SBA's Emergency EIDL Grants to Sole Proprietors and Independent Contractors

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SBA’S EMERGENCY EIDL GRANTS TO SOLE
PROPRIETORS AND INDEPENDENT CONTRACTORS

REPORT NUMBER 22-01/OCTOBER 7, 2021

S B A
I N S P E C T O R
G  E  N  E  R  A  L
I  N  S  P  E  C  T  I  O  N
R  E  P  O  R  T

     EXECUTIVE SUMMARY

SBA’S EMERGENCY EIDL GRANTS TO SOLE PROPRIETORS
AND INDEPENDENT CONTRACTORS
Report
Number
22-01
October 7,
2021
What OIG Reviewed
This report presents the results of our inspection
to assess whether the Small Business
Administration (SBA) approved and disbursed
Emergency Economic Injury Disaster Loan (EIDL)
grants in accordance with the Coronavirus Aid,
Relief, and Economic Security (CARES) Act and the
Paycheck Protection Program and Healthcare
Enhancement Act.
Our review focused on Emergency EIDL grants to
sole proprietors and independent contractors from
March 29, 2020, until the funds were exhausted
just 14 weeks later on July 10. We set out to
determine whether the agency complied with its
internal policy that set Emergency EIDL grants at
$1,000 per employee up to the CARES Act
mandated maximum amount of $10,000 per
Coronavirus 2019 (COVID-19) EIDL application.
To meet our objective, we reviewed Emergency
EIDL grant data, Internal Revenue
Service requirements for registering Employer
Identification Numbers (EIN), the CARES Act, and
SBA policy established for this new grant
program.
After a little over 3 months, SBA reported it had
exhausted the $20 billion in appropriated funds
on July 11, 2020. The agency had approved
5.8 million Emergency EIDL grants.
What OIG Found
Using SBA’s data, we found SBA provided
$4.5 billion more in Emergency EIDL grants to
sole proprietors and independent contractors
than they were entitled to receive based on
established policy.
We determined that 542,897 sole proprietors,
who received a grant of more than a $1,000,
applied for the Emergency EIDL grants without an
EIN and claimed more than 1 employee on their
COVID-19 EIDL applications.
The absence of an EIN indicates the sole
proprietor applicants should have claimed no
employees and were entitled to a maximum of
$543 million ($1,000 per applicant). However,
SBA approved and disbursed a total of $4 billion in
Emergency EIDL grant funds to these sole
proprietors, an over disbursement of $3.5 billon.
We also found 161,197 independent contractors,
who received a grant of more than $1,000, also
applied but did not provide an EIN and claimed
more than one employee on their COVID-19 EIDL
application.
Like other employers, independent contractors
need an EIN registered with the IRS if they have
employees. The absence of an EIN indicates the
applicants should have claimed no employees.
Consequently, the independent contractors were
entitled to a maximum of $161 million ($1,000 per
applicant). However, SBA disbursed $1.1 billion to
the independent contractors, resulting in grant
over disbursement of about $1 billion.
OIG Recommendations
We recommended that SBA remedy $4.5 billion in
funds disbursed in excess of its policy allowance
to sole proprietors and independent contractors.
Agency Response
SBA disagreed with the prior Administration’s
policy determination, the criteria used to premise
our findings, and with key assertions in the
findings. Despite management’s disagreement,
they are taking corrective actions to implement
our recommendation.
We have included management’s comments on
this report in Appendix IV.

Office of Inspector General

U.S. Small Business Administration

DATE:
October 7, 2021
TO:

Isabella Casillas Guzman
Administrator
FROM:
Hannibal “Mike” Ware
Inspector General

SUBJECT:
SBA’s Emergency Economic Injury Disaster Loan Grants to Sole Proprietors and
Independent Contractors
This report presents the results of our inspection of SBA’s Emergency EIDL Grants to Sole
Proprietors and Independent Contractors. We considered management’s comments on the draft of
this report when preparing the final report. Management partially agreed with OIG’s
recommendation.
We appreciate the cooperation and courtesies provided by your staff.  If you have any questions or
need additional information, contact John Provan, Director of Disaster Programs, or Andrea
Deadwyler, Assistant Inspector General for Audits, at (202) 205-6586.
cc:
James Rivera, Associate Administrator, Office of Disaster Assistance

