Full text
United States Government Accountability Office
Report to Congressional Committees
COVID-19 RELIEF
November 2024
SBA and DOL Should
Improve Processes to
Identify and Recover
Overpayments
GAO-25-106199
November 2024
COVID-19 RELIEF
SBA and DOL Should Improve Processes to Identify
and Recover Overpayments
Highlights of GAO-25-106199, a report to
congressional committees
Why GAO Did This Study What GAO Found
In response to the COVID-19 Early in the pandemic, federal agencies prioritized swiftly distributing funds and
pandemic, Congress provided funding implementing new programs to help businesses and individuals adversely
to assist small businesses through affected by COVID-19. While this swift response helped meet urgent needs, it
SBA’s PPP and COVID-19 EIDL involved trade-offs that put billions of dollars at increased risk for improper
programs. Congress also created four payments, including overpayments.
temporary DOL UI programs to support
workers adversely affected by the Small Business Administration (SBA) and Department of Labor (DOL) programs
pandemic. The demand for these accounted for a large portion of COVID-19 relief funding and experienced
programs and the need to deliver aid heightened improper payment risks. SBA provided more than $1 trillion in loans
quickly increased the risk of improper and grants, primarily through the Paycheck Protection Program (PPP) and
payments, including overpayments. COVID-19 Economic Injury Disaster Loans (EIDL). DOL’s Unemployment
Effective post-payment control Insurance (UI) program expenditures totaled about $900 billion. For fiscal year
processes help agencies to identify 2023, SBA reported an estimated 40.5 percent of PPP loan forgiveness and 49.2
and recover overpayments after they percent of PPP guarantee purchase payments were improper. DOL estimated
have occurred. 35.9 percent of Pandemic Unemployment Assistance payments were improper.
The CARES Act includes a provision SBA loan review processes. For both the PPP and COVID-19 EIDL, SBA loan
for GAO to monitor COVID-19 review processes are not effectively identifying overpayments. Further, SBA
pandemic relief funds. This report (1)
could not demonstrate how it accounted for overpayment risks associated with
examines the extent to which SBA and
new PPP lenders in its review processes. Including lenders in the financial
DOL have developed processes for
identifying and recovering COVID-19
technology sector helped the PPP reach borrowers. However, it also increased
overpayments and (2) analyzes the the risk of overpayments as SBA relied on these lenders’ processes and controls
success of agency efforts in recovering as part of review and approval of borrower loan applications.
COVID-19 overpayments. DOL guidance and procedures. Pandemic-related UI programs generally follow
GAO analyzed SBA and DOL guidance in DOL’s regular UI program letters. This guidance lists three
documentation regarding overpayment administrative functions to help ensure UI program integrity. States must (1)
identification and recovery efforts, detect benefits paid through error, (2) deter claimants from obtaining benefits
reviewed relevant laws and guidance, through willful misrepresentation, and (3) recover overpaid benefits under certain
analyzed public datasets, and circumstances. DOL provides resources to states to assist with recoveries of
interviewed federal officials. pandemic-related UI overpayments. This includes training on updated guidance
and procedures, funding opportunities to help states ensure timely benefit
What GAO Recommends payments, and tools to facilitate more effective identity verification processes.
GAO is making five recommendations. Overpayment recovery efforts. SBA tracks certain data related to PPP and
Three are to SBA, including that it COVID-EIDL improper payments, but it does not have a sufficient process for
expand and document overpayment
tracking identified overpayments and subsequent recoveries. Without these data,
review procedures and expand its
SBA cannot ensure that it is maximizing the potential of certain recovery
tracking process; two are to DOL to
update its recovery rate reporting and methods, which may limit recoveries. DOL’s UI recovery rate calculation does not
guidance. SBA partially agreed to all include all identified overpayments. DOL subtracts waived overpayments from its
recommendations, and DOL disagreed calculation, which may inflate the recovery rate. States have had little success in
with both recommendations. GAO recovering overpayments. As of April 2024, states recovered approximately $3.7
continues to believe all billion of the $55.2 billion overpayments identified in the pandemic-related UI
recommendations are warranted. programs from March 2020 through September 2023. Further, DOL did not set
an overpayment recovery rate baseline for states to meet. Including a
measurement of success in guidance to State Workforce Agencies could better
View GAO-25-106199. For more information, position DOL to monitor states’ efforts to recover overpayments from future
contact M. Hannah Padilla at (202) 512-5683
or padillah@gao.gov
temporary programs.
United States Government Accountability Office
Contents
Letter 1
Background 4
SBA and DOL Have Review and Recovery Processes, but SBA’s
Processes Do Not Effectively Identify Overpayments 14
SBA and DOL Have Not Sufficiently Tracked Progress of
Overpayment Recovery Efforts in Selected Programs 41
Conclusions 50
Recommendations for Executive Action 51
Agency Comments and Our Evaluation 52
Appendix I Objectives, Scope, and Methodology 58
Appendix II SBA’s Paycheck Protection Program Eligibility and Forgiveness
Review Process 60
Appendix III Comments from SBA 64
Appendix IV Comments from DOL 66
Appendix V GAO Contact and Staff Acknowledgments 71
Tables
Table 1: Comparison of Fiscal Year 2023 Department of Labor
(DOL) Unemployment Insurance Recovery Rates, Waived
Overpayments Included and Excluded, as of April 10,
2024 (Dollars in Millions) 45
Table 2: March 2020 through September 2023: Estimated State
Workforce Agency Pandemic-Related Unemployment
Insurance Overpayment Recoveries, as of April 10, 2024
(Dollars in Billions) 48
Table 3: March 2020 through September 2023: Estimated State
Workforce Agency Pandemic-Related Unemployment
Page i GAO-25-106199 Covid-19 Relief
Insurance Nonfraudulent Overpayment Recoveries, as of
April 10, 2024 (Dollars in Billions) 49
Figures
Figure 1: Overview of SBA Paycheck Protection Program
Application and Approval Process 6
Figure 2: Paycheck Protection Program Lender Loan Satisfaction
Scenarios 7
Figure 3: Paycheck Protection Program Loan Forgiveness Review
Process 18
Figure 4: COVID-19 Economic Injury Disaster Loan Review
Process for Referral to the Office of Inspector General 23
Figure 5: Department of Labor’s Current Recovery Rate
Calculation 44
Figure 6: Contractor Loan Eligibility Review Process for the
Paycheck Protection Program 61
Page ii GAO-25-106199 Covid-19 Relief
Abbreviations
ALP acceptable levels of performance
ARPA American Rescue Plan Act
BSA Bank Secrecy Act
DOL Department of Labor
EIDL Economic Injury Disaster Loan
ETA Employment and Training Administration
fintech financial technology
FPUC Federal Pandemic Unemployment Compensation
IPA independent public accountant
LSP lender service provider
MEUC Mixed Earner Unemployment Compensation
OIG Office of Inspector General
OMB Office of Management and Budget
PEUC Pandemic Emergency Unemployment Compensation
PIIA Payment Integrity Information Act of 2019
PPP Paycheck Protection Program
PUA Pandemic Unemployment Assistance
SBA Small Business Administration
SWA State Workforce Agencies
Treasury Department of the Treasury
UI unemployment insurance
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Page iii GAO-25-106199 Covid-19 Relief
Letter
441 G St. N.W.
Washington, DC 20548
November 13, 2024
Congressional Committees
As of April 2024, the federal government has spent $4.4 trillion in funding
related to COVID-19 response and recovery. Early in the pandemic,
agencies prioritized swiftly distributing funds and implementing new
programs to help businesses and individuals adversely affected by
COVID-19. This urgency involved trade-offs that put billions of taxpayer
dollars at increased risk for improper payments, including overpayments. 1
Two agencies, the Small Business Administration (SBA) and the
Department of Labor (DOL), were charged with overseeing certain
pandemic programs to help small businesses and individuals,
respectively.
As noted in Office of Management and Budget (OMB) guidance, it is
preferable that agencies focus efforts toward preventing overpayments
from occurring; however, it is important for agencies to have cost-effective
means to both identify and recover overpayments if they do occur. 2
According to PaymentAccuracy.gov reporting, for fiscal years 2021
through 2023, SBA reported recovering $19 million of $1 billion in
overpayments identified for recovery, and DOL reported recovering $4
billion of $23 billion in overpayments identified for recovery. 3 Across the
federal government—including SBA and DOL—agencies reported
1An improper payment is any payment that should not have been made or that was made
in an incorrect amount (including an overpayment or underpayment) under statutory,
contractual, administrative, or other legally applicable requirements. While all fraudulent
payments are considered improper, not all improper payments are due to fraud. The
Office of Management and Budget (OMB) defines an overpayment as a payment in
excess of the amount due. According to OMB, overpayments are a monetary loss type of
improper payment that, in theory, should or could be recovered. OMB Memorandum M-
21-19. Executive agency estimates of improper payments also treat as improper any
payments whose propriety cannot be determined due to lacking or insufficient
documentation. 31 U.S.C. § 3352 (c)(2). Improper payment estimates and rates displayed
in this report include both improper and unknown payments as reported on OMB’s
PaymentAccuracy.gov website.
2OMB, Transmittal of Appendix C to OMB Circular A-123, Requirements for Payment
Integrity Improvement, OMB Memorandum M-21-19 (Washington, D.C.: Mar. 5, 2021).
3Rates and amounts as reported in the 2023 Annual Improper Payments Dataset,
available on PaymentAccuracy.gov (accessed Dec. 5, 2023).
Page 1 GAO-25-106199 Covid-19 Relief
recovering a total $71 billion of the $142 billion in overpayments identified
for recovery for this period, according to PaymentAccuracy.gov.
Following the enactment of legislation that among other things provided
assistance to businesses negatively affected by the COVID-19 pandemic,
SBA quickly set up the Paycheck Protection Program (PPP), COVID-19
Economic Injury Disaster Loan (EIDL) program, and other relief
programs. 4 Since spring 2020, SBA has provided significant assistance to
small businesses adversely affected by the COVID-19 pandemic.
SBA administered programs providing more than $1 trillion in loans and
grants. This funding assisted more than 10 million small businesses,
primarily through the PPP and COVID-19 EIDL program. 5 However,
concerns about SBA’s implementation of PPP and COVID-19 EIDL led us
to include Emergency Loans for Small Businesses on our High Risk List
in March 2021. 6 We identified significant program integrity risks, including
potential for fraud, and the need for improved SBA management and
oversight. SBA estimated 40.5 percent of PPP loan forgiveness and 49.1
percent of PPP guarantee purchase payments were improper, according
to agency reporting on PaymentAccuracy.gov for fiscal year 2023.
The CARES Act created three federally funded temporary DOL
unemployment insurance (UI) programs—Pandemic Unemployment
Assistance, Federal Pandemic Unemployment Compensation, and
Pandemic Emergency Unemployment Compensation. 7 These programs
expanded UI benefit eligibility, enhanced benefits, and extended benefit
duration. In addition, the Consolidated Appropriations Act, 2021, created
4For purposes of this report, we will refer to the Paycheck Protection Program and the
COVID-19 Economic Injury Disaster Loans program as “selected programs” when we are
discussing them together.
5GAO, Small Business Administration: Progress and Work Remaining to Implement Key
Management Improvements, GAO-24-107395 (Washington, D.C.: Mar. 6, 2024).
6The High Risk List highlights federal programs and operations that we have determined
are in need of transformation. It also names federal programs and operations that are
vulnerable to waste, fraud, abuse, and mismanagement. The High Risk List is updated
every 2 years. For the 2023 update, see GAO, High-Risk Series: Efforts Made to Achieve
Progress Need to Be Maintained and Expanded to Fully Address All Areas,
GAO-23-106203 (Washington, D.C.: Apr. 20, 2023). SBA’s PPP and COVID-19 EIDL
program were added to the list in 2021 as part of the “Emergency Loans for Small
Businesses” area. See GAO, High-Risk Series: Dedicated Leadership Needed to Address
Limited Progress in Most High-Risk Areas, GAO-21-119SP (Washington, D.C.: Mar. 2,
2021).
7Pub. L. No. 116-136, §§ 2102, 2104, 2107, 134 Stat. 281, 313-28 (2020).
Page 2 GAO-25-106199 Covid-19 Relief
the Mixed Earner Unemployment Compensation program. This program,
which was voluntary for states, authorized an additional $100 weekly
benefit for certain UI claimants. 8 DOL’s UI program expenditures totaled
about $900 billion from April 1, 2020, through May 31, 2023, according to
DOL data. 9
The UI program is overseen by DOL and administered by the states, as a
federal-state partnership that provides temporary financial assistance to
eligible workers who become unemployed through no fault of their own.
The UI program has also faced long-standing challenges with program
integrity, which increased dramatically during the pandemic. Due to these
challenges and others, we added the overarching Unemployment
Insurance System to our High Risk List in June 2022. 10 DOL estimated
that 35.9 percent of Pandemic Unemployment Assistance payments were
improper, according to agency reporting on PaymentAccuracy.gov for
fiscal year 2023.
The CARES Act includes a provision for GAO to report on our ongoing
monitoring and oversight efforts related to the COVID-19 pandemic. 11 For
this report, we (1) examined the extent to which SBA and DOL have
developed effective processes for identifying and recovering
overpayments of COVID-19 relief funds and (2) analyzed the extent to
which SBA and DOL efforts to recover overpayments of COVID-19 relief
funds have been successful.
