SBA OIG Report 23-08 Serious Concerns Regarding the Return of PPP Funds

Summary

U.S. Small Business Administration Office of Inspector General Management Advisory Report 23-08, Serious Concerns Regarding the Return of Paycheck Protection Program Funds, a memorandum dated May 31, 2023 to Administrator Isabella Casillas Guzman from Inspector General Hannibal “Mike” Ware. The memorandum states that the advisory brings to the Administrator's attention concerns about the return of PPP funds and that the issue requires immediate attention and action by SBA. The report states that SBA's guidance to borrowers and lenders on returning PPP funds is insufficient because it does not cover how funds can be returned at the time of forgiveness, and that SBA does not have specific guidance for financial institutions that need to return deposits related to PPP funds. It also refers to OIG's earlier report 22-13 and recommendations on potentially fraudulent PPP loans.

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U.S. SMALL BUSINESS ADMINISTRATION

OFFICE OF INSPECTOR GENERAL
Serious Concerns Regarding the
Return of Paycheck Protection
Program Funds
Management Advisory
Report 23-08
May 31, 2023

OFFICE OF INSPECTOR GENERAL
U.S. SMALL BUSINESS ADMINISTRATION
MEMORANDUM
Date:
May 31, 2023
To:

Isabella Casillas Guzman

Administrator
From:
Hannibal “Mike” Ware
Inspector General
Subject:
Serious Concerns Regarding the Return of Paycheck Protection Program Funds
(Report 23-08)
The Office of Inspector General (OIG) is issuing this management advisory to bring to your
attention concerns regarding the return of Paycheck Protection Program (PPP) funds. This issue
requires immediate attention and action by the U.S. Small Business Administration (SBA) to
ensure it has processes and procedures in place to adequately accept, process, and account for
PPP funds returned by borrowers, lenders, and financial institutions. Expedited management
action should mitigate the risk of financial loss to taxpayers.
If you have any questions, please contact me or Andrea Deadwyler, Assistant Inspector General
for Audits, at (202) 205-6586.
cc:
Bailey DeVries, Associate Administrator, Office of Investment and Innovation, and Acting

Associate Administrator, Office of Capital Access

Arthur Plews, Chief of Staff

Therese Meers, General Counsel, Office of General Counsel

Peggy Delinois Hamilton, Special Counsel for Enterprise Risk

John Miller, Deputy Associate Administrator, Office of Capital Access

Michael Simmons, Attorney Advisor, Office of General Counsel

Katherine Aaby, Associate Administrator, Office of Performance, Planning, and the Chief

Financial Officer

Tonia Butler, Director, Office of Internal Controls

Contents
Background .................................................................................................................1
Prior OIG Recommendations ...........................................................................1
Need for Comprehensive Process and Guidance for Returning PPP Funds ...............2
Borrower and Lender Guidance .......................................................................3
Financial Institution Guidance ..........................................................................3
SBA’s Tracking of Returned PPP Funds ............................................................4
Conclusion ..................................................................................................................5
Suggested Actions for SBA ..........................................................................................5
Evaluation of Agency Response ..................................................................................6

1
Background
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted on March 27, 2020
to provide economic relief to small businesses from the effects of the Coronavirus Disease 2019
pandemic. Section 1102 of the CARES Act established the Paycheck Protection Program (PPP)
with $349 billion to provide fully guaranteed loans under section 7(a) of the Small Business Act.
The PPP provided loans to certain eligible borrowers that can be forgiven if borrowers used the
loan proceeds as required by the law. Through additional legislation, total program funding
increased to $813.7 billion and, as of February 28, 2023, SBA had approved almost $10.6 million
PPP forgiveness requests for over $754 billion.
Prior OIG Recommendations
In fiscal year (FY) 2022, we found that SBA did not provide comprehensive fraud guidance to
lenders and received numerous inquiries regarding how to handle potentially fraudulent PPP
loans. The lenders also reached out to the Office of Inspector General (OIG) for guidance on how
to:
• recover fraudulently obtained funds from PPP loans remaining in the borrower’s
account as well as funds the borrower withdrew,
• handle seized funds from PPP loans,
• return remaining funds for potentially fraudulent PPP loans,
• handle deposits from potentially fraudulent PPP loans, and
• handle the remaining unspent funds that a borrower received from a potentially
fraudulent PPP loan.

2
We recommended and SBA agreed to:
1. Establish clearly defined and detailed roles, responsibilities, and processes for all SBA
offices and officials responsible for managing and handling potentially fraudulent PPP
loans to reduce the risk of ineligible applicants receiving PPP forgiveness and the risk
of fraud and financial loss in the PPP and when implementing similar future programs.
2. Provide lenders formal guidance to effectively and consistently handle potentially
fraudulent PPP loans and ensure lenders have sufficient guidance when implementing
similar future programs.1
SBA officials requested closure for both recommendations by September 30, 2022; however, we
denied the request because SBA did not establish sufficient processes for returning funds and
did not provide lenders with related formal guidance. Specifically, SBA did not fully address the
requested guidance in recommendation 2 or provide guidance on how to handle the return of
funds for forgiven PPP loans. On December 15, 2022, SBA requested extensions on both
recommendations to March 31, 2023, to allow time to develop funds recovery procedures and
OIG approved the extensions. On March 24, 2023, SBA management requested, and OIG
approved, extensions on both recommendations to June 30, 2023.
We are monitoring lender guidance through the open recommendations to ensure it contains
information on returning PPP funds. However, since issuing the report, we have identified an
additional critical element for lender guidance as well as a similar need for comprehensive
guidance for borrowers and financial institutions that receive deposits for PPP funds.
Need for Comprehensive Process and Guidance for
Returning PPP Funds
SBA’s guidance to borrowers and lenders on returning PPP funds is insufficient as it does not
cover how funds can be returned at the time of forgiveness. In addition, SBA does not have
specific guidance for financial institutions that need to return deposits related to PPP funds.

