Incidences of fraud, waste and abuse in PPP loans, oversight panel says

The incidences of fraud, waste and abuse with Paycheck Protection Program loans exceed $1 billion, or less than 1%, of the $525 billion lent by banks and other private lenders to small businesses and nonprofits, according to a congressional report released this week.

A review of federal loan data by the House Select Subcommittee on the Coronavirus Crisis found 10,856 out of 5.2 million PPP loans went to borrowers who received multiple loans, which is a violation of the March law that established the program. Together, the questionable loans totaled more than $1 billion, the subcommittee’s Democratic majority said.

The questionable loans represent 0.2% of all PPP loans and total funds disbursed to borrowers.

Still, subcommittee chairman Rep. James E. Clyburn (D-S.C.) said, “a lack of oversight and accountability” by the U.S. Small Business Administration and Department of Treasury “may have led to billions of dollars being diverted to fraud, waste and abuse, rather than reaching small businesses truly in need.”

He called for investigations by the SBA and Treasury inspector generals, and more audits of loan forgiveness applications than have been proposed by the agencies. SBA and Treasury have said only borrowers of more than $2 million can expect to be audited, or 0.6% of the total.

An SBA spokesman said Thursday, "Any program of this scope and size will encounter issues, and we have moved quickly to respond as they arise . . . Treasury and SBA are committed to rooting out fraudulent activity so abusers of this important program can be held appropriately accountable."

The subcommittee’s Republican minority, in a rebuttal, called the analysis of PPP loan data a “partisan investigation” but conceded “minimal fraud” had taken place.

Besides borrowers receiving multiple loans, the Democrats found 613 PPP loans, totaling $93 million, went to companies barred from doing business with the federal government. A further 353 loans, totaling $195 million, went to government contractors “with significant performance and integrity issues,” said the subcommittee’s seven Democrats, including New York City's Carolyn Maloney and Nydia Velazquez.

The Democrats highlighted the case of seven businesses in different industries that listed the same nonexistent address in Ohio on their loan applications. The address appears to be the back of a restaurant. The loans totaled more than $10 million.

SBA Inspector General Hannibal "Mike" Ware is encouraging people with information about possible fraud, waste or abuse in the PPP to contact his office at 800-767-0385 or online at nwsdy.li/sbafraud.

Last month, federal prosecutors charged a Taiwanese citizen living in Manhattan with fraudulently securing nearly $3 million in PPP loans by misrepresenting employee numbers of multiple companies. Sheng-Wen Cheng, 24, allegedly spent more than $275,000 of the loan funds on a condominium, Mercedes S560X4 automobile and 18-carat Rolex watch for himself, according to the indictment. He was arrested on Aug. 18.

PPP borrowers also were charged last month with fraud in Arkansas, California, Florida, Minnesota, Nevada and Virginia, among others, according to the SBA IG.

The congressional report came less than a month after Aug. 8 when SBA stopped processing PPP loans.

More than 66,640 PPP loans were made in the four congressional districts that encompass Long Island, according to a Newsday analysis of loan data. The federally guaranteed loans are up to $10 million per borrower with a 1% interest rate and 5-year term. Newsday secured a $10 million loan in April.

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By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.