According to a new government audit that was released yesterday, the Small Business Administration (SBA) disseminated $3.7 billion in loan advance grants to ineligible recipients through its Economic Injury Disaster Loan (EIDL) program.
Recall: EIDL
The EIDL program was created by Congress in March 2020 and was included in the very first Covid-19 aid package. Amidst a flurry of nationwide lockdowns, the Trump administration rolled out the $20 million program in a hurried fashion in order to get money to shuttered businesses as quickly as possible. Up to $10,000 immediate EIDL grants were offered to business operators who applied for a disaster loan, and operators were even allowed to keep funds whether their loan request was rejected or not. Technically, companies could only receive $1,000/employee up to 10 employees – which is where the “$10,000 cap” comes from.
Just as quickly as the program was rolled out, however, it ran out of money. Why was this so? Well out of the 5.8 million applicants who received grants, around 700,000 sole proprietors and independent contractors received much more than they should have. Remember: these sole proprietors and independent contractors should have only received $1,000 because they employ just themselves. In reality, these individuals received much larger grants, largely because they claimed additional workers; furthermore, many of these additional workers did not have the required Employer Identification Number to properly verify them. The outcome: in 14 weeks, the SBA distributed over $210 billion in loans and grants.
Who was at Fault?
So was it the fault of the sole proprietors and independent contractors or the SBA?
According to the report released by SBA inspector general, Hannibal Ware, months of government audits found that the SBA indeed failed to perform the legally required check of applicants identifying details against the Treasury Department’s Do Not Pay system. The Do Not Pay system is simply a mechanism to ensure that funds are not distributed to applicants who are: dead, convicted of tax fraud, barred from receiving federal contracts, or have other similar red flags.
This is not the first time Ware has spoken out against the fraudulency of the SBA’s pandemic relief efforts. Back in October Ware had already identified the problem of self-employed individuals receiving larger grants than they should have. According to data outlined in a report released at the time, Ware had found “117,135 applicants who got grants and 75,180 recipients who got loans despite matches in the system indicating a “high likelihood” that the payments were improper.”
In the same report, Ware called out the SBA for its overwhelming failure to prevent fraud in other programs as well. For example, the SBA’s $800 billion Paycheck Protection Program (PPP) was also found to have illicitly distributed tens of billions of dollars in loans.
What Does the SBA Have to Say?
Several comments from the SBA have been released. In the report itself, the SBA formally states that, “on April 6, 2021 — more than a year after the disaster loan program began — it started checking Do Not Pay records before sending out funds.” Moving forward now, however, the agency stated that it will “review the loans and grants previously made to recipients who were flagged as ineligible.”
During a House hearing this month, SBA administrator Isabella Casillas Guzman stated that, while “the guardrails did not exist last year under the prior administration,” she has now “heightened the SBA’s “fraud controls over its Covid-19 relief programs.” In a similar vein, SBA spokesman Han Nguyen appeased reporters by stating that the SBA “agrees with the S.B.A. Office of Inspector General that the Trump administration should have applied this risk management tool, and, therefore, the S.B.A. has done just that under the Biden-Harris administration.”
Fraud aside, the SBA will stop accepting EIDL loans and targeted advance applications on December 31st.
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