To determine which agencies and programs to include in our review, we
reviewed program outlays for the top five COVID-19 spending areas as of
8Pub. L. No. 116-260, div. N, tit. II, § 261(a)(1), 134 Stat. 1182, 1961. The American
Rescue Plan Act of 2021 extended this program through September 6, 2021. Pub. L. No.
117-2, § 9013, 135 Stat. 4, 119.
9This amount includes about $230 billion in expenditures under the regular UI and
Extended Benefits programs and about $670 billion in expenditures under the pandemic
UI programs that expired on September 6, 2021. However, 24 states ended their
participation in at least one of the pandemic UI programs before the programs expired.
10GAO, Unemployment Insurance: Transformation Needed to Address Program Design,
Infrastructure, and Integrity Risks, GAO-22-105162 (Washington, D.C.: June 7, 2022).
11Pub. L. No. 116-136, § 19010(b), 134 Stat. 281, 580 (2020), which is reprinted in 31
U.S.C. § 712 note. We regularly issue government-wide reports on the federal response to
the COVID-19 pandemic. As part of our work, we have also issued reports on recipients’
(including tribal governments, states, localities, and U.S. territories) uses of COVID-19
funds. All of our reports related to the COVID-19 pandemic are available at Coronavirus
Oversight | U.S. GAO.
Page 3 GAO-25-106199 Covid-19 Relief
June 30, 2022. Due to the amount of COVID-19 outlays in SBA’s PPP
and COVID-19 EIDL program and the DOL UI programs, in addition to the
reported concerns that resulted in these programs being placed on our
High Risk List, we selected these programs for our review.
To address our first objective, we reviewed SBA and DOL documentation
regarding overpayment identification and recovery efforts. We met with
agency officials to discuss the processes and procedures involved in
these efforts. In addition, we reviewed federal laws along with federal
regulations and standards. We compared the agencies’ overpayment
recovery processes and procedures to the relevant laws and guidance.
To address our second objective, we reviewed and analyzed public
datasets to assess the extent of agencies’ success in the recovery of
overpayments. However, overpayments are not always recoverable and
unclear or nonreported data make the full extent of identified and
recovered overpayments unknown. See appendix I for more information
on our objectives, scope, and methodology.
We conducted this performance audit from August 2022 to November
2024 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
Background
SBA’s COVID-19 In March 2020, Congress passed and the President signed into law the
Programs CARES Act. The act provided funds for a new SBA pandemic relief
program, the PPP, which was authorized under SBA’s existing 7(a) small
business lending program. 12 It also expanded eligibility for SBA’s EIDL
program to make loans (known as COVID-19 EIDL loans) available to
12The 7(a) loan program is SBA’s primary small business loan program, assisting small
businesses with financing when they are unable to access credit elsewhere. For non-PPP
7(a) loans, SBA guarantees a portion of each loan, ranging from 50 to 90 percent, that a
participating lender makes to an eligible small business.
Page 4 GAO-25-106199 Covid-19 Relief
businesses experiencing economic injury caused by COVID-19. 13 Both
PPP and COVID-19 EIDL contained programmatic elements that were
new compared to the pre-pandemic programs. The number of loan
applications SBA received for these selected programs was significantly
greater than the number it generally receives for its traditional guaranteed
loan and disaster loan programs. 14
Paycheck Protection Program Under PPP, SBA guaranteed over $800 billion in loans to small
businesses and nonprofits, referred to collectively in this report as small
businesses. The loans were to be used for payroll costs, rent, utilities,
and other eligible operating costs during the pandemic.
PPP low-interest loans were fully guaranteed by SBA. The loans were
made to recipients through a network of participating lenders under
program rules set by the Department of the Treasury and SBA’s Office of
Capital Access. PPP loans were designed for SBA to offer full forgiveness
to eligible borrowers, under certain conditions. For example, to be eligible
for full forgiveness, at least 60 percent of the loan had to be used for
payroll costs, with the remaining amount used for eligible nonpayroll
costs, such as covered mortgage interest, rent, and utility payments. 15
See figure 1 for more information on the PPP application process.
13EIDL, which is part of SBA’s Disaster Loan Program, provides low-interest loans to help
borrowers—small businesses and nonprofit organizations located in a disaster area—
meet obligations or pay ordinary and necessary operating expenses. In this report, we
refer to the EIDL program designed to help small businesses recover from the economic
impacts of the COVID-19 pandemic as COVID-19 EIDL.
14For example, in May 2022, SBA was servicing approximately 4 million outstanding
COVID-19 EIDL loans, which is around 15 times the amount of disaster loans the agency
was servicing pre-pandemic. Additionally, SBA approved slightly less than 12 million PPP
loans during fiscal years 2020 - 2021 (when loans were still being issued) that totaled
approximately $800 billion. In comparison, SBA approved an estimated 94,000 non-PPP
7(a) loans with a value around $60 billion during that same time frame.
15To be eligible for full forgiveness, SBA originally required borrowers to spend at least 75
percent of the loan amount on payroll costs, but this requirement was modified by later
legislation. Paycheck Protection Program Flexibility Act of 2020, Pub. L. No. 116-142, §
3(b)(2)(B), 134 Stat. 641, 642.
Page 5 GAO-25-106199 Covid-19 Relief
Figure 1: Overview of SBA Paycheck Protection Program Application and Approval Process
a
If a loan application was denied by the lender, SBA directed applicants to contact the lender directly.
However, if SBA denied a loan as a result of a Paycheck Protection Program final loan review it
conducted, the borrower could appeal the decision with SBA’s Office of Hearings and Appeals within
30 calendar days after receipt of the decision.
In accordance with the CARES Act, PPP loans required no collateral or
personal guarantees. Borrowers were not required to make loan
repayments until their forgiveness application was processed or 10
months after the covered period ended (from 8 to 24 weeks), if the
borrower failed to apply for forgiveness within that time. 16 Once loan
funds were used, borrowers could apply for forgiveness at any point on or
before the maturity date of the loan (up to 5 years).
Once a PPP application was approved and the loan disbursed, borrowers
had two options to satisfy the loan. They could either apply for loan
forgiveness, whether in whole or in part, or repay the loan. If a borrower
was determined ineligible for loan forgiveness, whether in whole or in
part, they were responsible for repaying the unforgiven portion of the
loan. If a borrower became more than 60 days past due in their
repayments, lenders were able to submit a request for a guarantee
16The “covered period” is the period following receipt of a PPP loan during which
borrowers can spend the loan proceeds on covered expenses. The covered period begins
on the date a lender disburses the loan and ends on a date selected by the borrower
during the period from 8 to 24 weeks after disbursement.
Page 6 GAO-25-106199 Covid-19 Relief
purchase from SBA. 17 This loan guarantee acted as collateral to provide
lenders with satisfactory security to support a loan. Under the rules of
PPP, SBA’s guarantee purchase for PPP loans was 100 percent of the
loan amount if the lender complied with all applicable PPP requirements.
However, defaulted borrowers were still responsible for repaying their
loans. 18 See figure 2 for more information.
Figure 2: Paycheck Protection Program Lender Loan Satisfaction Scenarios
a
Loans could be forgiven if the funds were used for eligible expenses. Borrowers could apply for
forgiveness once all loan proceeds for which the borrower is requesting forgiveness have been used.
Forgiveness applications could be approved in full, in part, or denied.
b
If a borrower has not applied for forgiveness or did not receive full forgiveness, they must make
standard repayments on the loan.
c
In instances where a borrower becomes more than 60 days past due, lenders may submit a
guarantee purchase request to the Small Business Administration to recoup the outstanding balance
of the loan.
The PPP application process operated in two stages referred to as Round
1 and Round 2. Applicants could apply for first draw loans in PPP Round
1 from April through August 2020, and first or second draw loans in PPP
17See Procedural Notice 5000-812316: SBA Guaranty Purchases and Lender Servicing
Responsibilities for PPP Loans. Lenders were instructed to first make a demand for
payment in full before submitting a request for guarantee purchase and charge off.
18The lender loan satisfaction scenarios are not mutually exclusive as a loan could
undergo all three scenarios. For example, a loan could receive partial forgiveness and
then have a lender request a guarantee purchase from SBA on the portion not forgiven. In
which case, a borrower may still make repayments on the purchased portion of the loan to
SBA.
Page 7 GAO-25-106199 Covid-19 Relief
Round 2 from January through May 2021. 19 The PPP closed to new
applications following May 2021, but parts of the PPP are still operating.
For example, existing borrowers may apply for forgiveness up to the
maturity date of their loans, and PPP lenders may continue to request a
guarantee purchase from SBA for defaulted loans.
To assist with the review process for PPP, SBA used a contractor to
facilitate the automated and—if necessary—manual reviews of PPP loan
applications to assess borrower eligibility and determine if a loan
warranted further review by an SBA official. This review process was
revised a few times throughout the course of the program to increase its
effectiveness.
Over the program’s application period—which ran from April 2020 to May
2021—SBA guaranteed more than 11 million PPP applications, totaling
more than $799 billion in loans. As of July 2024, borrowers submitted
over 10 million forgiveness applications, with SBA forgiving approximately
$760 billion. 20
COVID-19 EIDL SBA directly managed the COVID-19 EIDL program through its Office of
Disaster Assistance and later through its Office of Capital Access. The
program included two types of assistance: loans and grants, the latter of
which were otherwise known as advances. Advances were a new
programmatic element available to COVID-19 EIDL applicants, as well as
targeted and supplemental targeted advances that were available to
applicants meeting certain criteria. 21 While advances were a part of the
COVID-19 EIDL program, we did not include them in the scope of our
review.
19A borrower’s first PPP loan, which could be received in either 2020 or 2021 is referred to
as a first draw loan. Borrowers that received first draw loans could apply for a second
draw PPP loan in 2021, based on different eligibility requirements.
20Out of the forgiveness applications submitted, as of July 2024, SBA has denied over
36,000 applications, totaling more than $2.6 billion.
21Targeted advances were available to applicants who were in a low-income community,
could demonstrate more than a 30 percent reduction in revenue during an 8-week period
beginning on or after March 2, 2020, and had 300 or fewer employees. Supplemental
targeted advances were available to applicants located in a low-income community, who
could prove more than a 50 percent economic loss during an 8-week period beginning on
or after March 2, 2020, and had 10 or fewer employees. Economic Aid to Hard-Hit Small
Business, Nonprofits, and Venues Act, Pub. L. No. 116-260, div. N, tit. III, § 331 (2020).
Page 8 GAO-25-106199 Covid-19 Relief
COVID-19 EIDL loans were meant to be used for working capital and
other normal operating expenses and were not forgivable, with loan
increases being available until the funds were exhausted. 22 Additionally,
SBA required collateral for COVID-19 EIDL loans greater than $25,000,
and personal guarantees were required for loans greater than $200,000.
In January 2022, SBA stopped accepting applications for new COVID-19
EIDL loans and advances, and by April 2022, SBA approved almost 4
million COVID-19 EIDL loans totaling nearly $378 billion.
In May 2022, SBA stopped processing COVID-19 EIDL loan increase
requests or requests for reconsideration of previously declined
applications. According to SBA, as of June 2024, it continues to service
more than 2.25 million COVID-19 EIDL loans—the vast majority of which
have entered into active repayment, and there are approximately 277,000
loans that are more than 30 days delinquent and 1.11 million loans in
charge-off status. 23
DOL’s Unemployment The federal government and states coordinate to administer UI programs.
Insurance Programs States design and administer their own UI programs within federal
parameters, while DOL monitors states’ compliance with federal
requirements. According to DOL, state statutes establish specific benefit
structures, eligibility provisions, benefit amounts, and other program
aspects. Regular UI benefits—those provided by state UI programs
before the CARES Act was enacted—are funded primarily through state
taxes levied on employers and are intended to replace a portion of a
claimant’s previous employment earnings, according to DOL. 24
The CARES Act created the following three federally funded temporary UI
programs that expanded benefit eligibility and enhanced benefit amounts,
22In December 2020 and March 2021, the Consolidated Appropriations Act, 2021 and the
American Rescue Plan Act of 2021, respectively, appropriated additional funds to the PPP
and COVID-19 EIDL program and made changes to the PPP, including allowing a second
loan under certain conditions.
23A charge-off is an administrative action whereby SBA reclassifies a defaulted loan and
the outstanding balance of the loan is written off from SBA’s accounting records. This
action does not prohibit SBA from continuing to attempt collections on a loan.
24To be eligible for regular UI benefits, applicants must generally be unemployed through
no fault of their own, demonstrate workforce attachment, usually measured by the amount
of wages or weeks of work; be able and available to work; and be actively seeking work.
42 U.S.C § 503(a)(12). Administration of the regular UI program is financed by a federal
tax on employers, according to DOL.
