Viewpoint: IGs Need More Resources to Combat COVID Stimulus Spending Fraud

The Inspector General of the Small Business Administration, Hannibal “Mike” Ware, has done his job diligently and well, ferreting out and reporting fraud, waste, and abuse in the agency’s COVID-19 disaster loan programs. The agency itself, on the other hand, has responded with denial and cover-up. The conflict illustrates the need for better federal oversight of pandemic relief funds moving forward.

By late August, the Justice Department had initiated criminal complaints connected to the Paycheck Protection Program against nearly 60 people amounting to $62 million in loan fraud. In response, the SBA IG said that it was just “the smallest, tiniest piece of the tip of the iceberg.”

Then in October, the SBA IG issued a well-documented report on the Economic Injury Disaster Loan program. The report included three principal findings: 1) SBA approved $14.3 billion in potentially fraudulent loans to accounts that differed from the original bank accounts listed on applications; 2) SBA approved billions of dollars in potentially fraudulent loans to applicants using duplicate information such as IP addresses, email addresses, business addresses, and bank accounts; and 3) SBA approved approximately $1.1 billion in loans and advance grants to potentially ineligible entities. 

Among the examples cited by the IG was SBA’s approval of 10 loans for 10 different bathroom renovation companies in the same city, all linked to a single email address. The IG was not able to locate any of the companies whereas the email address was for a burrito restaurant, which the IG did locate in that city. Similarly, applicants at one IP address using an email address associated with a fish market applied for 85 loans (SBA approved 84) in various company names of jewelry stores, psychiatric services, construction, gas stations, and other non-seafood related businesses.

Instead of praising the watchdog’s valuable work, SBA Administrator Jovita Carranza attacked the report, saying the IG “findings and figures are inflated and rest on hasty, incomplete conclusions” which “often mischaracterized legitimate loan activity as ‘potentially fraudulent.’”  She further stated that the report “does not fully and accurately portray SBA’s highly successful delivery of an unprecedented volume of disaster assistance,” concluding that the report “significantly overstated the extent of ‘potential’ COVID-19 EIDL fraud.”

According to a Bloomberg report, SBA “privately directed employees not to use the word ‘fraud’ in writing if they spot suspicious applications.” The agency denied that staff were discouraged from identifying suspected fraud, and said it was “partnering with its Office of Inspector General and other government agencies to investigate and ensure fraud is prosecuted”—the same IG whose fraud report the SBA administrator publicly denigrated weeks earlier. In the meantime, one SBA manager reportedly told staff that “fraud is the new ‘F’ word.”

Two weeks ago, SBA released the underlying data regarding PPP loans, having done so pursuant to a court order only after a losing litigation battle to keep the information from being made public. The data confirmed that the monies were not sufficiently directed to small businesses. For example, 1% of PPP borrowers received over 25% of the loan money and recipients of $10 million maximum loans included big law firms and chain restaurants.

The saving grace in all of this is that the SBA inspector general has done his job admirably well despite resistance from his own agency.

The problems at the SBA reflect the struggles taking place throughout the federal government connected to oversight of the trillions of dollars of COVID-19 spending. Inspectors general and other federal officials responsible for monitoring this unprecedented surge in funding simply are overmatched by the scale of the job. As Congress considers additional spending, it must also expand funding for inspectors general and other forms of fraud prevention. And when the IGs report problems, the issues should be addressed rather than denied.

Neil V. Getnick is the chairman  of Taxpayers against Fraud, a D.C.-based whistleblower education and advocacy non-profit organization. He is also the managing partner of the Manhattan-based law firm Getnick & Getnick LLP.