Small Business Administration Had No Plan To Stop Billions of Dollars in Loan Fraud, Report Finds

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May 27, 2022

The Small Business Administration (SBA) had no plan to address fraud in its nearly trillion-dollar Paycheck Protection Program, according to the agency's inspector general.

The SBA "did not have an organizational structure" to handle potential fraud for the PPP program, which allowed businesses to receive forgivable loans from the federal government if they kept their staff amid the pandemic, according to Inspector General Hannibal Ware. The report, published Thursday, details how the agency altered its loan review process over time but was still unable to establish defined roles on how to counter fraud.

"The agency did not establish a centralized entity to design, lead, and manage fraud risk," the report states.

PPP was established in March 2020 as a part of the Coronavirus Aid, Relief, and Economic Security Act. Former president Donald Trump extended the program until May 2021. Borrowers submitted applications for PPP through the Small Business Administration, which then delegated approval and distribution to its certified lenders across the country.  The loans totaled $799.8 billion to roughly 5,500 private lenders, according to the report. But experts say as much as $80 billion may be fraudulent loans.

"It is the biggest fraud in a generation," Matthew Schneider, a former U.S. attorney, told NBC News.

The report comes amid historic inflation levels, which experts attribute at least in part to trillions in government spending amid the pandemic, including the PPP program. The Small Business Administration, however, omitted any mention of inflation from its proposed budget for 2023, the Washington Free Beacon reported earlier this month.

The exact amount of fraud is unknown, but the Department of Justice has prosecuted several PPP fraudsters, including a man who submitted false applications to steal $27 million. Labor unions also raked in at least $37 million in forgivable loans they were ineligible to receive, the Free Beacon reported.

Republicans on the House Committee on Small Business have in recent months sent a series of letters to SBA administrator Isabella Guzman demanding answers on how the agency is addressing PPP fraud. Rep. Blaine Luetkemeyer (R., Mo.), the committee's ranking member, said the inspector general's report confirmed his fears about the agency's incompetence.

"It is clear to me the SBA under President Biden has failed to protect these federal dollars thus hurting both the American taxpayer and our struggling small businesses across the country," Luetkemeyer told the Free Beacon. "The SBA clearly cannot manage this critical task."

The SBA did not respond to a request for comment.