Page 9 GAO-25-106199 Covid-19 Relief
which were amended by the Consolidated Appropriations Act, 2021, and
the American Rescue Plan Act of 2021 (ARPA): 25
1. Pandemic Unemployment Assistance (PUA) was generally
available from March 2020 through September 6, 2021, and
authorized UI benefits for individuals not otherwise eligible for UI
benefits, such as the self-employed and certain contingent workers, 26
who were unable to work because of specified COVID-19 reasons. 27
The total federal expenditure for PUA program benefits was $138
billion through May 31, 2023. 28
2. Federal Pandemic Unemployment Compensation (FPUC)
generally authorized an additional $600 weekly benefit through July
2020 and a $300 weekly benefit for weeks beginning after December
26, 2020, and ending on, or before, September 6, 2021, for individuals
eligible for UI benefits available under the regular UI program and the
25The CARES Act also addressed other aspects of the UI system, such as authorizing
certain flexibilities for states to hire additional staff. In addition to the CARES Act, the
Families First Coronavirus Response Act provided up to $1 billion in emergency grant
funding to states in fiscal year 2020 for UI administrative purposes.
26As self-employed workers are a sizable group among those who were potentially eligible
for PUA, we have included them in the term “contingent workers” for the purposes of
discussing the contingent worker experience during the pandemic and with the PUA
program. In other contexts, self-employed workers might be considered distinct from other
types of contingent workers given their greater control over the terms of their employment.
27Pub. L. No. 116-136, § 2102(a)(3), 134 Stat. 281, 313 (2020).
28At the time of the program’s expiration in September 2021, PUA generally authorized up
to 79 weeks of benefits. Pub. L. No. 117-2, § 9011(a), (b), 135 Stat. 4, 118. Total
expenditures reported through May 2023 expiration of the federal public health emergency
for COVID-19. The Secretary of Health and Human Services first declared the COVID-19
pandemic a public health emergency under section 319 of the Public Health Service Act
on January 31, 2020. In addition, on March 13, 2020, the President declared COVID-19 a
national emergency under the National Emergencies Act and a nationwide emergency
under section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance
Act (Stafford Act). The President also approved major disaster declarations under the
Stafford Act for all 50 states, the District of Columbia, five U.S. territories, and certain
Tribes. The national emergency declaration terminated on April 10, 2023, and the Stafford
Act declarations terminated on May 11, 2023.
Page 10 GAO-25-106199 Covid-19 Relief
CARES Act UI programs. 29 The total federal expenditure for FPUC
program benefits was $442 billion through May 31, 2023.
3. Pandemic Emergency Unemployment Compensation (PEUC) was
generally available through September 6, 2021, and authorized
additional weeks of UI benefits for those who had exhausted their
regular UI benefits. 30 The total federal expenditure for PEUC program
benefits was $90 billion through May 31, 2023.
In addition, the Consolidated Appropriations Act, 2021, created the Mixed
Earner Unemployment Compensation (MEUC) program, which was
extended by ARPA and expired in September 2021. 31 According to DOL,
the MEUC program was intended to supplement regular UI claimants
whose benefits did not account for a significant self-employment income.
Consequently, these claimants may have received a lower UI benefit than
they would have received had they been eligible for PUA. The total
federal expenditure for MEUC program benefits was $78 million through
May 31, 2023.
State Workforce Agencies (SWA) implemented temporary UI programs
and processed unprecedented claims volumes during the pandemic. A
key challenge facing those SWAs was simultaneously ensuring that UI
benefits were paid solely to eligible applicants and in the correct
amounts—including ensuring that program monitoring over the use of
funds was sufficiently designed and accurately reported at the state and
federal level. The CARES Act and ARPA contained provisions to assist
SWAs—in detecting and preventing fraud, promoting equitable access,
and ensuring timely payment of benefits to eligible workers—and starting
in March 2021, also provided additional funding for DOL to provide
29Pub. L. No. 116-136, § 2104, 134 Stat. 281, 318-319 (2020); Pub. L. No. 116-260, div.
N, tit. II, § 203, 134 Stat. 1182, 1953 (2020); Pub. L. No. 117-2, § 9013, 135 Stat. 4, 119
(2021). Department of Labor, Grant Opportunity to Support States with Fraud Detection
and Prevention, Including Identity Verification and Overpayment Recovery Activities, in All
Unemployment Compensation (UC) Programs, UIPL No. 22-21 (Washington, D.C.: Aug.
2021).
30Pub. L. No. 116-136, § 2107, 134 Stat. 281, 323 (Mar. 27, 2020); Pub. L. No. 116-260,
div. N, tit. II, § 206(a), (b), 134 Stat. 1182, 1954 (Dec. 27, 2020); Pub. L. No. 117-2, §
9016(a), (b), 135 Stat. 4, 119-120 (Mar. 11, 2021). At the time of the program’s expiration,
PEUC generally authorized an additional 53 weeks of benefits for claimants who were fully
unemployed.
31The MEUC program, which was voluntary for states, authorized an additional $100
weekly benefit for certain UI claimants who received at least $5,000 of self-employment
income in the most recent tax year prior to their application for UI benefits from December
27, 2020, through September 6, 2021. Pub. L. No. 117-2, § 9013(a), 135 Stat. 4, 119;
Pub. L. No. 116-260, div. N, tit. II, § 261(a)(1), 134 Stat. 1182, 1961.
Page 11 GAO-25-106199 Covid-19 Relief
financial and technical assistance to states to improve UI systems and
processes. 32
High-Risk Programs From March 2020 through March 2022, SBA made or guaranteed more
than 15 million loans through the PPP and COVID-19 EIDL programs.
SBA quickly set up these programs to respond to the adverse economic
conditions small businesses faced. This quick implementation left SBA
susceptible to improper payments, including overpayments, resulting in
SBA’s Emergency Loans for Small Businesses being added to our High
Risk List in 2021. 33 In November 2023, SBA’s financial statement auditor
reported (for the fourth consecutive year) material weaknesses in controls
associated with the two programs that led to loans going to potentially
ineligible borrowers. 34 These weaknesses limit the reliability of SBA’s
financial reporting, and they contributed to SBA’s inability to obtain an
opinion on its fiscal years 2020 to 2023 financial statements.
Further, in June 2022, we added the UI system to our High Risk List
because we found that UI’s administrative and program integrity
challenges posed significant risks to service delivery and exposed the
system to significant financial losses. 35 Long-standing challenges with UI
administration and outdated IT systems have affected states’ ability to
meet the needs of unemployed workers, especially during economic
downturns. Such challenges have also contributed to impaired service,
barriers to equitable access, and disparities in benefit distribution. The
unprecedented demand for UI benefits and the need to quickly implement
the new programs during the pandemic increased the risk of improper
payments, specifically overpayments. In addition, DOL received a
qualified opinion on its fiscal years 2021 through 2023 financial
statements from its independent auditor. DOL was unable to adequately
32Pub. L. No. 116-136, §2102(f)(2)(B), 134 Stat. 281, 316 (Mar. 27, 2020; Pub. L. No. 117-
2, §9032, 135 Stat. 4, 121 (Mar. 11, 2020).
33GAO-21-119SP.
34Small Business Administration, Office of Inspector General, Independent Auditor’s
Report on SBA’s Fiscal Year 2023 Financial Statements, 24-03 (Washington, D.C.: Nov.
2023).
35GAO-22-105162.
Page 12 GAO-25-106199 Covid-19 Relief
support assumptions used for estimating remaining obligations and
benefit overpayments related to UI. 36
Recovering Overpayments The federal government has several legal mechanisms in place to
recover overpayments. For example, Chapter 37 of Title 31 of the United
States Code gives federal agencies the authority to recover debts owed
to the government. Certain programs operate under a structure that may
result in the recovery of overpayments. For example, in a lending
program, if a borrower has agreed to repay a loan in full, the amount
repaid will include any amount received as an overpayment (i.e., any
portion of the loan in excess of what the borrower was eligible to receive
under program rules).
Additionally, the Payment Integrity Information Act of 2019 (PIIA) requires
agencies to perform recovery audits on each program or activity with
expenditures of $1 million or more per year if conducting such audits
would be cost-effective. 37 OMB has issued guidance—in Appendix C to
OMB Circular A-123 (OMB M-21-19)—to agencies on the identification
and recovery of overpayments. 38
Agencies may waive recovery of overpayments under certain conditions.
Further, since fiscal year 1997, we noted in our audit reports on the U.S.
government’s consolidated financial statements that the federal
government is unable to determine the full extent of its improper
payments, including overpayments. It is important for agencies to have
cost-effective procedures to both identify and recover overpayments if
they do occur. If agencies take prompt action, they may increase their
ability to recover identified overpayments.
36Department of Labor, Agency Financial Report for Fiscal Year 2023 (Washington, D.C.:
Nov. 14, 2023), and Agency Financial Report for Fiscal Year 2022 (Washington, D.C.:
Dec. 13, 2022).
3731 U.S.C. § 3352(i)(1)(A).
38OMB M-21-19.
Page 13 GAO-25-106199 Covid-19 Relief
SBA and DOL Have
Review and Recovery
Processes, but SBA’s
Processes Do Not
Effectively Identify
Overpayments
SBA Is Not Effectively
Identifying Overpayments
in Selected Programs
SBA’s PPP Loan Review Throughout the course of the PPP, SBA developed and implemented
Processes multiple review processes that continued to evolve as the program was
administered. The review processes helped detect loan applications with
potential fraud or errors that would have resulted in an overpayment once
disbursed. However, both the independent public accounting firm (IPA)
serving as SBA’s financial statement auditor and SBA’s Office of
Inspector General (OIG) have reported concerns pertaining to the review
processes’ effectiveness that could also affect their ability to identify
overpayments. In addition, these review processes were not designed to
specifically identify overpayments within the selected program, and the
current processes do not appear to be designed to sufficiently identify
erroneous or potentially fraudulent loans in the selected programs that
would result in overpayments.
To implement the PPP, the CARES Act provided SBA and Treasury joint
authority to permit new lenders to participate in the PPP to aid in the
processing and approval of a significant amount of PPP loan applications
(almost 12 million approved applications in total). Ultimately participating
PPP lenders included depository institutions (for example, banks and
credit unions) and nondepository lending institutions (for example, SBA-
certified development companies and state-regulated financial
companies). Existing 7(a) lenders were automatically allowed to
participate in PPP.
SBA relied on lenders with delegated authority under the CARES Act to
make and approve covered PPP loans. Due to the unique, emergency
nature of the program, the processing requirements for PPP loans
differed significantly from the traditional 7(a) loan program requirements.
Generally, SBA’s 7(a) program lender criteria and underwriting are based
Page 14 GAO-25-106199 Covid-19 Relief
on the borrower’s creditworthiness and ability to repay the loan, among
other things. In contrast, the PPP did not include a creditworthiness
check. Instead, it required that lenders perform reviews of loan
applications that could help identify applications for potential fraud or
errors, as applications with errors or potential fraud may have resulted in
overpayments if funds were disbursed. 39 Moreover, all PPP lenders had
to demonstrate the ability to comply with applicable Bank Secrecy Act
requirements. 40
During PPP Round 1, SBA did not conduct any review of loan or borrower
information beyond looking for duplicate applications before issuing an
SBA loan number to the lender. Issuing a loan number enabled the lender
to proceed with the loan—meaning SBA did not review the loan
applications before the lenders disbursed funds. However, SBA and its
contractor began conducting automated loan eligibility and forgiveness
reviews for Round 1 applications in August 2020 and manual reviews in
October 2020—after the Round 1 loans had been approved and
disbursed.
During PPP Round 2, SBA added front-end compliance checks to the
loan application process via an automated screening process.
Specifically, SBA started using an automated screening system to identify
anomalies or attributes that may indicate noncompliance with eligibility
requirements or potential fraud after the lender requested a loan number
but before the lender disbursed the loan. 41 If the system identified a
potential issue, a compliance check error message or hold code
39These reviews required that lenders (1) confirm receipt of borrower certifications; (2)
confirm receipt of information demonstrating that the borrower had employees for whom
the borrower paid salaries and payroll taxes on or around February 15, 2020; (3) confirm
the dollar amount of average monthly payroll costs; and (4) follow applicable Bank
Secrecy Act requirements. Business Loan Program Temporary Changes; Paycheck
Protection Program as Amended by Economic Aid Act, 86 Fed. Reg. 3692 (Jan. 14,
2021).
40The Bank Secrecy Act generally requires financial institutions to implement an anti-
money laundering program to help prevent and detect money laundering and terrorist
financing. For certain types of federally insured depository institutions, such as banks, this
includes requirements for implementing appropriate risk-based procedures for conducting
ongoing customer due diligence, which requires obtaining and verifying customer
identities and understanding the potential risks associated with customers. See 31 C.F.R.
§ 1020.210(a)(2)(v).
41SBA compared loan applications against Treasury’s Do Not Pay service and public
records, in addition to determining whether a business was in operation as of February 15,
2020 (a requirement to be eligible for a PPP loan).
Page 15 GAO-25-106199 Covid-19 Relief
identifying the issue would be placed on the loan application until the
issue was resolved. 42
When borrowers first began applying for and receiving PPP loans, SBA
had yet to design and implement the forgiveness and guarantee purchase
elements of the program. As a result, review processes evolved as SBA
implemented the forgiveness and guarantee purchase steps. There are
various types of review processes for the PPP, including eligibility
reviews, forgiveness reviews, and guarantee purchase reviews. These
processes were performed by a mix of contractor and SBA staff and
generally occurred after disbursement. However, Round 2 loans did
undergo certain checks that could flag potential noncompliance with
eligibility.