Barbara Carson, Deputy Associate Administrator, Office of Disaster Assistance

Patrick Kelley, Associate Administrator, Office of Capital Access
John Miller, Deputy Associate Administrator, Office of Capital Access
Antwaun Griffin, Chief of Staff
Arthur Plews, Deputy Chief of Staff
Jason Bossie, Chief Financial Officer
Peggy Delinois Hamilton, General Counsel
Michael Simmons, Attorney Advisor, Office of General Counsel
Rafaela Monchek, Director, Office of Continuous Operations and Risk Management
Tonia Butler, Director, Office of Internal Controls

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Table of Contents
Introduction ............................................................................................................................................................................... 1
Background ........................................................................................................................................................................... 1
Emergency Advance Grant Program ...................................................................................................................... 1
Objective ................................................................................................................................................................................. 2
Results ..................................................................................................................................................................................... 2
SBA Disbursed $4.5 Billion More in Emergency EIDL Grants to Sole Proprietors and Independent
Contractors than Agency Policy Allowed ....................................................................................................................... 3
Sole Proprietors with No Employer Identification Numbers ...................................................................... 3
Table 1. Emergency EIDL Grants Disbursed to Sole Proprietors  Without EINs for More than
$1,000 ...................................................................................................................................................................................... 4
Table 2. Sole Proprietor Emergency EIDL Grant Applications  Claiming Employees Without EINs 5
Unclear Guidance ........................................................................................................................................................... 5
Independent Contractors with No Employer Identification Numbers .................................................... 5
Table 3. Independent Contractor Emergency EIDL Grant  Applications Claiming Employees
Without EINs ........................................................................................................................................................................ 5
Table 4. Emergency EIDL Grants Disbursed for More Than $1,000 to Independent Contractors
Without EINs .................................................................................................................................................................... 6
Conclusion ............................................................................................................................................................................. 6
Recommendation ................................................................................................................................................................ 7
Analysis of Agency Response and Summary of Actions to Close the Report .................................................. 8
Previous Policy .................................................................................................................................................................... 8
Certification Follow-up .................................................................................................................................................... 8
Appendix I: Objective, Scope, and Methodology ....................................................................................................... 10
Appendix II: Questioned Costs ......................................................................................................................................... 11
Appendix III: Prior Work .................................................................................................................................................... 12
Appendix IV: Management Comments ......................................................................................................................... 13

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Introduction
When the Coronavirus 2019 (COVID-19) pandemic caused most businesses small and large to shut
down in hopes of slowing the spread of the virus, our nation’s leaders appropriated significant
funding to the Small Business Administration (SBA) to provide financial relief for those businesses
affected.
For more than 60 years, SBA has helped small businesses after declared disasters. SBA’s Disaster
Assistance Program helps small agricultural cooperatives and most private, nonprofit organizations
whose operations are affected when a disaster strikes. The program provides up to $2 million in
Economic Injury Disaster Loans (EIDLs) to help eligible entities meet financial obligations and
operating expenses they are unable to meet after a disaster.
Since SBA became the primary source of business relief from the economic effects of the pandemic
disaster, OIG has produced a series of reports on our work to determine how the agency met the
requirements of the related laws while also managing the realities of staffing, systems, and controls
(see Appendix III). In this report, we focus on SBA’s management of Emergency EIDL grants to
businesses classified as sole proprietors and independent contractors to determine whether the
agency complied with its internal policy and the relevant legislative mandates.
Background
The Coronavirus Preparedness and Response Supplemental Appropriations Act, signed by the
President on March 6, 2020, deemed COVID-19 a disaster and required SBA to begin a number of
relief efforts as quickly as possible.1 The Act authorized SBA to provide EIDLs to business entities
affected by COVID-19 and eligible under the Small Business Act.
The President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27,
2020, which included a new vehicle—Emergency EIDL grants.2 A third law, the Paycheck Protection
Program and Health Care Enhancement Act, was signed by the President on April 24, 2020.3 The
laws authorized SBA’s Disaster Assistance Program to use available funds to issue economic injury
loans and begin the new program, Emergency EIDL Grants.
Emergency Advance Grant Program
Collectively, the CARES Act and the Paycheck Protection Program and Health Care Enhancement Act
made $20 billion available for Emergency EIDL grants. Section 1110 of the CARES Act authorized
SBA to issue a $10,000 advance within 3 days to applicants for loans being requested under the
Small Business Act (15 U.S.C. 636(b)(2)).
The Emergency EIDL grant was intended to serve as an interim source of funds while the COVID-19
EIDL applicants waited for loan decisions. The program advanced eligible businesses up to a
maximum of $10,000, as an interim source of funds while applicants waited for loan decisions.

1 Public Law 116-123 - Coronavirus Preparedness and Response Supplemental Appropriations Act.
2 Public Law 116-136 - Coronavirus Aid, Relief, and Economic Security Act.
3 Public Law 116-139 - Paycheck Protection Program and Health Care Enhancement Act.

