SBA overpaid $ 4.5 billion in EIDL grants, IG report says
- The Small Business Administration (SBA) paid $ 4.5 billion more than it should have when it made economic disaster loan (EIDL) grants to small businesses at the start of the pandemic l ‘last year, said the agency’s inspector general in a report published Thursday.
- The program, which aimed to help small businesses stay afloat amid lockdowns related to COVID-19, gave eligible businesses $ 1,000 per employee, with a cap of $ 10,000. The SBA, however, did not require sole proprietors or independent contractors to disclose Employer Identification Numbers (EINs) when applying for grants, and requested Social Security numbers instead.
- “We found that the SBA did not have an appropriate internal control environment in place at the start of the program to prevent sole proprietors and independent contractors without employees from receiving emergency EIDL grants over $ 1,000.” , Hannibal Ware, SBA Inspector General, wrote in the report. . “The SBA provided billions of dollars more in emergency EIDL grants to sole proprietors and independent contractors than they were entitled to receive under the SBA’s own policy.”
The IG report claims that the SBA approved thousands of grant amounts for applications that were not adequately reviewed because it had no control system in place to report applications containing erroneous or illogical information .
âThe funding could have been used to provide grants to more eligible small businesses, which was SBA policy intent to limit grants to $ 1,000 per employee,â Ware wrote.
The agency’s inspector general said he found cases where sole proprietors or independent contractors falsely claimed to have up to 1 million employees.
âThe absence of EINs and the number of employees cited on these applications should have alerted SBA loan specialists that the applicant’s self-certified information was in error and possibly incorrect,â Ware writes in the report. “However, the SBA never requested additional information from these sole proprietors to verify the number of employees listed on their grant applications before approving and disbursing grants for amounts greater than $ 1,000.”
Ware concluded that EIDL applicants were only entitled to $ 704 million of the $ 5.2 billion received under the program.
The SBA said it disagreed with some “key statements” in a response included in the report.
Under the CARES Act, the agency was required to accept self-certifications from applicants, wrote James Rivera, head of the SBA’s disaster resistance bureau.
Rivera said the SBA also does not accept the Trump administration’s policy of limiting EIDL advances to $ 1,000 per employee up to a maximum of $ 10,000.
“The per employee cap of the original EIDL Advance program was a self-imposed policy instituted by the previous administration that generated countless hours of work for SBA teams responding to requests from small businesses negatively affected by the policy. “, he wrote.
Rivera also said unclear instructions may have led some borrowers to include employee social security numbers rather than EINs on applications.
âThe draft report claims that all sole proprietors and independent contractors who reported having employees on their COVID EIDL app only applied their SSN because they did not have an EIN and are therefore in violation of a IRS regulations for obtaining an EIN, âhe wrote. . “This claim, however, does not acknowledge that the EIDL COVID application instructions may have been unclear to applicants.”
Despite his disagreement with the report’s âkey statementsâ, Rivera said the SBA partially agreed with the audit recommendation.
“The SBA will develop a plan to evaluate awarded EIDL advances by examining a sample of sole beneficiaries and independent contractors who have self-certified having employees but did not provide EINs on their COVID EIDL application,” a- he writes.
The agency will employ a third-party contractor to assess EIDL advances over $ 1,000 made to sole proprietors and independent contractors who have not applied for using an EIN, Rivera wrote.
The agency will also develop a plan to remedy cases in which the applicant provided false information on an application regarding having employees, he added.
“The SBA will explore the options available to remedy cases, including, but not limited to, recovering funds by set-off, referral to the OIG’s Criminal Investigations Division, or providing supporting documentation as appropriate.” , he wrote.
Thursday’s IG report is the latest black mark for the SBA, which has been at the center of the government’s economic relief efforts amid the pandemic.
The agency’s inspector general in July called for closer monitoring of EIDL program, warning banks to investigate suspicious activity related to it.
Thursday’s report will likely stir up more decline of banking business groups and Republican lawmakers who criticized the agency’s management of direct loans under the program.
Critics of the agency said the recent launch of a direct remittance portal for Paycheck Protection Program (PPP) loans was an attempt to regain control of the lending program.
âI think this decision by the SBA to try to regain control of the PPP program, when it was actually very well managed by the banks, could be an effort to conserve their territory,â said Rep. Jim Hagedorn. , R-MN, said last month. He accused the SBA of threatening to audit banks that refused to join the SBA’s direct forgiveness portal in favor of their own platforms.