Eligibility reviews. SBA and its contractor conducted eligibility reviews
post-disbursement for Round 1 loans and pre-disbursement for Round 2
loans. These reviews were not designed specifically to identify
overpayments or potential overpayments, but they could aid in doing so.
This process consisted of three steps that used an automated screening
process to flag loans for manual reviews by the contractor and then SBA,
if necessary. See appendix II for more details on the steps of the SBA
review process. As of July 2024, SBA had manually reviewed 431,891
PPP loans—around 3.7 percent of the loans made.
Throughout the course of the PPP, SBA and its contractor worked to
refine the manual review process. In its February 2022 report, the SBA
OIG discussed the potential effect of changes that were subsequently
made to SBA’s loan review process. 43 Prior to June 2021, SBA reviewed
a loan once the borrower submitted a forgiveness application. However,
in June 2021, SBA updated this process to prioritize reviews based on
fraud risk rather than forgiveness status.
42Starting in Round 2, small businesses could receive a second PPP loan if they met
certain conditions. According to SBA officials, second draw PPP loans were put through
the same automated screening process used for Round 2 first draw loans. If this
screening uncovered an issue, a compliance check error message would be sent to the
lender. In addition, if there was a hold code placed on the first draw loan as a result of
SBA’s screening of Round 1 loans, the application for a second draw loan would be
delayed until the issue was resolved, if appropriate.
43Small Business Administration, Office of Inspector General, SBA’s Paycheck Protection
Program Loan Review Processes, 22-09 (Washington, D.C.: Feb. 2022).
Page 16 GAO-25-106199 Covid-19 Relief
While this change meant that SBA would be able to review loans with a
high risk of fraud that had not yet filed for forgiveness, it also meant that a
certain number of loans would be manually reviewed after the loan had
already been forgiven. OMB states that agencies should prioritize efforts
toward preventing improper payments from occurring to avoid operating
in a pay-and-chase environment. 44 Although this update prioritized
reviews for loans with a higher risk of fraud, it also increased the difficulty
of recovering loans that were ultimately found ineligible for forgiveness by
creating a pay-and-chase environment. 45
Additionally, the SBA OIG previously reported that SBA’s manual loan
reviews were not always sufficient to ensure borrowers’ eligibility.
Specifically, the SBA OIG statistically sampled 176 of the 25,634 loans
with matches from Treasury’s Do Not Pay system and concluded that
SBA inappropriately resolved 92 of the loans, despite the Do Not Pay
match. By projection, the SBA OIG estimated that lenders disbursed, and
SBA forgave, 12,234 of 25,634 loans (or 48 percent) totaling over $1.4
billion without verifying the borrowers’ eligibility, which the SBA OIG
concluded further exposed the program to financial losses and improper
payments. 46
Forgiveness reviews. Under SBA rules and guidance, the loan
forgiveness process has three steps. While these steps may help SBA to
identify overpayments in some cases, they were not designed for that
purpose. See figure 3 for more details.
44See Office of Management and Budget, Transmittal of Appendix C to OMB Circular A-
123, Requirements for Payment Integrity Improvement, OMB M-21-19 (Washington, D.C.:
Mar. 5, 2021). “Pay and chase” refers to the practice of detecting improper payments after
payments have been made and attempting to recover funds.
45The SBA OIG reported that a large number of borrowers not applying for forgiveness
could be a strong indicator of fraud as borrowers who fraudulently obtained a PPP loan
are unlikely to apply for loan forgiveness because they already obtained the funds with no
intention of using them appropriately or repaying the loan. Small Business Administration,
Office of Inspector General, SBA’s Paycheck Protection Program Loan Review
Processes.
46Small Business Administration, Office of Inspector General, SBA’s Eligibility and
Forgiveness Review of PPP Loans Made to Borrowers with Treasury’s Do Not Pay Data
Matches, 24-06 (Washington, D.C.: Feb. 2024).
Page 17 GAO-25-106199 Covid-19 Relief
Figure 3: Paycheck Protection Program Loan Forgiveness Review Process
a
Generally, a borrower is eligible for forgiveness any time on or before the loan maturity date if the
borrower has used all the loan funds for which the borrower requests forgiveness. Additionally, in July
2021, SBA announced the availability of a forgiveness platform that provided a single location for
borrowers to apply for forgiveness online. While this platform was previously limited to certain
borrowers, in February 2024, SBA announced the expansion of the platform to allow borrowers that
have not yet received forgiveness to submit their applications through the platform.
b
In October 2020, SBA issued an interim final rule generally allowing borrowers of a Paycheck
Protection Program loan of $50,000 or less to use a simplified loan forgiveness process and
application form. In addition, we previously reported that SBA expedited the review process by, where
appropriate, removing low-risk alerts connected to loans under $150,000 that may have delayed loan
forgiveness processing.
c
If the loan is identified for further review, SBA conducts a manual review. SBA will notify the lender
that it is beginning a review and will request that the lender provide certain documentation for the
review process. At the end of the review, SBA will remit the appropriate forgiveness amount to the
lender or notify the lender that the forgiveness request has been denied.
d
In its interim final rule on loan forgiveness published in June 2020, SBA stated that it will extend this
time frame if the loan or forgiveness application is under SBA review. 85 Fed. Reg. 33,004, 33,005
(June 1, 2020). SBA and Treasury officials previously told us that they interpreted the CARES Act
requirement to remit funds within 90 days to be subject to SBA’s review of loans.
In October 2020, as part of the PPP loan forgiveness application process,
SBA required that any borrower that received PPP loans of $2 million or
greater submit a loan necessity questionnaire. SBA used the
questionnaires to determine whether borrowers met the good-faith
requirements that they certified to in their loan applications. 47 However, in
July 2021, SBA stopped requiring submissions of the questionnaire as it
determined that the loan necessity reviews were lengthy and caused
47This aligned with the CARES Act requirement that stated eligible recipients applying for
a loan needed to make a good-faith certification that the uncertainty of current economic
conditions made the loan request necessary to support ongoing operations.
Page 18 GAO-25-106199 Covid-19 Relief
delays beyond the 90-day statutory timeline for forgiveness. 48 SBA told us
that before halting this requirement, its contractor completed 2,161 loan
necessity reviews and recommended that 2,117 of the borrowers made
the certification in good faith and should have their loans forgiven. The
remaining 44 loans were referred to SBA’s Office of Capital Access with a
recommendation for further review. However, it appears these loans did
not undergo additional review, as SBA informed us that the loan necessity
reviews were discontinued following approval from OMB to discontinue
the questionnaires.
While this questionnaire was no longer required after July 2021,
applicants were still required to self-certify on their PPP loan application
that the loan was necessary due to current economic conditions.
However, we have previously reported that relying on applicant self-
certifications can leave a program vulnerable to exploitation by those who
wish to circumvent eligibility requirements or pursue criminal activities. 49
In addition, SBA’s IPA identified concerns with SBA’s forgiveness review
process related to monitoring controls and the control environment
around the automated screening process in its report on SBA’s fiscal year
2023 financial statements. 50
This finding, along with the discontinuance of loan necessity
questionnaires for loans of $2 million or more, raises concerns that SBA
may have increased the likelihood that forgiveness applications for
potentially fraudulent or erroneous PPP loans were inadvertently
approved, potentially resulting in overpayments.
Guarantee purchase reviews. In July 2021, SBA began allowing lenders
to submit PPP guarantee purchase requests if a borrower became more
than 60 days late in their payments. This obligated SBA to purchase 100
percent of the loan from the lender if the lender complied with all
applicable PPP requirements. After receiving a guarantee purchase
request from a lender, SBA could approve the request and charge off the
48After SBA discontinued the loan necessity questionnaires, the Associated General
Contractors of America, Inc. dismissed its lawsuit against SBA and OMB challenging the
legality of the questionnaires. Associated General Contractors of America, Inc. v. United
States Small Business Administration, et al., Case No. 1:20-cv-03567 (D.D.C.).
49GAO, Aviation: FAA Needs to Better Prevent, Detect, and Respond to Fraud and Abuse
Risks in Aircraft Registration, GAO-20-164 (Washington, D.C.: Mar. 25, 2020).
50Small Business Administration, Independent Auditors’ Report on SBA’s Fiscal Year 2023
Financial Statements.
Page 19 GAO-25-106199 Covid-19 Relief
loan—including loans with unresolved hold codes or loans that had
previously been referred to the SBA OIG for potential fraud—if SBA
determined the lender met its obligations.
However, SBA had the authority to reject the request if a review indicated
that the loan was approved due to a lack of lender due diligence. If
lenders were not in compliance with programmatic requirements during
the loan processing and approval phases, the loan could be ineligible for
guarantee purchase, whether in whole or in part. 51 As of March 2024,
SBA has manually reviewed 82,764 guarantee purchase requests—
around 10.4 percent of the guarantee purchase requests received at the
time. 52
SBA’s IPA also identified concerns with SBA’s guarantee purchase
process in its November 2023 report. 53 Specifically, the IPA identified
concerns with SBA’s controls around the completeness and accuracy of
alerts used in the guarantee purchase review process.
While the review processes described above—related to eligibility,
forgiveness, and the guarantee purchase process—helped identify PPP
loans that may have been ineligible or fraudulent, thus identifying
potential overpayments, the SBA OIG and SBA’s IPA have reported
various concerns related to these processes. These findings add to
concerns that SBA’s current PPP review processes may not be effectively
identifying overpayments, as certain erroneous or potentially fraudulent
PPP loans may not be flagged and reviewed at all.
SBA’s COVID-19 EIDL Review The review process for COVID-19 EIDL loans consisted of certain
Processes reviews occurring pre-disbursement and a separate review process that
was mostly conducted post-disbursement. Although these reviews could
help to identify overpayments or potential overpayments, reported
concerns related to the reviews indicate they are not effective for
identifying overpayments.
51We refer to lender due diligence as sufficient compliance with the PPP Loan Program
Requirements, including the lenders’ processing requirements in 86 Fed. Reg. 15083 and
86 Fed. Reg. 3712 and the document collection and retention requirements described in
the lender application forms.
52According to SBA, it has received 796,846 guarantee purchase requests as of March
2024. Of these, 666,749 requests have been approved.
53Small Business Administration, Independent Auditor’s Report on SBA’s Fiscal Year 2023
Financial Statements.
Page 20 GAO-25-106199 Covid-19 Relief
Initially, SBA used a subcontractor’s electronic validation system to
review loan applications. This system used public information and certain
fraud indicators to assess and verify loan application information. The
system would also attempt to verify an applicant’s bank account.
However, this process depended on the banks’ customer identification
program, and the subcontractor estimated that 40 percent of banks did
not collect enough information for its system to verify a bank account. 54
The main reasons the automated validation system would deem an
application ineligible were (1) insufficient economic injury; (2) ineligible
business type; or (3) ineligible answers to other application questions,
such as felony convictions.
SBA made changes over the course of the program to enhance the
controls in its application review process and to identify potential fraud
that could result in subsequent overpayments. For example, in May 2020,
SBA updated its front-end controls on the application to include the
validation of bank account routing numbers, which helped ensure that
funds were being sent to the correct borrower’s bank account. In addition,
in July 2020, SBA began validating the types of tax identification numbers
associated with the types of entity (e.g., validating that an entity applied
using an employer identification number and not a Social Security
number) to help mitigate and identify potential fraud. If the automated
system flagged a potential eligibility, fraud, or credit issue associated with
a loan, the loan was then passed on to an SBA loan officer to review and
attempt to mitigate the issue(s). If the loan officer was unable to do so,
the loan was referred to the SBA team leader for review. If the issue was
resolved, the applicant received an approval letter. If the team leader
rejected the application, the applicant was notified that the application
was declined.
However, the SBA OIG found that until August 2020, applications that did
not contain certain fraud alerts flagged by the automated validation
system were being approved by team leaders in batches with little to no
additional review by others. 55 According to the SBA OIG report, these
54Banks’ customer identification programs must include risk-based procedures for verifying
the identity of each customer to the extent reasonable and practicable. At a minimum, the
bank must obtain the following identifying information from each customer before opening
the account: name; date of birth (for individuals only); address; and identification number,
such as a Social Security number or a passport number. 31 C.F.R. § 1020.220.
55Small Business Administration, Office of Inspector General, Inspection of Small
Business Administration’s Initial Disaster Assistance Response to the Coronavirus
Pandemic, 21-02 (Washington, D.C.: Oct. 2020).
Page 21 GAO-25-106199 Covid-19 Relief
applications contained other issues that SBA did not review at the time,
such as the inability to confirm business registrations. The report also
stated that, after August 2020, SBA stopped approving loans in batches
and began requiring SBA staff to review all applications prior to approval
and to mitigate all system alerts. SBA data showed that from April through
August 2020, SBA approved about 3.2 million applications.
Further, in April 2021, SBA started incorporating tax information as part of
its review process to confirm that businesses existed on or before
January 31, 2020—a requirement for program eligibility—and to verify
business revenue. 56 However, SBA continued to rely on applicant self-
certification for certain eligibility criteria, as allowed by the CARES Act.
This included, but is not limited to, applicants self-certifying that they met
employee size limits; they were a U.S. citizen, noncitizen national, or
qualified alien; and they were not debarred from contracting with the
federal government or receiving federal grants or loans. In addition, the
COVID-19 EIDL application informed applicants that they were self-
certifying under penalty of perjury. However, as discussed above, reliance
on applicant self-certifications can leave a program vulnerable to
exploitation and result in potential fraud and subsequent overpayments.
