The Small Business Administration distributed more than $200 billion in potentially fraudulent COVID-19 relief funds, CNN reports. The findings, released Tuesday by the SBA’s inspector general, underscored how the emergency funds designed to combat a once-in-a-century pandemic became a magnet for fraudsters. At least 17% of the $1.2 trillion distributed by the SBA was wasted in fraud, the report found. The agency paid out about 4.5 million potentially fraudulent loans and grants, amounting to 21% of the total 22.1 million loans and grants that were disbursed. The fraud estimates focus on two programs rapidly launched after the health crisis began: the Economic Injury Disaster Loans (EIDL) and the Paycheck Protection Program (PPP), which provided forgivable loans to small businesses.
Most of the fraud apparently happened through the EIDL funds, with the inspector general estimating $136 billion of fraudulent activity in that program. Another $64 billion of potential fraud was found to have been distributed in PPP funds. EIDL provided long-term, low-interest loans for eligible small businesses. Unlike the PPP loans, business owners are required to pay the EIDL loans back and payments started to become due earlier this year. PPP was the more popular program, a key part of the federal government’s response to the pandemic. In early 2020, it was designed to get money out as quickly as possible to small businesses who were struggling to pay their employees. The inspector general pinned the blame for fraud on lax safeguards at SBA. “The agency weakened or removed the controls necessary to prevent fraudsters from easily gaining access to these programs and provide assurance that only eligible entities received funds,” the report said. “However, the allure of ‘easy money’ in this pay and chase environment attracted an overwhelming number of fraudsters.” The inspector general’s office said its investigative work has resulted in 1,011 indictments, 803 arrests and 529 convictions related to COVID fraud as of May.