini is the Director of Operations and Negotiation for Beacon Client Solutions, a company that supports small businesses on a host of fronts, especially MCA debt. Thomas has been a small business owner for many years, as well as held leadership positions in several organizations and companies. Thomas holds a B.A. in History, as well as Master’s and Doctorates in Organizational Leadership from Rutgers University, The State University of New Jersey.
Disclaimer: Beacon Client Solutions is not an accountancy, or a law firm. We are business consultants. While Beacon works with outstanding attorneys and accountants, we cannot and do not provide legal or tax advice. All our work is connected to those who are legally certified to give such advice. Beacon does have a longstanding body of work in MCA resolution and understands what small business owners deal with, specific to MCA. Beacon Client Solutions serves clients in all 50 states, Puerto Rico, Mexico and Canada.
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