In addition, SBA used a review process for COVID-19 EIDL loans to help
identify and refer potentially fraudulent loans to the SBA OIG. This review
process consisted of four parts, including automated and manual
screenings, data analytics, manual reviews, and referrals to the SBA OIG
as necessary. See figure 4 for additional information on SBA’s review
process for COVID-19 EIDL loans.
56We previously reported that SBA officials told us the CARES Act’s restriction on using
applicants’ tax information presented a challenge for validating applications. The agency
had relied on self-certification of applicant information and the controls put in place as part
of the automated validations and manual review. However, the Consolidated
Appropriations Act, 2021 removed this restriction. As a result, SBA officials told us that
beginning in April 2021, the agency had started incorporating tax information as part of its
validation process for loan applications to confirm that businesses existed on or before
January 31, 2020. GAO, Economic Injury Disaster Loan Program: Additional Actions Need
to Improve Communication with Applicants and Address Fraud Risks, GAO-21-589
(Washington, D.C.: July 30, 2021).
Page 22 GAO-25-106199 Covid-19 Relief
Figure 4: COVID-19 Economic Injury Disaster Loan Review Process for Referral to the Office of Inspector General
a
Loans not referred to the SBA Office of Inspector General were determined to be free of potential
fraud risk.
Similar to the PPP review processes discussed above, we also identified
concerns in SBA’s review process for COVID-19 EIDL loans and its ability
to identify overpayments within the program. For example, in November
2023, SBA’s IPA reported concerns with the COVID-19 EIDL loan manual
review process and its ability to effectively identify loans with eligibility
concerns. 57
In addition, the IPA found that SBA’s controls over loans with existing
hold codes were not properly designed and there was not sufficient
evidence to support management’s reliance on the controls. 58 These
findings, in addition to the reliance on self-certification for certain eligibility
criteria, add to concerns that SBA’s review process for COVID-19 EIDL
57Small Business Administration, Independent Auditor’s Report on SBA’s Fiscal Year 2023
Financial Statements.
58SBA officials told us they disagreed with this IPA finding.
Page 23 GAO-25-106199 Covid-19 Relief
loans may not be designed to sufficiently identify loans with potential
fraud or errors, which may result in overpayments remaining unidentified.
While the PPP and COVID-19 EIDL review processes aided in identifying
some overpayments, SBA has not sufficiently documented its processes
to demonstrate how it identifies overpayments resulting from potential
errors or fraud, as its current processes do not appear to be designed to
effectively identify erroneous or potentially fraudulent loans.
Further, without a process in place to effectively identify overpayments,
SBA is not able to provide reasonable assurance that previously
approved PPP guarantee purchase requests met eligibility requirements
prior to the purchase, as there is a risk that some potential overpayments
may have been issued due to a lender’s lack of due diligence in the loan
origination process.
Federal internal control standards state that management should identify,
analyze, and respond to significant changes that could impact the internal
control system. 59 They further state that management should design
control activities to achieve objectives and respond to risks, and that
management should implement control activities through policies. Without
an expanded and documented process in place to ensure that SBA is
identifying overpayments in the selected programs, SBA cannot provide
reasonable assurance that it is effectively identifying overpayments for
potential recovery. Additionally, there is an increased risk that SBA may
inadvertently purchase PPP loans that could be ineligible for guarantee
purchase, which potentially limits SBA’s ability to recover overpayments.
SBA’s PPP Guarantee While the inclusion of new lenders helped the PPP reach more borrowers,
Purchase Process it also increased the risks of overpayments. However, SBA did not take
sufficient steps to mitigate this risk in its guarantee purchase process.
The CARES Act authorized SBA to use lenders already approved to
participate in SBA’s 7(a) program to make and approve PPP loans. It also
permitted SBA and Treasury to authorize new lenders, provided they met
59GAO, Standards for Internal Control in the Federal Government, GAO-14-704G
(Washington, D.C.: Sept. 2014).
Page 24 GAO-25-106199 Covid-19 Relief
certain requirements. 60 Lenders were paid a processing fee from SBA to
encourage them to participate in the PPP. Under the initial guidelines,
lenders earned a 5 percent fee on loans of $350,000 or less; a 3 percent
fee on loans of more than $350,000 and less than $2 million; and a 1
percent fee on loans of $2 million or more. 61 This arrangement enabled
lenders to earn billions of dollars in fees for processing PPP loan
applications. 62
A large group of new lenders in the PPP were those in the financial
technology (fintech) sector. Fintech lenders are generally defined as
online, nonbank lenders that leverage financial technology to provide
consumers and small businesses with loans. 63 When the PPP was
created, fintech lenders advocated for the ability to assist with the
program. According to a fintech trade association, fintech lenders
believed they could facilitate small business lending as their technology
could handle a large amount of data and processing quickly.
We previously reported that program changes to PPP—such as allowing
new lenders (including fintech lenders) to participate in the program—
helped increase lending to the smallest businesses and in underserved
60Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 290 (2020). In an interim final rule
published April 15, 2020, SBA announced that any federally insured depository institution,
federally insured credit union, or farm credit system institution in good standing with its
regulator would automatically qualify to participate in PPP upon submission of SBA’s PPP
Lender Agreement. 85 Fed. Reg. 20,811, 20,815 (2020). SBA and Treasury were jointly
responsible for approving lenders new to SBA to issue PPP loans. According to SBA
officials, SBA approved new federally regulated lenders, and only new non-federally
regulated and insured lenders required joint SBA and Treasury approval.
61Pub. L. No. 116-136, § 1102(a)(2), 134 Stat. 281, 293 (2020).
62According to SBA, as of March 2024, $38 billion has been paid out in lender fees.
63In the 2020 loan cohort, banks with less than $1 billion in assets were the highest-
ranking lender in the applicable category while small business lending companies were
second. These lender types accounted for approximately 1.1 million loans worth $84.9
billion and 61,511 loans worth $6.4 billion, respectively. Fintech lenders approved 250,720
loans worth $6.1 billion, placing them in the third largest lender category. In the 2021
cohort, banks and savings and loan companies with $10 billion or more in assets were the
top lender category while banks and savings and loan companies that had less than $10
billion were the second largest lender category. These lenders accounted for just over 1.8
million approved loans worth $118 billion and over 1.8 million loans worth $102 billion,
respectively. Fintech lenders approved around 1.2 million loans, totaling nearly $22 billion
during the same period, making them the third largest lender once again.
Page 25 GAO-25-106199 Covid-19 Relief
locations. 64 However, we have also reported that there may have been
vulnerabilities in some fintech lenders’ loan origination and verification
processes, specifically those related to fraud prevention.
For example, in May 2023, we reported that certain lenders originated a
disproportionate share of fraudulent and potentially fraudulent loans when
compared to the share of all PPP loans. 65 We found that lenders with the
top five highest rates of loans associated with PPP fraud cases tended to
use fintech lenders to automate loan origination as lender service
providers (LSP). 66
While opening the PPP to fintech lenders may have helped the program
reach new borrowers and process more applications, it also placed a
reliance on the fintech lenders’ internal controls to perform reviews of
borrower loan applications—whether as direct lenders or as LSPs.
However, these controls may not have been sufficient to ensure that there
were no obvious signs of error or potential fraud in the applications,
increasing the risk of approving loans for and making overpayments to
ineligible borrowers.
This extension of control, and the CARES Act’s hold harmless provision,
introduced inherent risks to the PPP as a wave of new lenders (including
64GAO, Paycheck Protection Program: Program Changes Increased Lending to the
Smallest Businesses and in Underserved Locations, GAO-21-601 (Washington, D.C.:
Sept. 21, 2021).
65GAO, COVID Relief: Fraud Schemes and Indicators in SBA Pandemic Programs,
GAO-23-105331 (Washington, D.C.: May 18, 2023).
66An LSP is an entity that carries out lender functions in originating, disbursing, servicing,
or liquidating a specific SBA business loan for compensation from a lender. This includes
individuals or entities that perform any pre-qualification review based on SBA’s eligibility
and credit criteria or the lender’s internal policies prior to submitting the applicant’s
information to the lender or providing the lender an underwritten application.
Page 26 GAO-25-106199 Covid-19 Relief
fintech lenders) joined the program. 67 According to SBA, Treasury and
SBA jointly reviewed and approved 848 new lenders to participate in the
PPP, in addition to the 4,837 lenders already authorized to participate in
SBA’s programs. These lenders were able to collect a processing fee for
each disbursed PPP loan while facing minimal risk if potentially fraudulent
or erroneous PPP applications were not identified prior to approving the
loan.
In July 2021, SBA released guidance that stated SBA would review a
lender’s request for guarantee purchase and charge-off in accordance
with PPP loan program requirements. 68 According to the notice, SBA
would honor its guarantee and purchase 100 percent of the outstanding
balance of the loan provided that the lender had complied with all PPP
loan program requirements, including the lender’s underwriting
requirements and document collection and retention requirements.
However, we found that SBA lacks sufficient documentation to
demonstrate that its process for verifying lender compliance ensures that
lenders met these requirements and performed an appropriate level of
due diligence.
In addition, in its September 2022 report, the SBA OIG stated it found no
evidence that SBA had a formal process to review lender compliance with
debt collection activities in its PPP loan guarantee purchase process,
including ensuring lenders sent out 60-day demand letters to borrowers in
default. 69 Further, in November 2023, SBA’s IPA reported that SBA
management did not have adequate or effective monitoring controls
67The CARES Act provided a hold harmless provision for lenders in the PPP. “If a lender
has received the documentation required under this section from an eligible recipient
attesting that the eligible recipient has accurately verified the payments for payroll costs,
payments on covered mortgage obligations, payments on covered lease obligations, or
covered utility payments during covered period—(1) an enforcement action may not be
taken against the lender under section 47(e) of the Small Business Act (15 U.S.C. 657t(e))
relating to loan forgiveness for the payments for payroll costs, payments on covered
mortgage obligations, payments on covered lease obligations, or covered utility payments,
as the case may be; and (2) the lender shall not be subject to any penalties by the
Administrator relating to loan forgiveness for the payments for payroll costs, payments on
covered mortgage obligations, payments on covered lease obligations, or covered utility
payments, as the case may be.” Pub. L. No. 116-136, § 1006(h), 134 Stat. 281, 301
(2020).
68See Procedural Notice 5000-812316: SBA Guaranty Purchases and Lender Servicing
Responsibilities for PPP Loans.
69Small Business Administration, Office of Inspector General, SBA’s Guaranty Purchases
for Paycheck Protection Program Loans, 22-25 (Washington, D.C.: Sept. 2022).
Page 27 GAO-25-106199 Covid-19 Relief
related to its PPP lenders. 70 This finding aligns with our concern that SBA
may be missing out on potential overpayment recoveries through the
guarantee purchase process, as there may be lenders that approved
loans without performing sufficient good-faith reviews, making the loan
guarantees potentially ineligible for purchase.
Federal internal control standards state that management should identify,
analyze, and respond to significant changes that could impact the internal
control system, and that management should design control activities to
achieve objectives and respond to risks. 71 Although SBA has published
guidance and notices related to the PPP, without sufficient documented
procedures in place, SBA cannot demonstrate how, as part of its
guarantee purchase process, it considered and mitigated potential new
risks that were introduced into the PPP by allowing fintech lenders to
participate in the program. Further, SBA cannot demonstrate how its
review process considered the increased risk that lenders or their LSPs
did not comply with programmatic requirements prior to approving and
purchasing PPP guarantees from lenders. Therefore, there is an
increased risk that overpayments resulting from loans disbursed in
excess of what a borrower was eligible for during the loan origination and
approval process were not identified prior to SBA approving a purchase
guarantee request, which may affect SBA’s ability to recover the
overpayments.
SBA Recovers SBA has various methods in place to recover an outstanding loan
Overpayments Using balance in the event of default, which would include the recovery of any
associated overpayments. These methods include, but are not limited to,
Regular Loan Servicing
relying on the borrower to repay the loan, sending demand letters, or
and Recently Updated referring the loans to Treasury for collection.
Efforts to Recover Certain
Defaulted Loans In April 2022, SBA adopted a policy to end collection on defaulted loans
in the selected programs that had outstanding balances of $100,000 or
less and did not refer the loans to Treasury for collections. 72 Federal law
allows agencies to suspend or end collections on claims of $100,000 or
70Small Business Administration, Independent Auditor’s Report on SBA’s Fiscal Year 2023
Financial Statements.
71GAO-14-704G.
72For the PPP, this applies to loans with an outstanding principal balance of $100,000 or
less, excluding interest. For COVID-19 EIDL loans, this applies to loans with an original
loan balance amount of $100,000 or less, excluding interest. For purposes of this report,
we refer to the defaulted loans in the PPP and COVID-19 EIDL program with a balance of
$100,000 or less as “subject loans.”