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Applicants did not have to be approved for a loan to receive the grant; they could receive the grant
even if their loan application was denied.
An agency official told us that about 72 percent of the initial COVID-19 EIDL applications SBA
received included a grant request. SBA officials also told us many applicants applied for the loan
solely to obtain a grant.
The CARES Act did not specify methods for awarding the Emergency EIDL grants. To ensure as
many applicants as possible received a portion of the available $20 billion, SBA management
decided to limit the grant to $1,000 for eligible entities with no employees, or $1,000 per employee
up to the maximum of $10,000. Under that policy, an applicant with no employees would receive
$1,000 and an applicant with one employee would also receive $1,000.
The CARES Act specifically allowed those applying for loan and grant relief to self-certify their
application information including the stated number of employees. Under SBA’s policy, businesses
merely had to accurately state the number of employees on their applications to ensure that every
business that applied would receive the correct amount.
Even with SBA’s policy of $1,000 per employee, the agency ran out of the emergency grant funds on
July 10, 2020. The next day, July 11, SBA announced the $20 billion Emergency EIDL grant program
had ended because the $20 billion was exhausted. The agency had provided Emergency EIDL grants
to a total of about 5.8 million COVID-19 EIDL applicants.
Objective
Our objective was to assess whether SBA approved and disbursed Emergency EIDL
grants in accordance with the CARES Act and the Paycheck Protection Program and
Healthcare Enhancement Act.
Results
We found SBA did not establish a proper internal control environment at the onset of the program
to prevent sole proprietors and independent contractors without employees from receiving
Emergency EIDL grants for more than $1,000. SBA provided billions of dollars more in Emergency
EIDL grants to sole proprietors and independent contractors than they were entitled to receive
under SBA’s own policy.
The funding could have been used to provide grants to more eligible small businesses, which was
the intent of SBA’s policy of limiting grants to $1,000 per employee. However, SBA approved
thousands of grant amounts for applications that were not sufficiently vetted because no system of
controls was in place to flag applications with flawed or illogical information. For example, sole
proprietors or independent contractors without EINs claiming they have as many as 1 million
employees.

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SBA Disbursed $4.5 Billion More in Emergency EIDL Grants to Sole
Proprietors and Independent Contractors than Agency Policy Allowed
We found SBA disbursed $3.5 billion more in Emergency EIDL grants to sole proprietors and
$1 billion more to independent contractors than those applicants were entitled to receive based on
SBA’s policy.
The CARES Act prohibited SBA from requiring applicants to provide tax records to apply for COVID-
19 EIDLs or Emergency EIDL grants. Instead, the Act allowed the loan applicant to verify eligibility
by signing a self-certification statement, which included notice of penalty of perjury for untrue
information. SBA implemented this requirement of the COVID EIDL program in accordance with the
rules established by the CARES Act.
However, SBA has a responsibility to prevent improper payments through internal controls,
particularly through validation of illogical information on applications. SBA relied on applicants’
self-certifications of application information and disbursed the grants based solely on the number
of employees stated on their applications, with no checks or reviews of applications that would
have been “flagged” if controls had been in place.
Sole Proprietors with No Employer Identification Numbers
SBA defines sole proprietorships as unincorporated businesses owned and run by one individual
with no distinction between the business and the owner.4 The IRS defines independent contractors
as self-employed.5 Both sole proprietorships and independent contractors are organizations owned
and operated by one person and they can hire employees. If employees are hired, however, they
must file for and obtain an Employer Identification Number (EIN) from the Internal Revenue
Service (IRS). Every employer who has one or more individuals employed for wages subject to
Federal Insurance Contributions Act taxes or to withholding of federal income taxes from wages
must obtain an EIN under the Code of Federal Regulations.6
In addition, IRS Publication 15 provides guidance that all employers with employees are required
to have an EIN. This includes sole proprietors and independent contractors.We found SBA provided
542,898 Emergency EIDL grants of more than $1,000 to sole proprietors although they applied for
the grants with a Social Security Number only, which would indicate they did not have employees
(See Table 1).

