Suspected fraudsters have infiltrated a loan program meant to help small businesses weather the coronavirus crisis – and the federal government is letting them through, a watchdog has warned.
The Inspector General of the Small Business Administration has received over 5,000 complaints from lenders regarding alleged fraud under the Economic Disaster Lending Program, which offers assistance to traders facing temporary loss of income.
The suspicious activity includes people creating accounts with stolen identities, attempting to transfer federal money to foreign accounts, or attempting to withdraw funds in cash, according to a Tuesday note of the Inspector General’s office.
The crooks also use “romantic scams and social media solicitations” to convince people to pass on personal information which they then use to apply for a loan, the office said.
Financial institutions have reported more than $ 187 million in suspicious transactions, such as $ 1.9 million in pending deposits from the SBA to accounts to be transferred internationally, the note said.
“We are alarmed by these reports, but they are consistent with our investigations, which indicate pervasive fraudulent activity,” the memo reads.
This money is only 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 are not strong enough to weed out potential fraudsters, according to the Inspector General. The office said it found $ 250 million in loans and advances the SBA had made to “potentially ineligible recipients” and more than $ 45 million in possible duplicate payments.
“The SBA should take immediate action to reduce or eliminate the risk of fraud by strengthening existing controls and implementing internal controls to tackle potential fraud,” the inspector general’s office said.
A spokesperson for the SBA said the agency had already put in place fraud prevention measures “which have so far prevented the processing of thousands of invalid claims.” The agency also refers suspected cases to the inspector general’s office and works with financial institutions to tackle potential fraud, the spokesperson said.