F ederal investigators are scrambling to recover over $200 billion they believe was fraudulently diverted from the government’s effort to stabilize small businesses during the COVID-19 pandemic.
The missing funds make up 17% of the $1.2 trillion disbursed by the Small Business Administration. A report from the SBA’s inspector general, Hannibal “Mike” Ware, updated previous estimates that have been used by investigators to recover fraudulent or wasted funds.
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So far, close to $30 billion, which is 15% of the total, has been recovered through a joint effort between the SBA, the inspector general’s office, the U.S. Secret Service, and other federal agencies, according to a report from ABC News.
The funds were distributed through two SBA programs, the Paycheck Protection Program and Economic Injury Disaster Loans, created as the pandemic began sweeping across the U.S.
There was a higher potential for fraud in the EIDL program, as it was a low-interest disaster loan that required repayment at a later date. In that program, Ware estimated $136 billion in potential fraud — 33% of the total funds given out to small businesses.
The PPP program, which gave money to businesses in a similar fashion to a grant, saw a slightly lower estimate of possible fraud: around $64 billion, or 8% of the total funds sent out.
Emergency programs such as the EIDL and PPP are more susceptible to fraud due to the speed with which they were implemented in the uncertain, early days of the pandemic.
“To expedite the process, SBA ‘lowered the guardrails’ or relaxed internal controls, which significantly increased the risk of program fraud,” Ware wrote in an October 2020 report on the funds.
Ware predicted in a 2021 interview with ABC News that, “In terms of the monetary value, the amount of fraud in these COVID relief programs is going to be larger than any government program that came before it.”
However, the SBA has pushed back against claims that they allowed fraud through a lax screening process for funds.
The report “contains serious flaws that significantly overestimate fraud and unintentionally mislead the public to believe that the work we did together had no significant impact in protecting against fraud,” the SBA said in a statement included in Ware’s recent report.
The SBA had conducted its own investigation of fraud and produced a lower estimate.
Bailey DeVries, acting associate administrator of the SBA, said in the response that the administration found over $400 billion “worthy of further investigation,” but further review “revealed that the body of loans likely to be fraudulent is approximately $36 billion across PPP and COVID-EIDL.
“SBA acknowledges the prior administration made decisions to prioritize speed and unnecessarily deflated the control environment for PPP and COVID-EIDL for the first several months of the programs. However, SBA introduced additional fraud controls over time and implemented a strengthened anti-fraud control framework in 2021,” DeVries wrote.
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Ware will appear before Congress in July to discuss his findings.
The Pandemic Response Accountability Committee, a federal watchdog under Michael Horowitz, released a report which found that nearly 70,000 potentially suspect Social Security numbers were used to successfully apply for EIDL or PPP funds, totaling $5.4 billion .