4 SBA definition of sole proprietorship at www.sba.gov/content/sole-proprietorship accessed on June 22, 2021.
5IRS definition of an independent contractor at www.irs.gov/businesses/small-businesses-self-employed/independent-
contractor-defined accessed on June 22, 2021.
6 26 CFR 31.6011(b)1(ii)

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Table 1. Emergency EIDL Grants Disbursed to Sole Proprietors
Without EINs for More than $1,000
Emergency EIDL
Grant Amount
Disbursed (Dollars)
Number of
Applicants
Value of Disbursed
Grants  (Dollars)
2,000
84,924
$169,848,000
3,000
41,734
125,202,000
4,000
25,921
103,684,000
5,000
25,266
126,330,000
6,000
14,345
86,070,000
7,000
11,619
81,333,000
8,000
17,988
143,904,000
9,000
20,350
183,150,000
10,000
300,751
3,007,510,000
Total

542,898
$4,027,031,00
Source: OIG analysis of SBA’s Emergency EIDL grant data. as of September 7, 2020
Sole proprietors and independent contractors with employees should have had EINs a
the numbers on their COVID-19 EIDL applications. The Emergency EIDL grant data we reviewed
included sole proprietors who claimed numerous employees but did not provide an EIN.
These sole proprietors were entitled to a maximum of about $543 million at the rate of $1,000 per
applicant. Of the $4 billion SBA disbursed to sole proprietors, about $3.5 billion exceeded applicant
eligibility according to the agency policy that limited funds to $1,000 per employee (see Table 1).
We reviewed all the agency’s emergency grant data from the beginning of the program at the end of
March 2020 until the funds ran out July 10. The data showed that the agency approved and
disbursed grant funds to 15 sole proprietorships that claimed to have a million employees but did
not provide an EIN on the application. More than 40 claimed to have more than 100,000 employees
but had no EIN, and nearly 350 claimed to have more than 500 employees without an EIN (see
Table 2).
The numbers of employees claimed should have alerted the agency that a deeper review was
needed to confirm the correct amount for grants to those sole proprietorships, but SBA did not have
controls in place to flag such applications.
nd submitted

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Table 2. Sole Proprietor Emergency EIDL Grant Applications
Claiming Employees Without EINs
Claimed Number of
Employees
Number of Applications
Approved & Disbursed
1,000,000
15
100,000 to 999,999
41
501 to 99,999
348
2 to 500
542,493
Total
542,897
Source: OIG analysis of SBA’s Emergency EIDL grant data, as of September 7, 2020
Note: One additional applicant claimed 0 employees but was awarded a $2,000 Emergency EIDL grant.
Unclear Guidance
SBA is required under 31 U.S.C. 7701 to ask for a Tax Identification Number on the COVID-19 EIDL
applications and did so. SBA Form 3501, COVID-19 EIDL Application in PDF format, approved by
the Office of Management and Budget, required applicants to submit their “EIN, if applicable, or
Social Security Number.” However, the webpage version of the application stated “EIN/SSN for sole
proprietorship,” which may have been confusing to applicants.
The absence of an EIN and the number of employees cited on these applications should have alerted
SBA loan specialists that the applicant’s self-certified information was flawed and likely erroneous.
However, SBA never requested additional information from these sole proprietors to verify the
number of employees cited on their grant applications before approving and disbursing the grants
in amounts in excess of $1,000.
Independent Contractors with No Employer Identification Numbers
The Emergency EIDL grant data we reviewed also included independent contractors who did not
provide an EIN but claimed numerous employees (see Table 3). We found SBA provided $1 billion
more in Emergency EIDL grants to independent contractors than they were entitled to receive.
Our review of SBA’s data showed that 161,197 independent contractors applied for the Emergency
EIDL grants with a Social Security Number but did not provide an EIN (see Table 4).
Table 3. Independent Contractor Emergency EIDL Grant
Applications Claiming Employees Without EINs
Number of Employees
Claimed
Number of Applications
Approved & Disbursed
1,000,000
29
100,000 to 999,999
114
501 to 99,999
432
2 to 500
160,622
Total
161,197
Source: OIG Analysis of SBA’s Emergency EIDL grant data as of September 7, 2020

