The Washington Post - USA (2022-02-22)

TUESDAY, FEBRUARY 22 , 2022. THE WASHINGTON POST EZ SU A

the earlier study of fraud in the

program.

The GAO has said it plans to

further scrutinize the federal for-

giveness process, while the SBA

inspector general has included

the issue as one of dozens on its

target list for oversight in 2022.

Meanwhile, the risks across the

agency have continued to grow.

In April, the inspector general

issued an alert about “serious con-

cerns” in the federal task to keep

watch over $15 billion in newly

authorized money to aid shut-

tered stages and other venues.

And still another report, issued

this January by the PRAC, raised

the possibility that another recent

SBA program targeting restau-

rants may suffer from the same

problems that had plagued PPP.

In one potentially telling case, a

dentist in Oregon who had been

turned away from other govern-

ment aid programs allegedly man-

aged to obtain $8 million in res-

taurant assistance, relying on “fic-

titious business entities” to de-

ceive the SBA. The Justice

Department announced the crim-

inal complaint in December.

The White House, meanwhile,

is exploring how to further tight-

en the reins on federal spending,

potentially in seeking new money

to aid law enforcement, according

to a senior official. Sperling said

they had launched regular meet-

ings with the inspectors general to

improve oversight, including ef-

forts to better monitor eligibility

and improve reporting require-

ments. “We have been consistent-

ly supportive and remain support-

ive of ensuring the oversight com-

munity has the resources to de-

tect, prevent and punish fraud,”

Sperling said.

In November, though, lawmak-

ers raided some of those very over-

sight funds to help pay for their

$1 trillion package to improve the

nation’s infrastructure. In re-

scinding unused dollars from

EIDL, one of the loan and grant

initiatives at the SBA, Democrats

and Republicans essentially cut

into some of the money that the

agency’s inspector general had

planned to devote toward over-

sight.

The issue loomed large over

Ware when he appeared before

the House Small Business Com-

mittee last month. As officials in

Washington struggled to grasp

the “true scope of fraud in these

programs,” he told lawmakers

that they needed to work on “right

sizing us to match the fraud land-

scape.”

at the time that he had grown
concerned that agency remains
“susceptible to significant fraud
risks.”
The sheer extent of those
known vulnerabilities later be-
came apparent in a series of recent
federal enforcement actions. Just
this month, a federal court in
Rhode Island sentenced two lo-
cals in Warwick after they tried to
deceive the SBA over roughly
$500,000 in PPP loans. They
claimed they had dozens of em-
ployees earning wages at their
businesses when, in fact, they had
no workers at all, federal authori-
ties had alleged.
In a separate case, a man in
Virginia pleaded guilty to money
laundering charges in connection
with more than $900,000 in SBA
funds. In that case, the suspect
never even had a business in the
first place, the government
claimed.
In other instances, some of the
suspect applicants submitted fake
documents or registered as corpo-
rations only after they had applied
for funds. They filed dozens of
applications, sometimes from the
same Internet address. And still
more applied under stolen or
questionable names, home ad-
dresses and bank account num-
bers, which the SBA still funded.
The vast scope of malicious ac-
tivity has led some experts outside
Washington to estimate that the
extent of PPP fraud is far greater
than what the U.S. government
acknowledges. One report from
academics at the University of
Texas at Austin revised at the end
of last year pegged the amount of
questionable loans made under
the program alone at closer to
$69 billion.
The EIDL program has fared
similarly. In a series of reports,
dating to spring 2021 , the agency’s
inspector general affirmed that
widespread lapses meant that the
SBA had funded applications for
aid made possible by identity
theft.
The reports showed the SBA
had referred roughly 845,
complaints about identify theft
involving EIDL for the inspector
general to investigate. The agency
still may have disbursed more
than $6 billion in loans and nearly
$500,000 in grants to thousands
of those suspect entities, accord-
ing to the review, which said the
cases involved bank account num-
bers that had been switched at the
last minute, “an additional indica-

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Ware, for one, described the

months ahead to Congress as

“where the rubber meets the

road,” particularly in chasing

down further fraud.

Some of the money might be

difficult or impossible now to re-

cover. In January, the Govern-

ment Accountability Office esti-

mated that the SBA had already

fully extended forgiveness to

about $550 billion in loans made

under the generous PPP rules that

Congress created. Citing other au-

ditor data, though, the watchdog

added that the government had

paid lenders $49 billion to forgive

PPP loans, despite the fact they

were “still being reviewed by SBA

to address alerts and flags indica-

tive of eligibility concerns.”

“Unless the government moves

quickly, the chance to shut off an

easy channel to hold people’s feet

to the fire for fraudulent loans

may be lost,” said John Griffin, a

professor at the University of Tex-

as at Austin McCombs School of

Business who had put together

In a statement, Sperling said

the SBA had funded “the very

large majority who were honor-

able small businesses in need of

and deserving pandemic relief.”

But he also acknowledged that

there was “a second small bucket

who argue they met the letter of

the law but clearly abused the

spirit of the law and the values of

most Americans, and a third

group that committed outright

fraud.”

The remedies nonetheless

drew early praise from Ware, who

told lawmakers in January that

the SBA had made key strides in

addressing the lapses raised by his

team. “Many of our recommenda-

tions ... have been put in place,” he

said.

But the damage in some ways

had been done. With loans, grants

and other benefits already in the

hands of criminals, federal offi-

cials still were left to acknowledge

that they faced a gargantuan task

in pursuing sums that never

should have left Washington.

found “less than 1 percent of the

30 million small businesses it was

intended to help” had even used

the portal. And the watchdog dis-

covered only 62 of roughly 14,

counselors had received training

on it.

Entering the Biden administra-

tion, the SBA under its new leader,

Isabel Guzman, began to act on

some of the issues raised by the

agency’s own watchdogs. The SBA

improved its vetting systems to

better target later rounds of stim-

ulus aid and compare its data with

that amassed by other agencies.

The SBA also started reviewing

random samples of loans, 10,

at a time, to root out potential

fraud, its spokesman said in a

statement, adding the agency had

“referred $1.7 billion to our in-

spector general for further inves-

tigation” on potential fraud. And

the White House launched a

broader government effort to take

aim at identity theft to aid the SBA

and other federal agencies now

grappling with the problem.

tor of potential fraud.”

The troubles didn’t stop there.

By the end of 2021, the inspector

general had unearthed roughly

$4.5 billion that SBA appeared to

overpay in grants to self-em-

ployed workers and others, who

may not have been eligible to

claim the funds since they did not

have additional employees.

The inspector general also

found about $3.9 billion paid out

under EIDL to entities already

appearing on the Treasury De-

partment’s “Do Not Pay” anti-

fraud list. Some of the potentially

fraudulent recipients may reflect

overlap with those in other federal

reports.

Even the most basic tasks ap-

peared at times to confound the

agency. That included a roughly

$18 million grant that SBA award-

ed to help set up an informational

and training hub for small busi-

nesses trying to adapt to the coro-

navirus. Reviewing the program

in January, the inspector general

questioned most of its costs. It

JABIN BOTSFORD/THE WASHINGTON POST

President Donald Trump with Jovita Carranza, then head of the Small Business Administration, in April 2020. The agency has distributed

a lot of assistance during the pandemic, but its approach, particularly in the Trump administration, also carried a steep cost.

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