Watchdog: Over $200 billion in pandemic business loans appear to be fraudulent
LEILA FADEL, HOST:
A federal watchdog has a new estimate out for the scale of fraud during the pandemic. And the figure is eye-popping. Two hundred billion dollars - that's how much it says was potentially stolen from the taxpayer-funded Small Business Administration. The SBA calls that number an exaggeration. NPR's Martin Kaste has the story.
MARTIN KASTE, BYLINE: As the economy went into lockdown in early 2020, the government was in a hurry to save small businesses with loans, especially the Paycheck Protection Program, or PPP loans, most of which were later forgiven and covered by tax dollars. And in this rush, the government didn't do much to check to see if the businesses it was saving were real.
SAM KRUGER: I would say, even in the very early weeks, we could and should have done a better job.
KASTE: Sam Kruger is an assistant professor of finance at the University of Texas Austin, where he's been researching pandemic fraud. He says the government already has, in-house, the kind of data you'd need to better screen people applying for these loans.
KRUGER: They have things like employer ID numbers that they're able to match to other government data sources. They're also able to look at cases where somebody claims to have employees but doesn't have an EIN.
KASTE: Now the Office of Inspector General for the SBA has looked at that information, after the money already went out the door. It's analyzed data such as applicants, computer addresses, phone numbers and bank accounts, and it's identified patterns that suggest fraud in at least $200 billion worth of the loans. That's more than 17% of all the money the SBA disbursed. The Biden administration, though, is pushing back. It says potential fraud is not the same as actual fraud.
GENE SPERLING: If you see a wrong Social Security number or a wrong employment identification number, you should investigate further. That could be potential fraud. Other times it could be just an innocent typo.
KASTE: Gene Sperling is a senior adviser to the president and coordinator of the American Rescue Plan. He thinks when all this potential fraud is examined more closely, the amount will turn out to be lower. The SBA is estimating that likely fraud is closer to $36 billion.
SPERLING: The number is significantly less. But whether it's, you know, 36 billion or 56 billion, it's still unacceptable. It's outrageous. It's too high.
KASTE: The administration also says that most of the fraud, almost 90%, happened during the first nine months of the pandemic under President Trump. Katie Frost is the deputy associate administrator in the Office of Capital Access at SBA. And she says it now uses some of the data checks that have been recommended by the inspector general.
KATIE FROST: Several of the fraud indicators from the OIG's report we did put in place in real time prior to approval for PPP.
KASTE: For instance, she says the SBA has started checking loan applications for name mismatches and employer identification numbers. And money that was stolen is being clawed back, at least some of it. The OIG report found that ongoing investigations have resulted in 800 arrests, and almost $30 billion has been recovered. The question that remains, though, is how does that compare to the grand total of stolen money? So far, that's still in dispute.
Martin Kaste, NPR News. Transcript provided by NPR, Copyright NPR.