Page 28 GAO-25-106199 Covid-19 Relief
less when certain conditions are met, including when it appears that the
cost of collecting the claim is likely to be more than the amount
recovered. 73 According to the SBA OIG, absent such conditions, before
making a referral to Treasury, SBA must send a letter to the borrower
giving them 60 days to either pay the loan in full or negotiate an
acceptable payment plan. 74 Loans that are referred to Treasury go
through its two delinquent debt collection programs, the Treasury Offset
Program and the Cross-Servicing program. 75 Both SBA and Treasury also
take action to prevent such borrowers from receiving additional federal
financial assistance.
In January 2024, SBA reversed this policy and stated it would begin
referring loans of $100,000 or less to Treasury for collection beginning in
March 2024, including any loans previously charged off without referral.
Prior to this reversal, SBA had taken steps to try and determine whether
collections on subject loans in its selected programs would be cost-
effective.
PPP: In April 2022, SBA performed a cost-benefit analysis on PPP loans
to support its decision to end collections on loans valued at $100,000 or
less. In September 2022, the SBA OIG argued that this analysis was not
comprehensive enough to support this decision and recommended that
SBA conduct a new cost-benefit analysis on purchase guarantees to
determine if the cost of collecting on the subject loans was more than the
expected recovery amount. SBA agreed to conduct a new analysis using
a third-party. In announcing its policy reversal in January 2024, SBA
stated that an updated cost-benefit analysis showed collection attempts,
including referrals to Treasury, would be cost beneficial.
According to SBA, prior to January 2024, there were multiple factors that
affected its ability to attempt overpayment recoveries, such as (1) the
improbability that recovery amounts would outweigh the cost of collection
efforts and (2) collection on loans with a balance of $100,000 or less
7331 U.S.C. § 3711(a).
74Small Business Administration, SBA’s Guaranty Purchases for Paycheck Protection
Program Loans.
75Under Treasury’s Offset Program, delinquent debt is collected through funds that are
due to the delinquent borrower from government sources, such as tax refunds and wages
and payments if the borrower is a government employee or contractor. The Cross-
Servicing program collects delinquent debt using a variety of methods, such as wage
garnishment, negotiated repayment, and use of private collection agencies.
Page 29 GAO-25-106199 Covid-19 Relief
would be inequitable. 76 Further, SBA believed ending collections on
subject loans would eliminate the labor-intensive process of making
referrals to Treasury and SBA’s estimated multimillion-dollar monthly cost
of sending 60-day notification letters. However, as discussed above, the
SBA OIG previously investigated SBA’s decision to end collections on
purchased PPP loan guarantees with a balance of $100,000 or less—
including its decision to not refer the loans to Treasury—and determined
that SBA’s April 2022 analysis was not comprehensive enough to
sufficiently support this decision. 77
COVID-19 EIDL: In May 2021, SBA contracted a third party to assess the
COVID-19 EIDL portfolio, which was about $226 billion of loan
commitments at the time. 78 The third party ultimately recommended that
SBA sell the debt to ensure a strategy that would maximize the value of
the portfolio, but SBA decided to not pursue this recommendation and did
not provide an explanation as to how it made that decision at the time. 79
SBA officials later informed us that they believed the recommendation
was flawed due to various concerns with the cost assessment’s design. 80
According to SBA, agency officials believed various factors would affect
its ability to attempt overpayment recoveries at the time. For example,
based on the cost assessment, SBA officials decided it was improbable
that recovery amounts would outweigh collection efforts and that using
current disaster staff to collect on COVID-19 EIDL loans would distract
from SBA’s core mission.
As a result, based on the cost assessment, SBA management originally
determined it would not be cost-effective to pursue collections, including
76According to SBA, PPP loans have no collateral or personal guarantees, which makes
potential recoveries much more limited.
77Small Business Administration, SBA’s Guaranty Purchases for Paycheck Protection
Program Loans.
78Small Business Administration, Office of Inspector General, Ending Active Collections on
Delinquent COVID-19 Economic Injury Disaster Loans, 23-16 (Washington, D.C.: Sept.
2023).
79The third party evaluated and summarized four alternatives to servicing the loan
portfolio: (1) self-service by SBA; (2) outsourced service; (3) hybrid service (a combination
of self-servicing and outsourced servicing); and (4) sale of the debt.
80Specifically, SBA officials noted that the recommendation was flawed because the cost
assessment considered discount rates that were not consistent with federal standards, did
not account for subsidy appropriation costs for asset sale, and did not account for the
latest approved cash flows estimated by SBA.
Page 30 GAO-25-106199 Covid-19 Relief
referral to Treasury, on the loans of $100,000 and below for the program.
Although, according to the SBA OIG, SBA planned to continue providing
past due notices, due process letters, and demand letters to delinquent
COVID-19 EIDL borrowers with loan balances of $100,000 or less. For
delinquent borrowers, SBA also planned to refer borrowers to credit
bureaus and ensure borrowers are included on Treasury’s Do Not Pay
system. 81
However, in this same report, the SBA OIG noted several concerns with
the cost assessment SBA used to support its decision to end active
collections on COVID-19 EIDL loans and noted the estimates were
unreliable. Specifically, the SBA OIG stated that prematurely ending
active collection activities on delinquent COVID-19 EIDL loans with
balances of $100,000 or less put SBA at risk of violating federal law,
given that the full extent of fraudulent loans in the COVID-19 EIDL
portfolio is unknown. The SBA OIG stated that agencies have an
affirmative responsibility to try to collect delinquent debts owed to them
and that agencies can only suspend or end collections on claims when
certain criteria are met. The SBA OIG also cited 31 U.S.C. § 3711(b)(1),
which prohibits agencies from ending collections on claims that appear to
be fraudulent, false, or misrepresented claims by a party with an interest
in the claims.
The SBA OIG also believed that prematurely ending active collections on
delinquent COVID-19 EIDL loans would inhibit the additional fraud
detection that could be attained through collections efforts. In addition, the
SBA OIG stated that by foregoing referral to Treasury and ending active
collections earlier, SBA was limiting the time available for oversight
entities to identify additional fraudulent loans through ongoing or future
reviews. 82
In November 2023, the SBA’s IPA reiterated the concern that SBA was
not fully complying with federal debt collection requirements due to its
81Small Business Administration, Ending Active Collections on Delinquent COVID-19
Economic Injury Disaster Loans.
82In its June 2023 report, the SBA OIG estimated that SBA disbursed more than $200
billion in potentially fraudulent COVID-19 EIDLs, EIDL Targeted Advances, Supplemental
Targeted Advances, and PPP loans. This means at least 17 percent of all the COVID-19
EIDL and PPP loans were disbursed to potentially fraudulent actors. See Small Business
Administration, Office of Inspector General, COVID-19 Pandemic EIDL and PPP Loan
Fraud Landscape, 23-09 (Washington, D.C.: June 2023).
Page 31 GAO-25-106199 Covid-19 Relief
delays and absence of referrals of delinquent borrowers and guarantors
to Treasury. 83
As mentioned above, in January 2024 SBA announced it would begin
referring charged-off loans in selected programs with a balance of
$100,000 or less to Treasury for collection, including any loans that were
previously charged off without referral to Treasury. According to SBA, it
started referring subject loans to Treasury in March 2024, following a 60-
day grace period. During this grace period, SBA communicated this
change in policy to borrowers and helped ensure they understood the
effect of default and the available paths back to compliance, in addition to
making internal technology and process updates at SBA to handle this
change.
According to SBA, it based this decision on the results of a third-party
cost analysis that was completed in December 2023 on the PPP. The
updated analysis showed that referral to Treasury would likely yield a
positive return for taxpayers. According to the analysis, estimated net
recoveries fall between $104 million and $223 million. 84 Due to the
expected recovery amount, the third party advised SBA that it would be
cost-effective to pursue collections through Treasury referral. Although
this policy change appears to be an improvement in SBA’s collection
efforts for loans in the selected programs with a balance of $100,000 or
less, more time is needed before the effect of these changes can be fully
assessed.
DOL Generally Follows Its
Regular UI Processes to
Identify and Recover
Overpayments of COVID-
19 Relief Funds
DOL’s Processes The pandemic-related UI programs generally follow DOL’s
Unemployment Insurance Program Letters guidance and procedures for
83Small Business Administration, Independent Auditor’s Report on SBA’s Fiscal Year 2023
Financial Statements.
84For this analysis, the net recoveries reflect the estimated revenue after subtracting any
estimated costs associated with the recoveries.
Page 32 GAO-25-106199 Covid-19 Relief
overpayment recovery established for regular UI. 85 UI is a federal-state
partnership, and according to DOL, states are required to perform the
following three administrative functions to help ensure UI program
integrity at the state level: (1) detect benefits paid through error by the
SWA or through willful misrepresentation or error by the claimant or
others; (2) deter claimants from obtaining benefits through willful
misrepresentation; and (3) recover overpaid benefits, under certain
circumstances. 86
According to DOL guidance, the department partnered with states to
implement a wide array of national integrity strategies and to develop
tools and share best practices to prevent improper payments and recover
overpayments. The three required functions listed above are
accomplished by SWA staff, who are responsible for promoting and
maintaining the integrity of the UI program through overpayment
prevention, detection, investigation, establishment, and recovery. SWA
staff also prepare cases for prosecution, as necessary. SWAs generally
implemented these functions for the pandemic-related UI programs in the
same manner as for the regular UI programs using DOL’s mandatory and
recommended processes, such as
• National and State Directory of New Hires Cross-match, 87
85DOL’s Employment and Training Administration issues Unemployment Insurance
program letters to SWAs to, among other things, address issues, including the reporting
and recovery of pandemic-related UI overpayments.
86See Department of Labor, Program Integrity for the Unemployment Insurance (UI)
Program and the UI Programs Authorized by the Coronavirus Aid, Relief, and Economic
Security (CARES) Act of 2020 – Federal Pandemic Unemployment Compensation
(FPUC), Pandemic Unemployment Assistance (PUA), and Pandemic Emergency
Unemployment Compensation (PEUC) Programs, UI Program Letter (UIPL) No. 23-20
(Washington D.C.: May 11, 2020). and Announcement of Grant Opportunities and
National Identity (ID) Verification Offering under the American Rescue Plan Act (ARPA),
UIPL No. 11-23 (Washington D.C.: July 13, 2023). For the purposes of this report, we use
“claimant” and “individual” throughout to refer to UI beneficiaries.
87The National and State Directories of New Hires Cross-match provides detailed,
recommended operating procedures for cross-matching with state and national directories
of new hire data to assist in preventing and detecting UI improper payments.
Page 33 GAO-25-106199 Covid-19 Relief
• Quarterly Wage Records Cross-match, 88
• Systematic Alien Verification for Entitlement, 89
• Social Security Administration Cross-match, 90
• Interstate Benefits Cross-match, 91 and
• UI Integrity Center’s Integrity Data Hub tools. 92
According to DOL, as part of these program integrity functions, states are
required to report various UI data to DOL through online submissions to a
DOL database. This information includes overpayments, recoveries,
write-offs, and waivers. An overpayment occurs when claimants receive
UI benefits to which they are not entitled.
After a state identifies an overpayment, the state must take actions to
recover the overpayment. The state informs the claimant of the potential
overpayment and gathers information from the claimant and other parties
in order to reach a conclusion on the overpayment. If the state
establishes an overpayment against the claimant, a determination letter is
sent and the claimant has the option to appeal the overpayment, accept
the SWA’s decision and repay the overpayment, or to request that the
state waive recovery of the overpayment. For states to approve a
pandemic-related overpayment waiver request, the claimant cannot be at
fault and the recovery must be contrary to equity and good conscience. If
88As part of the National Directory of New Hires reporting records, employers report
records including quarterly wage information that states are required to submit to DOL.
See Department of Labor, National Directory of New Hires (NDNH) and State Directory of
New Hires (SDNH) Guidance and Best Practices, UIPL No. 13-19 (Washington D.C.: June
7, 2019). This information is used to help prevent overpayments, detect fraud, assess
benefits, and recover funds.
89If claimants are not U.S. citizens or nationals, they must provide the state employment
security agency with documentation from the Immigration and Naturalization Service that
contains Alien Registration Numbers or other documents that provide reasonable
evidence of current immigration status.
90The Social Security Administration Cross-match provides SWAs with the ability to cross-
match UI claims information with the Social Security Administration’s information on
customer names and Social Security numbers for ID verification.
91The Interstate Benefits Cross-match is used to match benefit claims in one state against
wage and benefit files in the claimant’s state of residence.
92The Integrity Data Hub is a centralized, multi-state data system that allows participating
state UI agencies to submit claims for cross-matching, provides fraud alerts to states, and
supports data analytics on multi-state claims.
Page 34 GAO-25-106199 Covid-19 Relief
the claimant does not respond to the state notice, states can collect
overpayments through recovery activities. 93
According to DOL officials, states are required to use the following as part
of their recovery activities: benefits offsets, the Treasury Offset Program,
the Cross Program Offset Recovery Agreement, and the Interstate
Reciprocal Overpayment Recovery Arrangement. 94
• Benefits offsets. Using benefits offsets allow states to recover non-
fraud and fraud overpayments by deducting from future benefits
payments. Generally, state law determines the time frame for benefits
offset; however, for pandemic-related UI programs, apart from PUA,
the CARES Act, as amended, set this time frame to 3 years from the
date the original payment was made to the claimant. 95
• Treasury Offset Program. Under this program, recoveries of UI
certain overpayments are offset against an individual’s federal income
tax refund or other federal payments due to the individual. 96
• Cross Program Offset Recovery Agreement. States that have
signed this agreement with the Secretary of Labor are allowed to
offset federal benefits to recover state UI overpayments and to offset
state UI benefits to recover federal benefit overpayments. 97
• Interstate Reciprocal Overpayment Recovery Agreement. Using
this arrangement allows states to offset overpayments of
unemployment compensation paid under other states’ unemployment
compensation laws. 98 For example, if a claimant received an
93Department of Labor, Federal Requirements to Protect Individual Rights in State
Unemployment Compensation Overpayment Prevention and Recovery Procedures, UIPL
No. 01-16 (Washington, D.C.: Oct. 1, 2015).
