Government Small Business Loans Subjected to Widespread Fraud

October 1, 2020 by Tom Ramstack
A small business that did not survive. (Photo by Dan McCue)

WASHINGTON — A Small Business Administration inspector general defended his agency Thursday during questioning from members of Congress about reports of widespread fraud in government loans to employers.

The loans are supposed to help small businesses stay afloat during the economic downturn caused by the coronavirus pandemic.

Instead, early estimates indicate hundreds of millions of dollars went to identity thieves while other business owners lied about their loan qualifications, according to lawmakers.

Rep. Tim Burchett, R-Tenn., explained his frustration with the fraudsters by saying, “These dirtbags get out and take advantage of the situation.”

The House Small Business subcommittee on investigations, oversight and regulations is investigating fraud in the Small Business Administration’s Paycheck Protection Program and Economic Injury Disaster Loan program.

The programs are part of the federal government’s COVID-19 economic recovery strategy.

They allow businesses in danger of closing due to restrictions caused by the pamdemic to receive potentially large low-interest loans. The government pledged to forgive some of the loans if the business owners kept employees on their payroll.

The CARES Act approved by Congress in late March set aside $349 billion for the relief of small businesses. Congress later provided an additional $310 billion for the Paycheck Protection Program, totaling $649 billion.

The CARES Act also appropriated $10 billion for Emergency EIDL grants. The program would give small businesses as much as $10,000 in loans that would not need to be repaid if they continued operating with employees.

Shortly after the programs started, an SBA hotline began receiving thousands of calls about fraudulent loan applications, according to Mike Ware, the SBA’s inspector general.

Some callers complained about receiving letters from the SBA notifying them that their Paycheck Protection Program loan payments were deferred.

“And they say, ‘What loan payments?’” Ware told the House subcommittee.

Only then did the victims realize that identity thieves used their names to fraudulently apply for the loans.

In other cases, the applications required business owners to “self-authenticate” they had the kind of businesses and number of employees required for the loans, Ware said.

Some of them lied, he said.

He put much of the blame on the SBA’s rush to bail out small businesses in danger of failing. The money was given out before proper fraud controls were arranged, he said.

The fraud reports led the U.S. Government Accountability Office to investigate the SBA and the loan programs.

With reports in July and August, the GAO documented “indicators of widespread potential fraud,” said William Shear, the agency’s director of financial markets.

The investigation was impeded by slow responses from the SBA to turn over data, he said.

He was unable to give a good estimate of how much money was given to fraudsters. The investigations are ongoing, he said.

“It’ll be a long time before we know how much fraud there was in the program,” Shear said.

He described the fraud as unfortunate because of the important role the government loans provided small businesses that otherwise would have gone bankrupt.

“It has certainly been a lifeline for a large number of small businesses,” Shear said.

His outrage was shared by members of Congress.

“Frankly, I am shocked by these findings,” said Rep. Judy Chu, D-Calif.

Rep. Ross Spano, R-Fl., said, “These loans have helped small businesses keep the lights on.”

Business

Google Monopoly Case by US Sets Stage for Multipronged Attack
Business
Google Monopoly Case by US Sets Stage for Multipronged Attack

WASHINGTON - The U.S. Justice Department sued Alphabet Inc.'s Google in the most significant antitrust case against an American company in two decades, kicking off what promises to be a volley of legal actions against the search giant for allegedly abusing its market power. Google, which controls about 90% of the online... Read More

New Survey Predicts Dismal Outlook for Mom and Pop Shops for the Holidays
Economy
New Survey Predicts Dismal Outlook for Mom and Pop Shops for the Holidays
October 20, 2020
by Sara Wilkerson

A new survey released from Alignable, the country’s largest online referral network for small businesses, shows 45% of consumers shifted from shopping at local businesses to purchasing goods from national, online retailers when they were most concerned about COVID. The survey also showed that 68% of... Read More

In Final Push, Biden Builds Bridge to Business Community
2020 Elections
In Final Push, Biden Builds Bridge to Business Community
October 16, 2020
by Dan McCue

WASHINGTON - With less than 20 days to go until Election Day 2020, the Biden campaign is engaging in a full-throttled effort to reach out to small business owners across the country. The goal is both to enlist them as local thought leaders while also explaining... Read More

Survey: 80% of Small Businesses Want Economic Relief Prioritized Over SCOTUS Nomination
Opinion Polls
Survey: 80% of Small Businesses Want Economic Relief Prioritized Over SCOTUS Nomination
October 13, 2020
by Reece Nations

WASHINGTON – A national survey by the Small Business for America’s Future coalition found that roughly 8 in ten respondents identified something other than the Supreme Court nomination when asked about Congressional priorities. The survey, conducted from Oct. 2 through Oct. 5, took input from 1,511... Read More

Sen. Sherrod Brown Advocates for Worker Protection Landmark Legislation
Employment
Sen. Sherrod Brown Advocates for Worker Protection Landmark Legislation
October 12, 2020
by Sean Trambley

WASHINGTON – U.S. Sen. Sherrod Brown, D-Ohio, hosted a news conference call to discuss landmark legislation he introduced this fall to protect workers as corporations increasingly classify them as independent contractors and use sub-contractors, temporary (temp) agencies, and corporate franchises to avoid labor laws.  Brown’s legislation,... Read More

House Financial Services Committee Democrats Urge SEC to Finalize Rule on Improper Executive Pay
Business
House Financial Services Committee Democrats Urge SEC to Finalize Rule on Improper Executive Pay
October 9, 2020
by Sean Trambley

WASHINGTON – This week, Reps. Cindy Axne, D-Iowa, and Brad Sherman, D-Calif., chairman of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, led nine Financial Services Committee members in a letter to Securities and Exchange Commission Chairman Jay Clayton asking the SEC to prioritize a... Read More

News From The Well
scroll top