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If an independent contractor had employees, the business was required by the IRS to obtain an EIN,
and as in the case of sole proprietors, no EIN on the application but claims of hundreds, thousands,
or a million employees should have at least been subject to further review.
Our review found that the independent contractors were entitled to a maximum of $161 million in
Emergency EIDL grants, at a rate of $1,000 each. The $1.1 billion SBA disbursed exceeded
applicants’ grant eligibility by about $1 billion. The absence of an EIN in combination with the
number of employees cited on these independent contractors’ applications should have alerted SBA
that the applicant’s self-certified information was flawed and likely erroneous.
SBA had no internal controls in place to prevent sole proprietors and independent contractors
without employees from obtaining Emergency EIDL grants for more than $1,000. SBA should have
requested additional information from these independent contractors to verify the number of
employees cited on their applications before approving and disbursing the grants. If the sole
proprietors and independent contractors did not have an EIN, SBA should have provided only a
$1,000 grant.
Table 4. Emergency EIDL Grants Disbursed for More Than $1,000
to Independent Contractors Without EINs
  Emergency EIDL Grant
Amount Disbursed
(Dollars)
Number of
Applicants
Total Grants
Disbursed
(Dollars)
2,000
29,962
$59,924,000
3,000
14,203
42,609,000
4,000
7,763
31,052,000
5,000
8,146
40,730,000
6,000
4,356
26,136,000
7,000
3,349
23,443,000
8,000
5,125
41,000,000
9,000
8,279
74,511,000
10,000
80,014
800,140,000
Total
161,197
$1,139,545,000
Source: OIG analysis of SBA’s Emergency EIDL grant data, as of September 7, 2020
Conclusion
SBA followed the CARES Act, allowing applicants to sign their applications certifying that they were
claiming a correct number of employees. However, thousands of sole proprietor and independent
contractor applications for COVID-19 EIDLs and Emergency EIDL grants either had information
that was not sensible, such as sole proprietors claiming a million employees, or that lacked crucial
information, most notably, an EIN.
Instead of verifying the applicant information, SBA relied on the sole proprietor’s and independent
contractors’ assertions on the COVID-19 EIDL applications. Although agency officials told us they
were not required by law to do such follow up, SBA has a responsibility to safeguard taxpayer funds
and ensure loan applications have accurate and complete applicant information and that all
required information is included.

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Obtaining additional information to verify the number of employees cited for entities that claimed
to have employees on their Emergency EIDL grant applications would have reduced the likelihood
of fraud and applicant errors and helped to meet the stated purpose of equitably distributing
limited grant funds.
The $4.5 billion overage in Emergency EIDL grants to sole proprietors and independent contractors
could have been used to provide funding to thousands or millions more eligible small businesses.
When the funds ran out in early July 2020, there were over 6 million applicants in process who
were eligible for a grant but had not received one. More than 7.3 million applicants later applied for
an EIDL loan but could not request a grant because the funds were exhausted.
Even though the initial program has concluded, the agency still has options that could potentially
result in the recovery of Emergency EIDL grant funds that should not have been disbursed. For
example, SBA can follow up and request EINs from applicants that claimed more than one employee
or request proof of the number of employees from applicants who did not provide their EIN.
The agency could also request the return of funds disbursed to applicants who have neither an EIN
nor proof of the number of employees claimed. In cases of applicants who do not have either an EIN
or proof of the number of employees claimed, the agency could refer suspected fraudulent
applications to OIG for investigation and potential prosecution, as is normally done if wrongdoing is
suspected.
Recommendation
1. We recommend the Administrator direct the Associate Administrator for Disaster
Assistance to
•
review the applications of sole proprietors and independent contractors that
included numbers of employees but no Employer Identification Number; and
•
remedy the $3.5 billion disbursed to sole proprietors and $1 billion disbursed to
independent contractors that exceeded the amount allowed by SBA’s policy.

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Analysis of Agency Response and Summary of Actions to Close the
Report
We considered management’s comments on our draft when preparing this final report.
Management disagreed with our finding but partially agreed with the recommendation. We have
included those comments in Appendix IV.
OIG Analysis of Agency Response
SBA disagreed with the prior Administration’s policy determination to limit Emergency EIDL grants
to $1,000 per employee, up to the maximum of $10,000. SBA also points out that:
1. SBA was required by the CARES Act to accept applicant self-certification to determine
eligibility and was prohibited from obtaining tax records to validate the self-certified
information, including the applicant’s number of employees.
2. Some of the sole proprietors and independent contractors who received Emergency EIDL
grants greater than $1,000 without providing an EIN will be eligible to receive the full
$10,000 advance under the Targeted EIDL advance program.
3. Some of the applicants who did not supply an EIN on their application may have omitted it
from the application because the instructions did not clearly indicate that an EIN was
required to receive the advance.
SBA management also notes that the COVID EIDL application did not clearly define “employee” for
applicants. Consequently, sole proprietors and independent contractors may have included
independent contractors, seasonal workers, or other individuals who do not meet the IRS definition
of “employee” in their COVID EIDL application.
Previous Policy
We understand that current SBA administration officials do not support the previous
administration’s policy to limit the Emergency EIDL grant to $1,000 per employee. However, that
assertion does not nullify the fact that the policy was valid during the time the agency was
disbursing emergency grant funds.
We reviewed all the agency’s emergency grant data from the beginning of the program on March
29, 2020, until the funds ran out July 10, and the agency policy was in effect during that entire
period. The agency should have followed the policy in place at the time SBA for COVID-19 EIDL
advances.
Certification Follow-up
As we noted in the report, the CARES Act prohibited SBA from obtaining tax records to validate loan
application information. The CARES Act mandate for SBA to accept applicant self-certification does
not relieve the agency of its fiduciary responsibility to the taxpayers to detect and prevent fraud.
SBA is responsible for safeguarding taxpayer dollars and preventing improper payments through
internal controls. SBA should have had controls in place to detect applications on which the
applicant claimed employees but did not supply an EIN.
SBA also should have had controls to detect applications with unreasonably large numbers of
employees, such as sole proprietorships that claimed to have a million employees, more than
100,000 employees, or more than 500 employees without an EIN. SBA should not have disbursed

