WASHINGTON, D.C. — The U.S. Treasury Department and Small Business Administration’s efforts to quickly get hundreds of billions of dollars worth of forgivable loans to small businesses make the program vulnerable to fraud, according to a new watchdog report.
Banks, with the backing of the federal government, have received approval to lend more than $500 billion to millions of small businesses through the Paycheck Protection Program, which allows small businesses affected by the pandemic-related shutdowns to tap federal funds to cover payroll, rent and utility payments.
Small businesses have flocked to the program to cover their expenses while much of the economy was shut down this spring, but the government’s efforts to distribute the money quickly may have prevented the Small Business Administration from spotting fraudulent applications, the Pandemic Response Accountability Committee said in a report Wednesday.
“Increased loan volume, loan amounts, and expedited loan processing time frames may make it more difficult for SBA to identify red flags in loan applications,” the report said. “SBA programs suffer increased vulnerability to fraud and unnecessary losses when SBA and its lending partners expedite loan transactions to provide quick relief.”
The report cited grant fraud — including the PPP loans — accurate financial reporting, information technology security and safeguarding health while continuing operations as key areas of concern for watchdogs as they oversee roughly $3 trillion in government spending to combat the coronavirus pandemic.
The report was published the same day as the SBA and Treasury are releasing expedited forms for businesses to apply for loan forgiveness. PPP loans are fully guaranteed by the government and will be forgiven if the recipients follow the requirements for using the money.
The program has been plagued with several problems, including slow guidance and accusations that banks favored larger companies over smaller ones, including those from poor and minority communities.
Lawmakers have called on Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza to release details about which companies received funding and in what amount after Mnuchin testified at a Senate committee hearing earlier this month that such information would be withheld because it’s proprietary or confidential.
The SBA reported that as of Tuesday, loans had been approved for 4.6 million small businesses totaling $513 billion, with about $130 billion in funding remaining before the agency stops accepting new applications on June 30.
The Justice Department has begun bringing cases of fraud against small businesses owners, including a reality television personality who allegedly bought diamond jewelry and a Rolex watch after tapping $2 million from the program.