The Great Grift: More than $200 billion in COVID-19 aid may have been stolen, federal watchdog says

The Small Business Administration paid out $1.2 trillion in pandemic loans and more than $200 billion of that may have gone to fraudsters, according to a new estimate Tuesday by the agency’s inspector general.

It took three years to come up with the “potential fraud” estimate and analysts said it’s still a rough outer bound. But it gives some sense for just how much money may have been wasted in some of the big assistance programs Congress created to try to keep the economy afloat when the pandemic hit in 2020 and the nation went into lockdown mode.

Investigators have managed to claw back less than $30 billion of the fraud-tainted funds, the inspector general said.

Some 22.1 million loans and grants were made as part of the Paycheck Protection Act and the pandemic Economic Injury Disaster Loan program. The inspector general said 4.5 million of those had risk factors that suggested they might be fraudulent.

The audit identified more than $136 billion in EIDL payments and $64 billion in PPP funds at risk of being fraudulent.

“Since SBA did not have an established strong internal control environment for approving and disbursing program funds, there was an insufficient barrier against fraudsters accessing funds that should have been available for eligible business owners adversely affected by the pandemic,” the audit said.

The $200 billion figure is classified as “potential fraud” because the cases included triggered at least one of 11 fraud indicators, such as including a suspicious phone number or email address on the application, or using a suspicious bank account or foreign IP address to conduct transactions.

Worrisome IP addresses accounted for more than $73 billion of the potentially fraudulent loans.

In one case, investigators identified a scam being run using foreign IP addresses where the fraudsters would fake online relationships and pressure Americans into sharing their personal information and financial accounts. The fraudsters would then use that information to apply for bogus loans and pandemic-infused unemployment benefits.

Those fraudsters applied for more than 250 PPP loans, totaling $6 million, and a dozen EIDL loans at $700,000.

SBA, in its response, said it reviewed all pandemic loans and identified $400 billion that needed further investigation. It then went through those and narrowed the actual fraud figure down to $36 billion.

SBA said the inspector general will eventually realize that it drew its fraud universe too broadly.

“SBA’s more than 3 million manual reviews to date have shown that many of these OIG indicators include a high percentage of false positives,” Bailey DeVries, an acting associate administrator at the agency, said in the SBA’s official response.

For one thing, the inspector general said the EIDL program has a potential fraud rate of 34%. But SBA said just 12% of loans are past due with no payment history, and most of those are businesses that ended up shutting down and can’t pay.

Some 74% of borrowers have made payments, while 14% have gotten deferrals. The agency said it’s common sense that a fraudster wouldn’t attempt to repay a loan, so the fraud rate must be lower than those bounds.

SBA also said it should have gotten more credit for improvements it made over time. It said most of the fraud occurred in the first nine months of the programs — which coincides with the Trump administration’s control.

Officials said they understood the need for speed in getting the payments out, but said some simple changes, such as checking against the Treasury Department’s Do Not Pay list, would have saved money.

In addition to the business loans, fraudsters also struck hard at the unemployment insurance program.

No official estimate of fraud has been released for unemployment, but outside analysts put the figure anywhere from $100 billion to $400 billion.