SBA Relaunches COVID Loan Program As Watchdog Warns About Possible Fraud 

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The recent COVID relief package included funding for a third round of the program, which has come under much scrutiny. 

The Small Business Administration relaunched its coronavirus loan program on Monday as its watchdog warned once again about the potential for fraud in the program.  

The COVID-19 deal, paired with the fiscal 2021 spending package that was enacted late last month, included $284 billion to restart the program for the third time. The program allows lenders, on the federal government’s behalf, to give out loans (that can be forgiven) to cover payroll and other expenses. SBA has distributed $525 billion through more than 5 million loans, Reuters reported on Monday. The SBA inspector general has repeatedly warned about possible fraud in the program since its initially chaotic rollout last April. This time, the agency and Congress sought to remedy some of those issues as well as better serve minority-owned businesses, one of the areas in which Democratic lawmakers and watchdog groups had criticized the agency. 

“The opening of the SBA loan system is designed to efficiently and effectively implement the ‘Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act’ and to ensure increased access to the [Paycheck Protection Program] for minority, underserved, veteran and women-owned small business concerns,” the agency stated. “SBA also is calling upon its lending partners to redouble their efforts to assist eligible borrowers in underserved and disadvantaged communities.” 

SBA gave first access to the loan portal to community financial institutions, which include community development financial institutions, minority depository institutions, certified development companies and microloan intermediaries, who represented about 10% of all loan lenders in 2020. This was for first-draw applicants, meaning they didn’t receive a Paycheck Protection Program loan before the portal closed last August. In the coming days, more lenders will be allowed to participate. 

Despite some fixes to address fraud, reported by Reuters, the SBA IG issued a “management alert” on Monday to warn about “serious concerns about improper payments to lenders for potentially ineligible recipients of loans” in the program. 

In September, the Justice Department and officials from other agencies and IG offices announced that since May they charged 57 people for trying to steal $175 million from the program, which led to $70 million in losses for the government. The department said officials had recovered $30 million and expected to add to that total. Justice did not respond for comment on an update by the time of this article’s publication. 

“SBA should take immediate action to limit improper payments,” said the IG, based on its review of loan data as of August 8, 2020. It can do this “by strengthening existing controls and implementing additional internal controls to address improper payments, especially through the utilization of existing resources.” 

In a letter dated January 4, SBA Administrator Jovita Carranza wrote to IG Hannibal “Mike” Ware that her agency “is working to protect taxpayer dollars and ensure that the paycheck protection program benefits only eligible borrowers” and that such actions were underway before he issued the alert. 

In response, the IG said, “we believe this response does not acknowledge the importance of and need for the recommended actions.” The watchdog previously said that mitigating possible fraud in the program would be a top management challenge for 2021.

The SBA did not respond to Government Executive for further comment on the alert. 

“We are encouraged that the Small Business Administration is now prioritizing access for our smallest and most vulnerable business owners, many of whom were shut out of the Paycheck Protection Program during the first round,” John Arensmeyer, founder and CEO of the Small Business Majority, an advocacy group with a network of more than 80,000 small firms, told Government Executive on Tuesday. 

“However, in light of the inspector general's most recent alert, we're concerned that potential threats of fraud and abuse have yet to be adequately addressed,” he said. “If this issue remains unchecked, this could be harmful to the survival of small businesses, particularly those owned by women and people of color who did not receive an equitable distribution of federal dollars.” 

President-elect Biden, who will be sworn in in eight days, has repeatedly said he wants to pass another coronavirus deal upon taking office to help Americans struggling during the recession. Democrats maintained control of the House and will have a razor thin majority in the Senate. 

Biden nominated Isabel Guzman, director of California’s Office of the Small Business Advocate, to lead the SBA. “So many small businesses across the country have been devastated by the pandemic and economic crisis,” she said during an event last week. “A disproportionate impact has fallen, as it so often does, on our businesses owned by people of color. I am excited to get to work with the incredible mission-driven civil servants at the SBA to help America’s small business owners build better futures for their families and communities.”