Suspected fraudsters have infiltrated a loan program meant to help small businesses weather the coronavirus crisis — and the feds are letting them slip through, a watchdog warned.
The Small Business Administration’s inspector general has received more than 5,000 complaints from lenders about suspected fraud in the Economic Injury Disaster Loan program, which offers aid to merchants struggling with temporary revenue losses.
The suspect activity includes people setting up accounts with stolen identities, trying to move federal money to foreign accounts or attempting to withdraw the funds in cash, according to a Tuesday memo from the inspector general’s office.
Scammers are also using “romance scams and social media solicitations” to convince people to hand over personal information that they then use to apply for a loan, the office said.
Financial institutions have flagged more than $187 million in suspicious transactions, such as $1.9 million in pending SBA deposits going to accounts to be transferred internationally, the memo says.
“We are alarmed by these reports, but they are consistent with our investigations, which indicate pervasive fraudulent activity,” the memo said.
That money accounts for a tiny fraction of the more than $184 billion in disaster loans and advances the SBA says it has distributed to small businesses and nonprofits since Jan. 31. The loans are made directly by the SBA and are separate from the $659 billion Paycheck Protection Program offering federally guaranteed loans distributed by banks.
But the SBA’s internal controls aren’t strong enough to root out potential fraudsters, according to the inspector general. The office said it found $250 million in loans and advances the SBA gave to “potentially ineligible recipients” and more than $45 million in possible duplicate payments.
“SBA should take immediate action to reduce or eliminate fraud risks by strengthening existing controls and implementing internal controls to address potential fraud,” the inspector general’s office said.
An SBA spokesperson said the agency has already implemented fraud-prevention measures “that have so far prevented the processing of thousands of invalid applications.” The agency is also referring suspected cases to the inspector general’s office and working with financial institutions to address potential fraud, the spokesperson said.
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