SBA Inspector General Says $4.5 Billion in Pandemic Relief Went to Sole Proprietors Based on Fraudulent or Erroneous Applications

By:
Chris Gaetano
Published Date:
Oct 8, 2021
GettyImages-1046403960 SBA Loan

The Office of the Inspector General (OIG) of the Small Business Administration (SBA) said that the agency improperly sent $4.5 billion of pandemic relief funds to self-employed applicants without  Employer Identification Numbers (EINs), including some fraudulently claiming fictitious employees in order to inflate their aid totals. 

Through the CARES Act, the SBA distributed billions of dollars to struggling business owners via its Economic Injury Disaster Loan program. The program granted $1,000 per employee up to a statutory maximum of $10,000. 

While sole proprietors were eligible for the program, the OIG report said that 542,897 of those who received more than $1,000 provided no  EIN yet still claimed they had more than one employee. The absence of an EIN indicates that these sole proprietors should not have claimed any employees at all; the maximum amount these people should have received in total was $543 million. Yet $4.5 billion went to these sole proprietors, indicating an overpayment of $3.5 billion. 

Similarly, the OIG found 161,197 independent contractors who claimed more than one employee on their applications and received grants of more than $1,000 yet did not provide an EIN. The SBA should have disbursed no more than $161 million in all to these people but wound up giving them $1.1 billion. 

"The $4.5 billion overage in Emergency EIDL grants to sole proprietors and independent contractors could have been used to provide funding to thousands or millions more eligible small businesses," said the OIG report. "When the funds ran out in early July 2020, there were over 6 million applicants in process who were eligible for a grant but had not received one. More than 7.3 million applicants later applied for an EIDL loan but could not request a grant because the funds were exhausted."

"We recommended that SBA remedy $4.5 billion in funds disbursed in excess of its policy allowance to sole proprietors and independent contractors," the OIG report stated, adding,. "SBA disagreed with the prior Administration’s policy determination, which is the criteria used to premise our findings. Despite management’s disagreement, the agency is taking corrective actions to implement our recommendation."  

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