A government watchdog revealed on Tuesday that fraudsters may have stolen more than $200 billion from federal loans designed to aid struggling small businesses during the COVID-19 pandemic, Reuters reported. According to the Office of the Inspector General, approximately 17 per cent of the $1.2 trillion disbursed by the Small Business Administration (SBA) through the Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP) may have been fraudulently obtained.
The report cited by Reuters highlights that around $136 billion from the EIDL program and $64 billion from PPP loans are potentially missing due to fraudulent activities. The watchdog attributes this large-scale fraud to the SBA’s decision to relax internal controls in their haste to distribute financial assistance to businesses affected by pandemic shutdowns.
However, the SBA has disputed the Inspector General’s findings. CNBC quoted Bailey DeVries, a senior official at the SBA, as saying that the report significantly overestimated the extent of fraud in the programs. DeVries explained that additional fraud controls were implemented in 2021, and the 34 per cent potential fraud rate identified by the Inspector General for the EIDL program does not align with the SBA’s current repayment data.
According to SBA figures cited by CNBC, 12 per cent of the loans went to borrowers who are currently past due, which mostly comprises legitimate businesses that are closed or facing financial difficulties. DeVries further noted that 74 per cent of businesses have either fully repaid or started repaying their loans, while 14 per cent are still in the deferment period.
The investigations conducted by the Inspector General’s office have resulted in over 1,000 indictments, 803 arrests, and 529 convictions related to fraud in the loan programs, leading to the recovery of nearly $30 billion in stolen funds by federal law enforcement agencies, as per CNBC. Despite these efforts, the Inspector General’s office continues to pursue tens of thousands of leads related to waste, fraud, and abuse in the loan programs, with many of these investigations expected to span several years.
Social Aid or Money Grabbing Scheme
The PPP provided guaranteed loans to small businesses, individuals, and nonprofits that could be forgiven under certain conditions. At the same time, the EIDL program offered low-interest, fixed-rate loans to support small businesses and organizations in covering their operating expenses. The report cited by CNBC revealed that as of May, approximately 1.6 million EIDL loans worth $114 billion are either past due, delinquent, or in liquidation. Out of these, more than 69,000 loans worth $3.2 billion have been written off. Additionally, over 500,000 PPP loans have defaulted.
The Inspector General’s report suggests that nonpayment often indicates loan fraud, although not all past due, delinquent, or charged-off loans are necessarily fraudulent. The potential fraud estimate of over $200 billion emphasises the magnitude of the issue, with the watchdog criticizing the SBA for loosening controls and enabling fraudulent actors to exploit the relief programs.
In May 2021, Attorney General Merrick Garland established a COVID-19 Fraud Enforcement Task Force to tackle these issues. Last year, the U.S. Justice Department appointed federal prosecutor Kevin Chambers to lead investigations into alleged fraud schemes targeting government pandemic assistance programs.
The recent report follows previous findings of significant fraud in government aid programs, including the theft of $45.6 billion from the U.S. unemployment insurance program and the diversion of $250 million from a program intended to provide meals to children in need during the pandemic. Another watchdog report cited by Reuters highlighted that approximately $5.4 billion in COVID-19 aid was potentially awarded to individuals with questionable Social Security numbers.
The impact of this fraud extends beyond financial losses. It undermines the purpose of the relief programs, which were intended to provide critical support to struggling businesses and individuals during an unprecedented crisis. The misappropriation of funds not only diverts resources away from those in genuine need but also erodes public trust in government aid initiatives.
(With Inputs from Agencies)
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