94In this case, benefits offsets are benefits withheld by the state agency to satisfy the
requirement for the recipient to repay an overpayment.
95The CARES Act, as amended, limited a state’s use of benefit offsets for recovering
overpayments under the FPUC, MEUC, and PEUC programs to 3 years after the date
claimants received the payment. In some instances, this could have already passed by the
time an overpayment is identified.
96Social Security Act of 1935, Pub. L. No. 74-271, 303(m) (codified as amended at (42
USC § 503(m)).
97Social Security Act of 1935, Pub. L. No. 74-271, 303(g) (codified as amended at 42 USC
§ 503(g)).
98Social Security Act of 1935, Pub. L. No. 74-271,303(g) (codified as amended at 42 USC
§ 503(g)).
Page 35 GAO-25-106199 Covid-19 Relief
overpayment in one state but has also worked in another state and is
now collecting unemployment benefits in the new state, the prior state
can collect overpayments by offsetting the new state’s unemployment
compensation under this arrangement.
The CARES Act, as amended, does not specify a time restriction for other
UI recovery methods beyond the benefits offsets option. However, the act
does state that determinations of fraud and overpayments by state
agencies are subject to review in the same manner and to the same
extent as regular UI and only in that manner and to that extent. Therefore,
states follow the time frames in their own laws and guidance for these
other methods.
In addition to the above activities, DOL encourages states to perform
further recovery procedures such as: offsets via state income tax offset
programs, wage garnishments, civil actions, property liens, collection
agency referrals, credit bureau referrals, and other recovery methods as
determined by state law or policy. According to DOL guidance, some
state laws also include provisions for denying or suspending professional
licenses of persons who owe repayments of UI overpayments. 99 For
fraudulent overpayments, states may bring criminal charges, which can
lead to fines and prison sentences. 100
The unprecedented demand for UI benefits and the need to quickly
implement the new programs during the pandemic increased the risk of
improper payments and overpayments in particular. Because of this
increased risk, the CARES Act provides authority for states to waive
recovery of identified overpayments in the pandemic-related UI
programs. 101 DOL’s Unemployment Insurance Program Letters provide
states further guidance on waiving recovery of an overpayment if the
individual is not at fault and if the recovery would be contrary to equity
and good conscience.
States waive recovery of regular UI overpayments slightly differently than
for pandemic-related UI overpayments. According to DOL, for regular UI
99See Department of Labor, ET Handbook 356, ch. 6 (June 2006).
10042 U.S.C. § 503. Federal law requires a mandatory penalty assessment for fraudulent
claims of not less than 15 percent of the amount of the overpayment against claimants
committing fraud in connection with state or federal UI programs. 42 U.S.C. § 503(a)(11).
101FPUC and MEUC waiver authority is found at section 2104(f)(2), PEUC authority at
section 2107(e)(2), and PUA authority at section 2102(d)(4) of the CARES Act, as
amended.
Page 36 GAO-25-106199 Covid-19 Relief
programs, states waive recovery of overpayments based on their state
laws. Some examples of when these waivers are generally granted
include when overpayments are the result of agency error or employer
error, or when recovery would be against equity or good conscience,
cause financial hardship, or for other reasons.
For pandemic-related UI programs, DOL has approved seven scenarios
under which states may automatically apply blanket waivers of
overpayments for cases where claimants are not at fault and recovery is
against equity and good conscience. If a waiver situation does not fall
under any of the seven scenarios, the state may waive overpayments on
a case-by-case basis, without needing to submit additional documentation
to DOL. DOL helps ensure that each state is applying waivers properly
through monitoring conducted by DOL’s Employment and Training
Administration’s regional offices. This process involves the regional
offices selecting a sample of cases involving the use of waivers and
reviewing to ensure that waivers were properly applied.
The seven blanket waiver scenarios are as follows:
1. The individual answered “no” to being able to work and available for
work, and the state paid PUA or PEUC without adjudicating the
eligibility issue. Upon requesting additional information from the
individual, the individual either did not respond or the individual
confirmed being unable to work or unavailable for work for the week in
question, resulting in an overpayment for that week. 102
2. When an individual is eligible for payment under an unemployment
benefit program for a given week, but through no fault of the
individual, was instead incorrectly paid under either the PUA or PEUC
program at a higher weekly benefit amount. 103
3. The state paid the wrong amount on a PUA or PEUC claim because
the state, through no fault of the individual, used the wrong amount
when calculating the allowance, resulting in an overpayment equal to
a minimal difference in dependents’ allowance for each paid week.
4. The individual answered “no” to being unemployed, partially
unemployed, or unable or unavailable to work because of COVID-19
102Scenario 1 applies to the PUA, FPUC, MEUC, and PEUC programs, as well as the first
week of regular unemployment compensation that is reimbursed in accordance with
section 2105 of the CARES Act, as amended.
103Scenarios 2 and 3 apply to the PUA, MEUC (where applicable), and PEUC programs.
Page 37 GAO-25-106199 Covid-19 Relief
and the state paid PUA anyway. Upon requesting a new self-
certification, the individual either did not respond or the individual
confirmed that none of the approved COVID-19-related reasons were
applicable, and the state’s payment resulted in an overpayment for
that week. 104
5. Through no fault of the individual, the state paid the individual a
minimum PUA weekly benefit amount based on Disaster
Unemployment Assistance guidance that was higher than the state’s
minimum PUA weekly benefit amount, which resulted in an
overpayment. 105
6. The individual complied with instructions from the state to submit
proof of earnings to be used in calculating the individual’s PUA weekly
benefit amount. However, through no fault of the individual, the state’s
instructions were either inadequate or the state incorrectly processed
this calculation using self-employment gross income instead of net
income or documents from an inapplicable tax year, resulting in an
incorrect higher PUA weekly benefit amount.
7. The individual complied with instructions from the state to submit
proof of self-employment earnings to be used in establishing eligibility
for MEUC. However, through no fault of the individual, the state’s
instructions were either inadequate or the state incorrectly processed
this calculation using the incorrect self-employment income or based
on documents from an inapplicable tax year, resulting in the individual
incorrectly being determined eligible for MEUC. 106
According to DOL, if a state has exhausted efforts to collect an
overpayment, it may remove the amount for accounting purposes (also
known as a write-off) if state law permits it to do so. A write-off does not
limit a state’s legal authority to collect the overpayment, should the
opportunity arise. States write off regular UI overpayments and pandemic-
related UI overpayments similarly. Generally, states write off regular UI
and pandemic program UI overpayments when the statute of limitations
104Scenario 4 applies to the PUA and FPUC (where applicable) programs.
105Scenarios 5 and 6 apply to the PUA program.
106Scenario 7 applies to the MEUC program.
Page 38 GAO-25-106199 Covid-19 Relief
expires, bankruptcy is approved by a court, or the claimant is
deceased. 107
DOL’s Resources and Since the beginning of the pandemic, DOL published over 60
Guidance Unemployment Insurance Program Letters to help states administer the
pandemic-related UI programs, which address various issues, including
reporting instructions and recovery of pandemic-related UI overpayments.
The instructions require states to report UI program integrity activities (for
both regular UI and the pandemic-related UI programs) on a quarterly
basis for all programs except PUA, which is reported monthly through the
UI Database Management System. 108 DOL’s instructions note that states
should maintain adequate program records of all their activities in
identifying overpayments, which should also draw a clear distinction
between fraudulent or erroneous overpayments. 109
According to DOL, the DOL data reporting system has built-in edit checks
to help ensure that required fields are not blank and do not contain
incompatible data. Once submitted, these data are publicly available on
the Employment and Training Administration data downloads website. 110
DOL has provided SWAs various resources to improve their UI systems.
Some examples include allocating ARPA funding, IT modernization
funding, and other grant funding to states. 111 Through September 2023,
107According to DOL’s Employment and Training Administration Handbook No. 401, states
are instructed that overpayment receivables (uncollectibles) can be removed from the
states accounting records after eight quarters. However, most states have established
additional criteria, such as claimant’s bankruptcy or death, debt determined to be
otherwise uncollectible, inability to locate the claimant, or the amount of debt is low. See
Department of Labor, Employment and Training Administration Handbook No. 401, 5th
Edition (July 2017). Department of Labor, Additional State Instructions for Processing
Waivers of Recovery of Overpayments under the Coronavirus Aid, Relief, and Economic
Security (CARES) Act, as Amended, UIPL No. 20-21, Change 1 (Washington, D.C.: Feb.
7, 2022).
108See Department of Labor, Coronavirus Aid, Relief, and Economic Security (CARES)
Act of 2020 – Pandemic Unemployment Assistance (PUA) Program Operating, Financial,
and Reporting Instructions, UIPL No. 16-20 (Washington, D.C.: Apr. 5, 2020);
Consolidation of the Employment and Training Administration (ETA) 9000 and ETA 227
Reports, UIPL No. 08-12 (Washington, D.C.: Jan. 11, 2012); UIPL No. 23-20; and DOL
ETA Handbook No. 401.
109Department of Labor, ET Handbook No. 356 (June 2006).
110See Data Downloads (doleta.gov). (accessed Apr. 10, 2024).
111UIPL No. 11-23, UIPL No. 02-22, UIPL No. 22-21, and UIPL No. 23-21 (related to Tiger
Team grants, fraud prevention grants, and equity grants).
Page 39 GAO-25-106199 Covid-19 Relief
DOL had awarded a total of $783 million in grant funding to 52 of the 53
UI SWAs for states’ investigative and overpayment recovery efforts.
According to DOL, states are using grant funds for investigations and
overpayment recoveries among other things. Along with grant funds, DOL
provided states resources such as
• sending expert “Tiger Teams” directly to states to help identify
process improvements that can speed benefit delivery, address equity
concerns, and fight fraud;
• additional integrity-specific funding for pandemic-related UI
programs; 112
• providing tools to help address immediate fraud concerns by
facilitating more effective identification verification processes;
• developing IT solutions that states can adopt to modernize antiquated
state technology; 113
• announcing funding opportunities to help states ensure timely
payment of benefits, promote equitable access, and combat fraud;
and
112See Department of Labor, Addressing Fraud in the Unemployment Insurance (UI)
System and Providing States with Funding to Assist with Efforts to Prevent and Detect
Fraud and Identity Theft and Recover Fraud Overpayments in the Pandemic
Unemployment Assistance (PUA) and Pandemic Emergency Unemployment
Compensation (PEUC) Programs, UIPL No. 28-20 (Washington, D.C.; Aug. 31, 2020);
Additional Funding for Identity Verification or Verification of Pandemic Unemployment
Assistance (PUA) Claimants and Funding to Assist with Efforts to Prevent and Detect
Fraud and Identity Theft as well as Recover Fraud Overpayments in the PUA and
Pandemic Emergency Unemployment Compensation (PEUC) Programs, UIPL No. 28-20,
Change 1 (Washington, D.C.: Jan. 15, 2021); Additional Funding to Assist with
Strengthening Fraud Detection and Prevention Efforts and the Recovery of Overpayments
in the Pandemic Unemployment Assistance (PUA) and Pandemic Emergency
Unemployment Compensation (PEUC) Programs, as well as Guidance on Processes for
Combatting Identity Fraud, UIPL No. 28-20, Change 2 (Washington, D.C.: Aug. 11, 2021);
and Support for States to Resolve Outstanding Items from the Expired Coronavirus Aid,
Relief, and Economic Security (CARES) Act Unemployment Compensation (UC)
Programs, Including Additional Funding to Assist States with Reporting and Detection of
Recovery of Overpayments, UIPL No. 28-20, Change 4 (Washington, D.C.: July 22,
2022).
113Many states rely on outdated legacy IT systems to operate their UI programs. GAO has
reported on the risks and challenges that legacy systems pose for state UI programs,
which have led to, among other things, reduced efficiency and effectiveness. Legacy IT
systems have led to slower payment processing, an inability to detect and recover
fraudulent overpayments, reporting difficulties, security vulnerabilities, staffing challenges,
and increased administrative costs. See GAO, Unemployment Insurance: DOL Needs to
Further Help States Overcome IT Modernization Challenges, GAO-23-105478
(Washington, D.C.: July 10, 2023).
Page 40 GAO-25-106199 Covid-19 Relief
• providing states additional resources such as training sessions to help
clarify and update Unemployment Insurance Program Letters and
handbooks for new procedures to address SWA concerns.
The Fiscal Responsibility Act of 2023 rescinded $1 billion of unobligated
amounts from the ARPA funds available for the UI program. 114 This
recission, according to DOL officials, caused DOL to cancel previously
issued grant opportunities, and also resulted in a reduction in the amount
of fraud prevention and integrity grants, which states could have used to
support overpayment recovery efforts.