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Emergency EIDL grants to entities that reported unreasonably large numbers of employees because
of the well-documented and pervasive fraud present in the COVID-19 EIDL program.
We note that some applicants who claimed employees but did not provide an EIN may now be
eligible to obtain a Targeted EIDL Advance and a Supplemental Targeted EIDL Advance. However,
not all will meet the stricter eligibility requirements for advances even now.
SBA should review the applications of sole proprietors and independent contractors that included
numbers of employees but no EIN and pursue returns of funds disbursed to sole proprietors and
independent contractors that exceeded the amount allowed by SBA’s policy. Such action would
exclude applicants now eligible for the full $10,000 under the Targeted EIDL Advance program.
We agree that some applicants who did not supply an EIN on their application may have omitted it
because SBA’S instructions did not clearly indicate that an EIN was required to receive the advance.
SBA should request EIN documentation from any applicants who did not provide one on the
application.
Summary of Actions to Close the Report
Although SBA did not agree with the finding, management partially agreed with the
recommendation. We believe that management’s proposed actions satisfy the intent of the
recommendation and when completed, we will close the recommendation.
1. Resolved. Management has stated SBA will develop a plan to assess the Emergency
EIDL Grants awarded by reviewing a sampling of recipient sole proprietors and
independent contractors who certified they had employees but did not provide an EIN
on the COVID EIDL application.
SBA plans to use a third-party contractor to assess Emergency EIDL grants greater than
$1,000 that were disbursed to sole proprietors and independent contractors who did
not provide an EIN on the application. SBA will also develop an appropriate plan to
remedy cases identified where the applicant provided false information on the COVID
EIDL application. SBA will explore available options to remedy cases, including recovery
of funds by offset, referral to OIG’s Division of Investigations, or providing supporting
documentation where appropriate.

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Appendix I: Objective, Scope, and Methodology
This report presents the results of our inspection of Emergency EIDL grants approved and
disbursed in accordance with SBA’s internal policy to provide $1,000 in grant funds per employee
and the CARES Act maximum of up to $10,000 per applicant. This inspection focused on Emergency
EIDL grants to sole proprietors and independent contractors.
To meet our objective, we reviewed SBA Emergency EIDL grant data for sole proprietors and
independent contractors, IRS requirements for registering EINs, and SBA policy and procedures for
Emergency EIDL grants. We also interviewed the Director of the Office of Disaster Assistance
Program Policy & Evaluation about controls in place and guidance provided to staff and applicants.
We relied on computer-generated data stored in the SBA COVID-19 EIDL data warehouse to
perform our analysis. SBA uses this data to manage the program and derive program statistics. We
identified minor issues with the data, but we believe the data we reviewed was sufficiently reliable
to support our report conclusions.
We performed this review in accordance with the Council on Inspectors General on Integrity and
Efficiency’s Quality Standards for Inspections and Evaluations. Those standards require that we plan
and perform the review to obtain sufficient, appropriate evidence to provide a reasonable basis for
our conclusions and observations based on our objective. We believe the evidence obtained
provides a reasonable basis for our conclusions and observations based on our objectives.

