The Small Business Administration (SBA) provided $1 trillion to help small businesses during the pandemic. But in some instances funds went to fraudsters—the Department of Justice charged hundreds of individuals and is investigating many more.
The Government Accountability Office (GAO) flagged 3.7 million recipients of SBA funds as having warning signs consistent with potential fraud. Such “indicators” aren’t proof of fraud, which is why GAO referred them for further review and possible law enforcement investigation.
GAO directly analyzed 330 pandemic-related fraud cases. Federal prosecutors across the United States filed bank fraud, wire fraud, money laundering, identity theft, and other charges against 524 individuals associated with these cases. For the 155 of the 330 cases that reached conclusion through guilty pleas or convictions, GAO calculated about $188 million in direct financial losses. Across these cases, as of December 2021, 94 individuals had been sentenced to an average of about 37 months in prison. GAO says the number of cases will continue to grow. As of January 2023, the SBA Office of Inspector General (OIG) had 536 ongoing investigations, and the statute of limitations has been extended to 10 years to prosecute individuals who committed pandemic-related fraud.
GAO found that SBA has employed data analytics to enhance fraud prevention and detection. For example, the use of analytics contributed to SBA determining that some borrowers were ineligible for loan amounts or used them for unauthorized purposes, resulting in $4.7 billion in loan proceeds not being forgiven. In addition, SBA referred over 669,000 potentially fraudulent pandemic-related loans to the SBA OIG for investigation after using data analytics and conducting manual reviews. SBA enhanced its analytic capabilities during the pandemic and has recognized that it would benefit from further development of its data analytics program.
GAO has found that SBA hasn’t had timely access to some external data sources—such as IRS data—that could help prevent fraud. The watchdog consequently recommends that SBA develop a plan for accessing such data. SBA indicated that it is currently developing additional applicant verification capabilities that will leverage third-party data sources. According to SBA, it has met with several federal agencies to explore data-sharing opportunities. SBA also noted it has developed cross-program analytics for pandemic relief programs to identify awardees suspected of identity theft or fraud who received awards and loans through multiple programs.