1 SBA OIG, 22-13, SBA’s Handling of Potentially Fraudulent Paycheck Protection Program Loans, (May 26, 2022).

3
Borrower and Lender Guidance
SBA’s website instructs borrowers with PPP loans for which SBA has not paid the guarantee (non-
purchased loans) to contact their lender for repayment. Borrowers with loans for which SBA has
paid the guarantee (purchased loans) have additional options for repayment. In some cases, the
need to repay the loan was due to the PPP application process, which allowed borrowers to
apply with multiple lenders, potentially resulting in duplicate loans in the early stages of the PPP.
However, there is no detailed guidance for borrowers regarding repayment of forgiven loans.
Further, we were advised that some lenders are informing borrowers that the agency cannot
accept funds. Based on correspondence we reviewed, we believe this is likely because SBA has
forgiven the loan.
There is lender guidance that explains lender responsibility for accepting PPP funds for
purchased loans; however, it does not include requirements for accepting funds if the loan was
forgiven.
We met with SBA officials on September 29, 2022 to discuss the need for a process and guidance
for lenders who receive funds resulting from investigations, seizures, or other law enforcement
actions. During this meeting, we suggested that SBA require lenders who return funds to SBA to:
• explain why the borrower is returning PPP funds,
• provide the source of the funds (bank account, payment via check, Automated
Clearing House, or wire) to investigations personnel, and
• report monthly the amount of funds received from overpayments and the
overpayment amounts that were returned to SBA.
In response to the meeting, SBA officials indicated they would create a working group to develop
policy and determine the best process for receiving PPP returned funds. However, as of the
issuance of this report, SBA has not finalized the policy for receiving PPP returned funds.
Financial Institution Guidance
SBA did not provide guidance to financial institutions that received PPP loan deposits on how to
return PPP funds. Two financial institutions have frozen about $95 million in PPP loan deposits
that they suspected of fraudulent activity; however, these institutions have not returned
potential taxpayer funds to the government because they did not have sufficient guidance on
how to return these funds to SBA.

4
SBA’s Tracking of Returned PPP Funds
As of December 9, 2022, SBA indicated it was tracking 1,943 PPP loans for the return of funds,
with a total loan amount of approximately $41 million. SBA is tracking these loans on an ad hoc
basis using a spreadsheet based on referrals from lenders, SBA personnel, and OIG. These loans
do not include seized PPP funds. As of February 1, 2023, OIG was aware of almost $32 million in
seizures related to the PPP that SBA is pursuing in addition to the $95 million in frozen PPP
funds. SBA has identified a limited number of seizure activities by government agencies and
frozen PPP funds from financial institutions. However, due to the informal, ad hoc nature of
SBA’s tracking, the full scope of these funds is unknown.
According to SBA personnel, borrowers have erroneously made payments to SBA rather than
directly to the lender. As a result, SBA is required to return the payments to the borrower so that
the borrower can pay the lender. However, some of these loans have indications of potential
fraud and SBA personnel do not know how the return should be handled.

5
Conclusion
Establishing clear and detailed guidance for borrowers, lenders, and financial institutions on how
to return PPP funds and implementing a process for SBA to accurately handle and track the
returned funds should mitigate the risk of financial loss. SBA should take immediate action to
ensure it has processes and procedures in place to adequately accept, process, and account for
returned PPP funds.
Suggested Actions for SBA
To ensure PPP funds are returned as appropriate, we suggest the Administrator direct the
Associate Administrator for the Office of Capital Access to:
1. Provide detailed guidance to borrowers on returning PPP funds to lenders if the loan
was forgiven or guaranty purchased.
2. Provide detailed guidance to lenders on their responsibilities for accepting PPP funds
if the loan was forgiven, to include documenting reasons for the return of funds,
returning the funds to SBA, conducting a fraud review, reversing forgiveness when
appropriate, and handling loans with only a partial return of funds.
3. Seek periodic assurance from lenders that all PPP funds returned to lenders have
been reported and returned to SBA. The report to SBA should include details on the
source of the returned funds.
4. Provide detailed guidance to financial institutions that receive PPP fund deposits for
borrowers regarding how to return PPP funds if there is suspected fraud or other
issues that would warrant returning funds.

6
Evaluation of Agency Response
Although a formal response was not required, SBA management indicated in e-mail
correspondence that managers are continuing to formalize a PPP funds recovery process, which
will include guidance to borrowers, lenders, and financial institutions on how to return PPP
funds. SBA management anticipates issuing the guidance in the fourth quarter of FY 2023. We
will monitor management’s actions through our follow-up process.
This management alert was prepared in alignment with OIG’s quality control standards and the
Council of the Inspectors General on Integrity and Efficiency Quality Standards for Federal Offices
of Inspector General, which requires that we conduct our work with integrity, objectivity, and
independence.

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