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Appendix II: Questioned Costs
Under the Inspector General Act, questioned costs are expenditures that do not comply with legal,
regulatory, or contractual requirements; are not supported by adequate documentation at the time
of the audit; or are unnecessary or unreasonable.7 Questioned costs may be remedied by offset,
waiver, recovery of funds, the provision of supporting documentation, or contract ratification,
where appropriate.
OIG Schedule of Monetary Impact
Description
Amount
Explanation
Questioned Costs – Sole Proprietors
$3,484,133,000
Amount in excess of $1,000
awarded to sole proprietors
without EINs.
Questioned Costs – Independent Contractors
$978,348,000
Amount in excess of $1,000
awarded to independent
contractors without EINs.
Total Questioned Costs
$4,462,481,000

Source: OIG analysis of Emergency EIDL grant data

7 Inspector General Act of 1978, as amended, section 5(f)(1).

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Appendix III: Prior Work
SBA OIG 21-15, SBA’s Handling of Identity Theft in the COVID-19 EIDL Program (May 6, 2021).
SBA referred nearly 850,000 COVID-19 applications related to identity theft complaints and
applications with similar information to OIG. We found SBA does not have processes to update
victims’ status; protect or resolve victims’ credit-related issues; cease billing fraudulent loans to
victims; prevent collection actions; release victims from loan liability; charge-off or remove the
fraudulent loans if funds are not recovered by SBA; or cancel filing fees and release any Uniform
Commercial Code liens associated with loan collateral.
SBA OIG 21-13, Serious Concerns About SBA’s Control Environment and the Tracking of
Performance Results in the Shuttered Venues Operators Grants Program (April 7, 2021). SBA
should take immediate action to reduce or eliminate risks by strengthening existing controls and
implementing internal controls to address potential misuse of federal funds. Strong controls will
ensure the program can effectively help eligible small business owners and entities that have
suffered economic injury because of the COVID-19 pandemic.
SBA OIG 21-02, Inspection of Small Business Administration's Initial Disaster Assistance
Response to the Coronavirus Pandemic (October 28, 2020). We found SBA disbursed
$13.4 billion in COVID-19 EIDLs to accounts that differed from the original bank accounts listed on
the loan applications; $58 billion in multiple COVID-19 EIDLs to applicants using the same Internet
provider addresses, email addresses, bank accounts, or businesses listed at the same addresses; and
approximately $1.1 billion in COVID-19 EIDLs and grants to potentially ineligible businesses.
SBA OIG 20-16, Serious Concerns of Potential Fraud in EIDL Program Pertaining to the
Response to COVID-19 (July 28, 2020). This Management Alert informed SBA that OIG
investigative offices and the OIG Hotline had received complaints of more than 5,000 instances of
suspected fraud from financial institutions receiving EIDL deposits.
SBA OIG 20-12, Risk Awareness and Lessons Learned from Audits and Inspections of EIDLs
and Other Disaster Lending (April 3, 2020). In this White Paper, we found that the SBA issued
disaster loans without vetting borrowers’ credit or repayment ability. We also found that SBA
approved businesses that had no disaster-related economic loss. The agency also had staffing
challenges that limited its ability to serve borrowers.

13

Appendix IV: Management Comments

SBA Response to Inspection Report

Date: September 8, 2021

To:
Hannibal “Mike” Ware

Inspector General

From:       James E. Rivera
Associate Administrator
Office of Disaster Assistance

Subject:  SBA's Emergency EIDL Grants to Sole Proprietors and Independent Contractors

We have reviewed the OIG Draft Report “SBA’s Emergency Economic Injury Disaster Loan Grants to
Sole Proprietors and Independent Contractors” (Project 21802) dated August 5, 2021.  Our response to
the draft report findings and corresponding recommendation is included in the letter.  Thank you for
the opportunity to respond.

The scope of this audit covers only the Economic Injury Disaster Loan (EIDL) Advance program that
was administered by the SBA last year from March 29 through July 10, 2020. The findings and
corresponding recommendation in the OIG draft report do not apply to the current Targeted EIDL
Advance and Supplemental Targeted Advance programs currently being administered by the SBA.

SBA does not support the prior Administration’s policy to limit EIDL Advances to $1,000 per
employee up to the maximum of $10,000.

At the core of this audit is the SBA’s 2020 policy decision to limit EIDL Advances to $1,000 per
employee, up to a maximum of $10,000. The per-employee cap on the original EIDL Advance program
was a self-imposed policy instituted by the prior Administration which has generated countless hours
of work for SBA teams responding to inquiries from small businesses negatively impacted by the
policy. In April 2020, SBA received letters signed by more than 30 US Senators and the chairs and
ranking members of the House and Senate Small Business Committees, urging the SBA Administrator
to remove the cap on EIDL Advances. However, the policy remained in place until the EIDL Advance
program ran out of funds and was eventually closed on July 10, 2020.

SBA accepted self-certifications from applicants to determine eligibility for the EIDL Advance
program in accordance with the CARES Act.

