SBA blocked 21.3M fake pandemic relief applications, saving $511B
The U.S. Small Business Administration has released a report detailing the analysis of anti-fraud protocols put in place to block fraudulent activities related to its COVID-19 relief programs, through which it fended off 21.3 million applications representing $511 billion in saved funding.
The report, entitled “Protecting the Integrity of the Pandemic Relief Emergency Programs: SBA’s Actions to Prevent, Detect and Address Fraud,” showed that 86% of fraud in small business pandemic relief programs occurred within the first nine months of the pandemic.
The report outlines the actions the agency deployed to restore anti-fraud measures in pre-existing relief programs, enhance fraud controls in new programs, as well as support cross-agency efforts to hold fraudsters accountable.
The report also details a comprehensive analysis estimating the total impact of fraud across the SBA’s four largest pandemic relief programs, including the Paycheck Protection Program (PPP) and COVID-19 Economic Injury Disaster Loan Program (COVID-EIDL).
As a result, in large part of the anti-fraud measures put in place, including using artificial intelligence, the SBA was able to block duplicate applications, ineligible applications and attempted fraud. The agency estimates that of the $1.2 trillion allocated in pandemic relief emergency program funds, $36 billion was fraudulently obtained.
As for new relief programs designed and launched in 2021, such as the Shuttered Venue Operators Grant Program (SVOG) and the Restaurant Revitalization Fund (RRF), the SBA estimates a likely fraud rate of 0.33% for SVOG and 0.75% for RRF.
“In the wake of inadequate fraud mitigation measures implemented in 2020, the SBA has supported the recovery of $30 billion because of law enforcement actions, seizures, and voluntary repayments by borrowers and financial institution returns,” the agency stated.
“The findings in this report, coupled with the SBA Office of Inspector General and other law enforcement’s commitment to fighting fraud, is a major step forward,” said Peggy Delinois Hamilton, special counsel for Enterprise Risk. “Releasing the results of this report is necessary to fully inform past, present and future efforts for addressing fraud.”
To follow through on the SBA’s work to identify awards, grants, and loans suspected of fraud, the report points to the importance of Congress meeting President Biden’s sweeping anti-fraud proposal published in March, which includes a request to provide at least $100 million in mandatory funding to SBA’s Office of Inspector General (OIG) to fulfill the mission laid out by recent legislation extending the statute of limitations for PPP and COVID-EIDL fraud.
Looking ahead to potential future national emergencies, the report also outlines recommendations to mitigate fraud through the design of relief programs. They include:
Expand government data-sharing. As outlined in President Biden’s Pandemic Anti-Fraud Proposal, increasing access to government datasets, and expanding validation services would further SBA’s ability to prevent fraud on the front end. This would involve granting the SBA digital, real-time access to government payroll data, as well as tax identification data, so that it can more quickly verify applicant information.
Build now to save later. Establish the statutory framework in advance of an emergency, so that SBA personnel and procedures can move quickly and with a full range of controls in the event of a crisis.
Prevent fraud rather than chase it. Center expectations on upfront fraud control measures rather than on recovery efforts after funds are distributed so that the post-disbursement stage can better focus on applicant performance and ongoing monitoring.