GAO-21-472T — Small Business Administration: Actions Needed to Improve COVID-19 Loans’ Internal Controls and Reduce Their Susceptibility to…

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The highlights page of GAO-21-472T, a Government Accountability Office testimony before the Committee on Small Business and Entrepreneurship, U.S. Senate, dated March 24, 2021, on internal controls and fraud risk in SBA COVID-19 loan programs. It states that SBA implemented the Paycheck Protection Program and expedited Economic Injury Disaster Loans in April 2020 with limited internal controls, and has made or guaranteed more than 17 million loans and grants providing about $910 billion. GAO reports about 5,000 advances totaling about $26 million and at least 3,000 loans totaling about $156 million approved to potentially ineligible businesses, and charges announced in over 100 PPP and 30 EIDL fraud-related cases. It notes a disclaimer of opinion on SBA fiscal year 2020 financial statements in December 2020. GAO anticipates four recommendations on fraud risks and one on EIDL oversight.

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United States Government Accountability Office 
 
  
Highlights of GAO-21-472T, a testimony 
before the Committee on Small Business and 
Entrepreneurship, U.S. Senate 
 
March 24, 2021 
SMALL BUSINESS ADMINISTRATION 
Actions Needed to Improve COVID-19 Loans’ Internal 
Controls and Reduce Their Susceptibility to Fraud 
What GAO Found 
In April 2020, the Small Business Administration (SBA) quickly implemented the 
Paycheck Protection Program (PPP) and expedited the processing of Economic 
Injury Disaster Loans (EIDL) and a new EIDL advance program. These important 
programs have helped businesses survive during the very challenging COVID-19 
pandemic. In an effort to move quickly on these initiatives, SBA put limited 
internal controls in place, leaving both programs susceptible to fraud. GAO found 
the following:  
• 
PPP oversight. Given the immediate need for PPP loans, SBA implemented 
limited safeguards for approving PPP loans. Because ongoing oversight is 
crucial, GAO recommended in June 2020 that SBA develop plans to assess 
PPP risks. SBA has since developed plans to review PPP loans and has 
recently provided us detailed information about its oversight process. 
• 
Analysis of EIDL data. GAO reported in January 2021 that SBA had 
provided about 5,000 advances totaling about $26 million and approved at 
least 3,000 loans totaling about $156 million to potentially ineligible 
businesses. Therefore, GAO recommended that SBA conduct portfolio-level 
analysis to detect potentially ineligible applications. 
• 
Assessment of fraud risks. Although SBA has taken some steps to mitigate 
fraud risks to PPP and EIDL, such as conducting PPP loan reviews and 
implementing new EIDL controls, the agency has not yet conducted a formal 
fraud risk assessment for either program. 
• 
Suspicious activity reports. From April through October 2020, financial 
institutions filed more than 21,000 suspicious activity reports related to PPP. 
From May through October 2020, financial institutions filed more than 20,000 
such reports related to EIDL. These reports identified suspicious activity, 
such as indicators of identity theft and the rapid movement of funds.  
• 
Department of Justice charges. From May 2020 through February 2021, 
the Department of Justice publicly announced charges in over 100 fraud-
related cases associated with PPP loans and 30 fraud-related cases 
associated with EIDL loans. The charges include bank and wire fraud, 
making false statements, identity theft, and money laundering.  
• 
SBA Office of Inspector General. The SBA Office of Inspector General 
(OIG) received over 70,000 hotline complaints related to CARES Act 
programs, including PPP and EIDL, compared to the 700 to 800 it typically 
receives in a year. In October 2020, the OIG reported that its initial review 
revealed strong indicators of widespread potential fraud in the EIDL program. 
The OIG and other law enforcement agencies had seized over $450 million 
from over 15,000 fraudulent EIDL loans, according to the report. 
• 
Financial statement audit. In December 2020, SBA’s independent financial 
statement auditor issued a disclaimer of opinion on SBA’s fiscal year 2020 
consolidated financial statements because SBA could not provide adequate 
documentation to support a significant number of transactions and account 
balances related to PPP and EIDL. 
View GAO-21-472T. For more information, 
contact William B. Shear at (202) 512-8678 or 
shearw@gao.gov. 
Why GAO Did This Study 
SBA has made or guaranteed more 
than 17 million loans and grants 
through PPP and the EIDL program, 
providing about $910 billion to help 
small businesses adversely affected by 
COVID-19. PPP provides potentially 
forgivable loans to small businesses, 
and EIDL provides low-interest loans of 
up to $2 million for operating and other 
expenses as well as advances 
(grants). However, the speed with 
which SBA implemented the programs 
left them susceptible to fraud. Given 
these concerns, GAO added these 
emergency loan programs to its High-
Risk List in March 2021. 
This testimony discusses fraud risks 
associated with PPP and the EIDL 
program. It is based largely on GAO’s 
June 2020 - January 2021 reports on 
the federal response, including by 
SBA, to the economic downturn 
caused by COVID-19 (GAO-20-625, 
GAO-20-701, GAO-21-191, GAO-21-
265). For those reports, GAO reviewed 
SBA documentation and OIG reports; 
analyzed SBA data; and interviewed 
officials from SBA and the Department 
of the Treasury.   
What GAO Recommends 
In addition to GAO’s previous 
recommendations, GAO anticipates 
making four recommendations on fraud 
risks in PPP and EIDL and one on 
EIDL oversight in its March 2021 report 
on the federal COVID-19 response. 
SBA agreed with the 
recommendations, stating it would 
implement fraud risk assessments for 
both programs and an oversight plan 
for EIDL.

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