Section 1110 (e)(2) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act required SBA to
verify that the applicant is an eligible entity before disbursing EIDL Advance funds by accepting a self-
certification from the applicant under penalty of perjury pursuant to section 1746 of title 28 United
States Code. The CARES Act also linked requests for EIDL Advances to the COVID EIDL program loan
application, under which Section 1110 (d)(1) prohibited SBA from requiring tax records to validate the
self-certified information provided by applicants. Furthermore, Section 1110 (e)(1) of the Act

U.S. SMALL BUSINESS ADMINISTRATION

WASHINGTON, D.C. 20416

Page 2
established a goal for SBA to provide EIDL Advance funds to applicants within 3 days from receipt of
the COVID EIDL application. The 3-day goal was ambitious and clearly demonstrated the Act’s intent
to prioritize expediency to disburse EIDL Advance funds over the standard practice to first collect and
examine information to validate eligibility. The SBA delivered on the intent of the CARES Act by
processing over 14 million COVID EIDL applications and approving 5.8 million EIDL Advances for a
total of $20 billion in just 14 weeks.

The audit fails to mention that sole proprietors and independent contractors that received EIDL
Advances greater than $1,000 without providing an EIN may still be eligible for the full $10,000
Advance under the Targeted EIDL Advance program.

In December 2020, the Economic Aid Act appropriated $20 billion for the Targeted EIDL Advance
program to provide businesses that received less than $10,000 with the full Advance. In accordance
with the Economic Aid Act, small businesses with 300 or less employees that are in a low-income
community as defined in section 45D(e) of the Internal Revenue Code and suffered greater than 30
percent economic loss are eligible to receive the full $10,000 EIDL Advance. The intent of the Targeted
EIDL Advance program was to provide all eligible businesses, including the sole proprietors and
independent contractors examined in this audit, with the full $10,000 EIDL Advance.

Sole proprietors and independent contractors with employees may have omitted the EINs on their
COVID-19 EIDL applications due to unclear instructions.

The draft report asserts that all sole proprietors and independent contractors that reported having
employees on their COVID EIDL application applied using only their SSN because they did not have an
EIN and are therefore in violation of an IRS regulation to obtain an EIN. This assertion, however, fails
to acknowledge that the COVID EIDL application instructions may have been unclear to applicants.
For example, applicants were asked to provide either an EIN or SSN for the applicant business entity.
The field collecting this information included only the label “EIN/SSN for Sole Proprietorship” and did
not instruct applicants that they must provide their EIN if they have one and have employees. It is
possible that sole proprietors were confused by the label on the application and provided their SSN
instead of their EIN. However, the draft report assumes that because the sole proprietor did not
provide the EIN it must mean that they did not have an EIN and were in violation of IRS regulations.

Furthermore, the COVID EIDL application did not clearly define “employee” for applicants. The
application simply asked applicants to confirm if they had “not more than 500 employees” and to self-
certify the number of employees as of January 31, 2020. The COVID EIDL application did not define
employees as full time, part time, seasonal, etc. The application also did not clearly explain for
applicants that contractors are not considered employees and should not be reported as such on the
COVID EIDL application. It is important to remember that the COVID EIDL program, which to date has
received over 20 million application, is popular with many small businesses, sole proprietors,
independent contractors, freelancers, and other types of gig workers that are less experienced in
commercial lending practices and business tax laws. To mitigate confusion, the COVID EIDL
application should have provided clearer instructions for applicants on how to define an employee
and whether providing the EIN should have been a requirement.

Page 3
OIG Audit Recommendation

1. OIG recommends SBA to:
•
review the applications of sole proprietors and independent contractors that included
numbers of employees but no Employer Identification Number; and
•
remedy the $3.5 billion disbursed to sole proprietors and $1 billion disbursed to
independent contractors that exceeded the amount allowed by SBA’s policy.

Agency Response to Recommendation

While the SBA does not agree with key assertions in the draft report findings, the Agency partially
agrees with the audit recommendation. SBA will develop a plan to assess the EIDL Advances awarded
by reviewing a sampling of recipient sole proprietors and independent contractors that self-certified
having employees but did not provide an EIN on their COVID EIDL application. SBA will utilize a third-
party contractor to conduct this assessment of the EIDL Advances greater than $1,000 disbursed to
sole proprietors and independent contractors that did not apply using an EIN. SBA will also develop
an appropriate plan to remedy cases identified where the applicant provided false information on
their COVID EIDL application with regard to having employees. SBA will explore available options to
remedy cases, including but not limited to recovery of funds by offset, referral to OIG criminal
investigative division, or the provision of supporting documentation, where appropriate.

Sincerely,

James E. Rivera
Associate Administrator
Office of Disaster Assistance

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