Bloomberg Businessweek - USA (2020-08-31)

◼POLITICS BloombergBusinessweek August 31, 2020

“Mike” Ware identified in a preliminary report in
July that warned of “potentially rampant fraud”
in the $20 billion grant program. Ware declined
to comment on Bloomberg’s findings about the
full program until his staff had a chance to review
them. But in an interview, he didn’t sound sur-
prised. “The level of fraud we’ve seen in this has
been pretty pervasive,” he said.
The SBA said in its statement that its anti-fraud
safeguards had “prevented the processing of thou-
sands of invalid applications.” It also said it was
“balancingtheagency’sfiduciarydutiesagainstthe
urgentneedtoprovidethesmall-businesssector
withmorethan$207billion—including$20billion
in EIDL Advances—needed to weather the precipi-
tous challenges created by this pandemic.”
TheEIDLgrantprograminspiredseveraltypes
ofscams,Waresaid.Inone,criminalsrecruit
peoplebyofferingtohelpobtaina $10,000gov-
ernmentgrantinexchangefora fee.Eachrecruit
provides personal ID and bank account informa-
tion, often without understanding that the arrange-
ment is illegal. The scammers use the information
to submit a phony application.
Ware said he and his law enforcement partners
shut websites and call centers that were set up to
troll for recruits. “It’s organized,” he said, “to the
point where—you know what, I’ll leave it at that,
because I don’t believe I can say it publicly at this
point.” The FBI, the Secret Service, and other agen-
cies are probing fraud across the SBA’s programs,
Ware said.
The Washington Post, citing an unnamed source,
reported in July that SBA officials had noticed so
much fraud coming from Chicago that they asked
front-line workers to subject those applications to
extra scrutiny. Separately, the Illinois Credit Union
League warned members in a notice on July 3 that
it had received reports of “money-mule” fraud in
the program. The SBA began dispensing grants
inAprilandhandedoutthelastofthe$20billionin
July.Ware’sreportsaysallegationsoffraudsky-
rocketed around mid-June, when the SBA resumed
processingapplicationsaftera two-monthhiatus.
TheBloomberganalysisshowsa surgeingrant
approvalsonJune 15 inareaswiththemostfraud.
Createdaspartofthe$2trillioncoronavirus
stimulusbillpassedinMarch,thegrantsarean
add-ontotheagency’sdecades-olddisaster-loan
program,whichdistributed$184billionthrough
Aug. 15 tosmallbusinessesadverselyaffectedbythe
coronaviruspandemic.Thedisaster loan and grant
programs are separate from the SBA’s Paycheck
Protection Program, which dispensed $525 billion
in forgivable loans before it ended on Aug. 8.

35

It cantakemonthstogetapprovedforadisaster

loan,and lawmakers conceived of the grant

program as a way to get cash to businesses quickly

while applications were pending. Barring fraud,

the grants don’t have to be repaid, even if the loan

application is rejected. To speed money to strug-

gling businesses, lawmakers required the SBA to

take applicants’ word that they were eligible for

the money—a requirement that SBA Administrator

Jovita Carranza has called “lowered guardrails”

against fraud.

In a letter responding to Ware’s findings,

Carranza said the SBA had caught billions of dollars

of attempted fraud. An automated system rejected

$8.8billioningrantsbecausetheywereidentified

THEBOTTOMLINE A comparisonofSBAgrantsandeligible

companies shows that more than $1 billion in federal aid may have

gone astray.

asduplicates,andit deniedanadditional$9billion

becauseapplicants’identitiesdidn’tcheckoutor

didn’tmatchbankinformation,Carranzawrote.

Thosefiguresrefertorejectedapplications.But

Warewasabletoidentifythe$47.8millioninfraud-

ulentgrantsapprovedthroughJune 19 byexamin-

ingtheemployertaxIDnumbersonapplications.

Businessesaresupposedtohavebeeninopera-

tionasofJan. 31 toqualify,yetWarefoundthat

20,962successfulrecipientsgotIDnumbersafter

thatdate.Heusedthesamemethodtoidentify

$208millionofloansthatwerewronglydisbursed.

Insomecases,accordingtoWare,banksalerted

theSBAto suspectedfraud, andit’s unclear

whetherallofthedubiousapprovedgrantsidenti-

fiedbyBloombergwereactuallycollectedbyappli-

cants.Butthenumberofsuspectapprovalsmaybe

evenhigherthanBloombergestimates.It doesn’t

includepotentialfraudinvolvinggrantsof$1,000to

$9,000,whichrepresentmorethanhalfthetotal.

Andit countsonly$10,000grantsthatexceedthe

numberofeligiblebusinessesina congressional

district,eventhoughsomelegitimate businesses

probably didn’t apply. Across the nation, about

57% of eligible small businesses got $10,000 grants.

�Zachary R. Mider and Jason Grotto

Illinois 2nd

Illinois 1st

Illinois 7th

Georgia 13th

Georgia 4th

Number of eligible businesses ◼Numberof$10,000grants

Top Districts ReceivingSuspectGrants

Excess value

$223.5m

178.2

132.2

69.3

60.5

24k

20k

20k

9k

8k

DATA: U.S. SBA, U.S. CENSUS BUREAU STATISTICS OF U.S. BUSINESSES 2017