Billions in COVID-19 business loans possibly given to scammers, report says

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The Office of Small Business Administration (SBA) Inspector General Michael Ware found that it may have distributed billions of dollars to fraudulent businesses claiming financial distress due to the COVID-19 pandemic, according to a report.

The report claims the SBA let their guards down in order to expedite the loan approval process and failed to vet illegitimate applicants.

“To expedite the process, SBA ‘lowered the guardrails’ or relaxed internal controls, which significantly increased the risk of program fraud,“ the report stated.

As of July 31, the SBA approved $14.3 billion in COVID-19 Economic Injury Disaster Loans (EIDL) to accounts that differed from the original bank accounts listed on the loan applications; $62.7 billion in multiple COVID-19 EIDLs to applicants using the same IP addresses, email addresses, bank accounts, or businesses listed at the same addresses; and approximately $1.1 billion in COVID-19 EIDLs and emergency advance grants to potentially ineligible businesses, according to the report.

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It was also highlighted that of the $14.3 billion in loans, $13.3 billion was actually disbursed, and of the $62.7 billion in loans, $58.0 billion was disbursed.

“Suspicious examples include bank account numbers being significantly different or routing numbers of entirely different banks than the account numbers on the original application. It is also suspicious when the change is to an online-only debit card financial institution instead of a checking account at the brick-and-mortar banking institution listed on the original application,” according to the report.

However, there were instances where innocent mistakes were made on applications, without having a sinister intent.

“In some cases, the applicant made mistakes when completing the application. For example, an applicant put the bank’s routing number in the bank account information field or vice versa. Another example is transposed numbers in the bank account or routing number or not including all the digits for those numbers,” the report stated.

The reason for the oversight was due to the SBA being bombarded with an overwhelming amount of applications, according to the report, and thus not having enough time to vet each one.

“SBA suddenly had to handle unprecedented numbers of applications. For example, on March 31, 2020, more than 680,000 applications came in, the highest number of loan applications SBA has ever received on 1 day,” the report stated.

“In another specific example, three loan applications were submitted with three unique bank accounts. After approval but before disbursement, all three applications bank accounts were changed to a debit card financial institution. Two of the loans were disbursed for $30,300 and the third loan was approved for $9,300 but had not been disbursed as of July 31, 2020. An official at SBA’s Subcontractor Number 2 said loan applicants can change the bank account information at any point in the process,” the report stated.

An applicant can use anyone’s legitimate bank account number to get their application through to the SBA, according to the report.

Applicants pretending to be in need of financial relief in an attempt to get a payout is not surprising amid a chaotic global pandemic.

A Texas man was accused of stealing $17 million in COVID-19 relief funds and spending the money on luxury cars and houses, the Justice Department said in a press release in early October.

Dinesh Sah, 55, submitted fraudulent applications for roughly $24.8M in PPP loans, but ultimately received roughly $17.7M.

The money was part of the CARES Act, which is designed to provide emergency financial relief to Americans suffering from the economic effects of the coronavirus pandemic, including small businesses.

However, authorities say that Shah’s applications, filed under the names of businesses he allegedly owned or controlled, were made up and had no employees.

Shah took the money and spent it on multiple homes, luxury cars including a 2020 Bentley convertible, and sent millions in international transfers.

In response to the report, SBA Administrator Jovita Carranza, took issue with the report’s failure to mention “the enhanced and effective system controls and validations that SBA is using to process COVID-19 EIDLs” and claims the numbers of fraudulent applicants was “inflated.”

“The Draft Report does not fully and accurately portray SBA’s highly successful delivery of an unprecedented volume of disaster assistance. Rather, the Draft Report grossly overstates the risk of fraud, waste, and abuse in the COVID-19 EIDL program,“ according to Carranza.

FOX 5 NY contributed to this report.