More than $200 billion in Covid loans potentially stolen by fraudsters, watchdog says

Michael Horowitz (Chair, Pandemic Response Accountability Committee), Kevin Chambers (Director for COVID-19 Fraud Enforcement at the Department of Justice), Hannibal "Mike" Ware (Inspector General of the Small Business Administration), and Roy D. Dotson Jr. Acting Special Agent-in-Charge, National Pandemic Fraud Recovery Coordination, United States Secret Service, testified during a hybrid congressional hearing on the Coronavirus Crisis held in the Rayburn House Office Building in Washington DC

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A government watchdog reported Tuesday that fraudsters could have stolen more than 200 billion dollars in federal loans meant to assist small businesses suffering during the Covid epidemic.

According to a new report, the Office of Inspector General of the SBA estimates that at least 17 percent of the $1.2 trillion distributed by the Small Business Administration could have been stolen by fraudsters.

Inspector General found that more than $136 billion in Economic Injury Disaster Loans and $64 billion of Paycheck Protection Program Loans were potentially stolen. The SBA has disbursed a total of $400 billion in EIDL funding and $800 billion Paycheck Protection Program loan funds during the lifetime of the programs.

Inspector General said that fraudsters who were attracted by easy money could take advantage of these programs, because SBA loosened its internal controls to help small businesses in need during the pandemic shutdowns.

In a letter that was included with the report, the SBA disputed the conclusions of the Inspector General. Bailey DeVries is a senior SBA official who said that the report overestimates fraud in these programs.

DeVries stated that the Trump administration has rushed to issue loans in the first few months, but fraud controls have been introduced since 2021.

She also stated that the SBA's current repayment statistics are inconsistent with the 34% fraud rate found by the Inspector General in the EIDL Program.

DeVries stated that SBA figures showed that 12% were loans that went to past-due borrowers, the majority of which are real businesses who have closed or are simply unable repay. She said that 74% of the businesses had either repaid their loans in full or started to do so, while 14% were still in deferment.

According to the report, the Inspector General's Office investigations led to over 1,000 indictments and 803 arrests, as well as 529 convictions for fraud committed in loan programs. The federal agencies have seized or returned nearly $30 billion worth of stolen loans as a result of these investigations.

According to the report, the inspector general's department is still pursuing tens and thousands of leads for investigations into waste, fraud, and abuse of the loan programs. The inspector general stated that thousands of these investigations will continue for many years.

Paycheck Protection Program offered guaranteed loans for small businesses, nonprofits and individuals. Borrowers could get their loan forgiven by meeting certain requirements. Economic Injury Disaster Loans provided fixed-rate, low-interest loans to small businesses and organizations to cover their operating costs.

According to the report, as of May, 1.6 million EIDL loan amounts worth $114 billion were either delinquent, past due or liquidated. Over 69,000 loans totaling $3.2 billion worth of debt have been written-off. More than 500,000 PPP loan defaults have been recorded

Nonpayment of loans is often an indicator of fraud. However, not all loans which are past due, charged off, or delinquent will be fraudulent.

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