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Audit: Fraud less than predicted in federal COVID aid for small business

Hannibal "Mike" Ware, inspector general of the U.S.

Hannibal "Mike" Ware, inspector general of the U.S. Small Business Administration. Credit: Courtesy of the U.S. Small Business Administration

Fraud has been committed against a federal COVID-19 relief program for small businesses and nonprofits — but not as much as initially feared, according to new audit.

Just 2% of the COVID-19 Economic Injury Disaster Loans and EIDL Advance Grants made in March-November 2020 went to "potentially ineligible recipients," according to the audit from the U.S. Small Business Administration’s Office of Inspector General. The agency runs the loan and grant program.

In a July 2020 audit, Inspector General Hannibal "Mike" Ware said there was "potentially rampant fraud" in the EIDL program.

The new audit shows that SBA approved 75,180 EIDL loan applications, totaling $3.1 billion, as of early November 2020 for businesses and nonprofits that are barred from receiving federal funds. Those applicants used the names of dead people, have been convicted of tax fraud, barred from securing federal contracts or engaged in other questionable practices.

The improper loans represent 1.6% of the $190 billion in EIDL money distributed to 3.6 million applicants between March and November 2020. The period coincided with government lockdowns of the economy to slow the coronavirus’ spread.

Separately, SBA awarded $550 million in EIDL grants to 117,135 potentially ineligible applicants in the eight-month period. That’s 2.8% of the nearly $20 billion in grants given to 5.8 million applicants in the program's first round, which ended last year, the audit states.

Ware said SBA under then-President Donald Trump lacked "adequate front-end controls to determine eligibility" for the loans and grants and that led to the "distribution of [COVID relief] to potentially ineligible recipients."

Ware said SBA failed to check EIDL applicants in 2020 against the U.S. Department of Treasury’s "Do Not Pay" database. Such a screening was used to produce the number of questionable loan and grant recipients cited in the audit this week.

Jovita Carranza, who led SBA under Trump, told Newsday, "I’m declining to comment until I read the report."

President Joe Biden’s SBA chief, Isabella Casillas Guzman, has reinstituted some of the antifraud protections that were suspended last year to more quickly deliver aid to businesses and nonprofits.

As of April, new EIDL loan and grant applications are checked against Treasury’s "Do Not Pay" database. Prior applications have been screened retroactively.

"We agree with the SBA Office of Inspector General that the Trump administration should have applied this risk management tool, and therefore, the SBA has done just that under the Biden-Harris Administration," agency spokesman Han Nguyen told Newsday. "The scope of the OIG audit only covers loans and grants from March to November 2020," prior to Biden becoming president.

The loan and grant program will end on Dec. 31.

Since March 2020, nearly $305 billion in COVID EIDL loans have been made to 3.8 million businesses and nonprofits nationwide. In New York State, 328,335 applicants have secured a total of $29.5 billion, the third-highest among the states after California and Florida, according to SBA data released on Thursday.

FRAUD IN COVID-19 RELIEF FOR SMALL BUSINESSES, NONPROFITS

SBA's Inspector General says "potentially ineligible recipients" received:

* 1.6% of Economic Injury Disaster Loan funds

* 2.8% of EIDL Advance Grant funds

SOURCE: Audit by U.S. Small Business Administration's Office of Inspector General for March-November 2020 period

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