SBA Inspector General Warns of Thousands of Fraud Complaints Linked to EIDL Program

Chris Gaetano
Published Date:
Jul 29, 2020

The Small Business Administration's (SBA) Office of the Inspector General (OIG), in a recent report, warned that it has received thousands of complaints about suspected fraud in its Economic Injury Disaster Loan (EIDL) and Advance grant programs.

The report said that, so far, the OIG has received more than 5,000 complaints of suspected fraud in the program, which gained new attention in light of the pandemic, and more than half of these, 3,800, have been linked with just six financial institutions. Nine financial institutions are linked with $187.3 million in suspected fraudulent transactions.

Complaints include activities such as accounts established through stolen identities, account holders attempting to shift funds into investment accounts, funds being transferred to the accounts of unrelated third parties in other states, or funds being deposited into accounts with no record of business activity. In one case, a federal credit union reported to the Criminal Division of the Department of Justice that it received $15 million in SBA deposits in recent weeks. The credit union audited 60 of the transactions and determined that 59 appeared to be fraudulent.

The report says that many of the frauds are the product of organized criminal activity. In some cases, there are fraud rings that use social media to recruit applicants, who split advance money with ringleaders. In addition, romance scams and social media phishing persuade some people to provide personally identifiable information, which is then used to apply for an SBA EIDL.

"SBA should take immediate action to reduce or eliminate fraud risks by strengthening existing controls and implementing internal controls to address potential fraud. Strong controls will ensure the Economic Injury Disaster Loan program can effectively and efficiently help eligible disaster victims who have suffered real economic injury because of the COVID-19 pandemic," said the report.

The SBA, in a response included as an appendix to the report, said that it believed its own internal controls were quite strong and so was surprised at the report's findings. It said that there needs to be more discussion with the inspector general to determine the specific nature of the internal control flaws it referenced. The OIG in reply, noted that it has been in daily contact with program officials about specific instances of potential fraud, including providing the contact information of financial institutions to assist in reviewing potentially fraudulent economic injury loans and advances, though the report said, "We will certainly continue to hold meaningful and cooperative discussions with SBA management to share information and reports of findings."

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