SBA and DOL Have
Not Sufficiently
Tracked Progress of
Overpayment
Recovery Efforts in
Selected Programs
SBA Has Insufficient SBA does not have clear, documented procedures for tracking identified
Tracking Processes for overpayments in the selected programs. While SBA tracked certain PPP
loans where the funds had been identified for return to SBA that may
Identified Overpayment
result in the recovery of an overpayment, this process was not designed
and Recoveries specifically to track identified overpayments for recovery. Additionally,
SBA tracks certain data related to improper payments in its PPP and
COVID-19 EIDL programs; however, it does not have sufficient data to
determine how effective its overpayment recovery methods are. Although
SBA provided us with data regarding recovery amounts for both
programs, we were unable to determine an overpayment recovery rate for
either program or assess the effectiveness of SBA’s recovery methods.
SBA’s process tracked PPP loans identified for the return of funds to SBA
for various reasons, including
• loans where a lender suspected fraudulent activity;
114Pub. L. No. 118-5, div. B, tit. I, § 24, 137 Stat. 10, 27 (2023). DOL reported that this
recission reduced the available funding for the UI program from $2 billion to $1 billion, see
Department of Labor, Cancellation of American Rescue Plan Act (ARPA) Related
Guidance, including Unemployment Insurance Program Letter (UIPL) No. 22-21, Change
2; UIPL No. 23-21, Change 5; UIPL No. 02-22, Change 3; and UIPL No. 07-23, UIPL No.
10-23 (Washington, D.C.: July 13, 2023).
Page 41 GAO-25-106199 Covid-19 Relief
• loans where a borrower accidentally paid SBA, who is then required to
return funds to the borrower and direct them to repay the lender; or
• circumstances where a borrower received duplicate loans (due to the
nature of the PPP application process) and the borrower was
attempting to pay back the duplicate loan. 115
To track these loans, SBA used a spreadsheet on an informal, ad-hoc
basis with referrals from lenders, SBA personnel, and the SBA OIG.
Additionally, SBA did not have a tracking process in place for identified
overpayments in the COVID-19 EIDL program. Based on our
communication with SBA, a primary reason for this was that SBA
anticipated capturing any overpayments through its standard repayment
process, as borrowers were required to repay the total loan amount in the
COVID-19 EIDL program, including any overpayments associated with
the loan.
Further, while SBA tracked recoveries for charged-off loans in the
selected programs, it did not separate out whether those recoveries were
associated with an overpayment or whether the recoveries were from a
properly paid loan. This is because SBA has not identified what portion of
the delinquent loan population was properly paid and what portion was an
overpayment (e.g., the portion of a loan made in excess of eligibility).
While SBA reviews loans for certain fraud risks that would result in an
overpayment if disbursed, there are concerns around the overall review
process and its ability to detect loan amounts in excess of borrower
eligibility, as we discussed above. As a result, it is not possible to
determine what percentage of these recovery amounts are from
overpayments being recovered.
In its most recent report on SBA’s compliance with PIIA requirements,
SBA’s IPA identified several concerns with SBA’s PPP and COVID-19
EIDL improper payment estimates due to inadequate sample review
processes and incomplete populations. 116
SBA’s insufficient overpayment identification and tracking process
affected its ability to produce the accurate and reliable sample results
115The PPP application process allowed borrowers to apply with multiple lenders, which
could have potentially resulted in duplicate loans in the early stages of the PPP.
116Small Business Administration, Office of Inspector General, Independent Auditors’
Report on SBA’s Fiscal Year 2023 Compliance with the Payment Integrity Information Act
of 2019, 24-16 (Washington, D.C.: May 2024).
Page 42 GAO-25-106199 Covid-19 Relief
needed to develop statistically valid improper payment and unknown
payment rate estimates for the selected programs because its sample
population was not complete. If SBA improved its overpayment tracking
process, it could help provide reasonable assurance that its sampling and
review processes include complete populations which may be used to
produce statistically valid estimates, as required by PIIA. 117
Federal internal control standards state that management should design
control activities to achieve objectives and respond to risks, management
should implement control activities through policies, and management
should externally communicate the necessary quality information to
achieve the entity’s objectives. 118 Without effectively identifying
overpayments and developing a formal tracking process to record
overpayments identified for recovery, SBA could be both unaware of and
missing out on potential recoveries, as potential overpayments would not
be flagged for recovery. Therefore, SBA’s identified overpayment
population for both programs may be incomplete. As a result, SBA cannot
provide reasonable assurance that the data it uses to calculate estimates
of overpayments and subsequent recovery amounts and rates are
accurate for the two programs, and it risks not maximizing its recovery
efforts.
DOL’s UI Recovery Rate DOL does not include all identified overpayments when calculating its
Calculation Does Not recovery rate for regular and pandemic-related UI programs, contrary to
OMB instructions. OMB provides instructions to agencies for use in
Include All Identified
preparing annual improper payments data submissions for
Overpayments PaymentAccuracy.gov.
OMB’s fiscal year 2023 data call instructions tell agencies to calculate
recovery rates using overpayments identified and overpayments
recovered. Overpayments identified is equal to the sum of overpayments
identified through recovery activities and overpayments identified through
recovery audits. OMB does not instruct agencies to exclude
overpayments for which they are not pursuing recovery (i.e., waived
overpayments) from the recovery rate calculation. While agencies with
appropriate legal authority may waive the recovery of certain
overpayments, waived overpayments are still considered to be monetary
117Pub. L. No. 116–117, § 2; 134 Stat. 113, 117 (2020) (codified at 31 U.S.C. § 3352(c)).
118GAO-14-704G.
Page 43 GAO-25-106199 Covid-19 Relief
loss improper payments and should be reflected in agency recovery
rates.
DOL’s formula for determining recovery rates (for both the regular UI
program and the pandemic-related UI programs) may be misleading or of
limited use because it removes waived overpayments from its calculation.
By using its current formula, DOL may be reporting inflated recovery rates
and eventually could have negative recovery rates in pandemic-related UI
programs. See figure 5 for more information.
Figure 5: Department of Labor’s Current Recovery Rate Calculation
Our review of DOL’s overpayment data for fiscal year 2023, as of April 10,
2024, shows that DOL is reporting inflated recovery rates for each of the
UI programs—including regular UI and pandemic-related UI programs. By
using DOL’s current recovery rate formula, we found that the recovery
rates for pandemic-related UI programs in fiscal year 2023 were all higher
when subtracting waived overpayments amounts from the total
overpayments amount compared to the recovery rates calculated based
on OMB’s data call instructions. See table 1 for more information.
Page 44 GAO-25-106199 Covid-19 Relief
Table 1: Comparison of Fiscal Year 2023 Department of Labor (DOL) Unemployment Insurance Recovery Rates, Waived
Overpayments Included and Excluded, as of April 10, 2024 (Dollars in Millions)
Unemployment Insurance (UI) Overpayments Overpayments Overpayments DOL’s reported Total overpayment
program identified waived recovered recovery ratea recovery rateb
Regular UI $2,049.7 $218.2 $934.7 51.03% 45.60%
Pandemic Unemployment $1,925.5 $824.8 $115.2 10.47% 5.98%
Assistance
Pandemic Emergency $281.1 $55.8 $97.8 43.41% 34.79%
Unemployment Compensation
Federal Pandemic Unemployment $2,762.8 $899.4 $484.7 26.01% 17.54%
Compensation
Mixed Earner Unemployment $1.0 $0.3 $0.2 27.36% 18.97%
Compensation
Source: GAO analysis of DOL recovery rate data. | GAO-25-106199
Note: Numbers may not sum because of rounding.
a
The “DOL’s reported recovery rate” calculation excludes waived overpayment amounts.
b
The “Total overpayment recovery rate” calculation includes waived overpayment amounts.
Additionally, as all pandemic-related UI programs ended by September
2021, the overpayments identified in future fiscal years should continue to
decrease; however, as waived overpayments are recorded in the period
when the waiver is applied, applying the current formula the denominator
of DOL’s formula may eventually return a negative number causing a
negative recovery rate for pandemic-related programs.
According to DOL officials, DOL has been calculating its recovery rate
this way since fiscal year 2012, when it first published its rate and
methodology in its annual financial report (AFR). DOL officials also noted
that the Employment and Training Administration published the proposed
calculation for the recovery rate measure—including the exclusion of
waived overpayments—in the Federal Register in February 2012 for
public review and comment. While DOL officials stated that OMB
reviewed the fiscal year 2012 AFR and has not objected to the recovery
rate calculation or methodology, PIIA has since repealed and replaced
the improper payments reporting-related statutes that were in effect for
fiscal year 2012. Further, OMB has issued updates to related guidance
Page 45 GAO-25-106199 Covid-19 Relief
and reporting instructions. 119 Regarding the pandemic-related UI
programs, DOL officials noted that the unprecedented demand for UI
benefits during the COVID-19 pandemic also led to a greater number of
SWA administrative errors, which led to SWAs using waivers for those
administrative errors. Therefore, according to DOL officials, the current
formula may be more accurate for the actual recoverable amounts.
DOL officials further stated that in 2012 they were constrained by their
interpretation of the definition of the recovery rate provided in OMB
Circular No. A-123, appendix C. According to DOL, while OMB guidelines
allow agencies some flexibility to set recovery targets, agencies set the
definition of overpayments identified and recovered. According to DOL
officials, DOL excludes the waived payments because the recovery rate is
designed to reflect a state’s efforts to achieve recoveries of recoverable
overpayments. DOL officials noted in the department’s Unemployment
Insurance Program Letter that OMB allowed DOL to exclude waived
overpayments from its recovery rate calculation, but DOL officials did not
provide documentation of this approval from OMB. Excluding waived
overpayments from the recovery rate calculation may provide a measure
of how successful states are at recovering the overpayments they attempt
to recover, but the resulting amount is not a representation of DOL’s and
states’ success at recovering all identified UI overpayments.
By not updating its formula to align with OMB’s data call instructions and
continuing to remove waived overpayments from its recovery rate
calculation, DOL, Congress, and users of the data may not have a clear
picture of recovery efforts or be able to determine whether additional
actions are needed to achieve higher recovery rates.
State Workforce Agencies SWAs have struggled to recover overpayments in the pandemic-related
Have Struggled to UI programs. While DOL set a regular UI acceptable levels of
performance (ALP) recovery rate of 68 percent, DOL did not set a
Recover Pandemic-
recovery rate goal or baseline for the pandemic-related UI programs.
Related Overpayments SWA pandemic-related recoveries have continued to fall short of DOL’s
regular UI recoveries. Most SWA recoveries also fell below the 47.8
119In March 2020, Congress and the President enacted PIIA, which repealed the Improper
Payments Elimination and Recovery Act of 2010 and other related statutes and enacted
substantially similar provisions in a new subchapter of the U.S. Code. 31 U.S.C. § 3351-
3358. Following PIIA enactment, OMB issued M-21-19, providing an update to its
guidance for executive agencies on estimating and reporting improper payments. In
addition to M-21-19, OMB provides annual data call instructions for agencies to use when
reporting improper payments information for PaymentAccuracy.gov.
Page 46 GAO-25-106199 Covid-19 Relief
percent average recovery rate for all agencies reporting data on
PaymentAccuracy.gov for the 6-year period ending fiscal year 2023.
According to the Additional Planning Guidance for fiscal year 2024 issued
by DOL in June 2023, the agency’s ALP for UI is 68 percent. The
guidance instructs SWAs that if the 68 percent recovery rate is not met,
then they are expected to develop a corrective action plan. 120 According
to DOL officials, there was no ALP established for pandemic-related
programs, and the ALP of 68 percent does not apply to pandemic-related
UI programs, as the programs were temporary in nature. While the
pandemic-related UI programs were temporary and have ended, by not
setting a baseline for SWA recovery rates for pandemic-related UI
programs, DOL cannot establish targets to evaluate SWA performance.
As part of our analysis, we compared all pandemic-related UI program
overpayment recovery data to government-wide overpayment recovery
data reported by agencies from fiscal years 2018 to 2023. During this
time frame, the average recovery rate for all agencies reporting data on
PaymentAccuracy.gov was 47.8 percent, with a minimum rate of 39.6
percent (in fiscal year 2021) and a maximum rate of 75.9 percent (in fiscal
year 2023). 121 We found that most of the 53 SWAs that reported
pandemic-related UI overpayments and recoveries were below the
government-wide 47.8 percent average rate.
SWAs reported to DOL, as of April 10, 2024, their identified fraudulent
and nonfraudulent overpayments, recoveries, and waived overpayments
across the pandemic-related UI programs from the beginning of the
pandemic in March 2020 through September 2023. According to DOL
guidance, SWAs are required to report overpayment data and recovery
data to DOL on a continuous basis for regular UI and most pandemic UI
programs throughout each reporting quarter. 122 SWAs can also amend
data reported in a prior period (going back many periods) at any time
120Department of Labor, Additional Planning Guidance for Fiscal Yar (FY) 2024
Unemployment Insurance (UI) State Quality Service Plan (SQSP), UIPL No. 09-23
(Washington, D.C.: June 30, 2023).
121The average recovery rate is based on recovery rates reported for programs that are
long-standing and permanent in nature, as well as temporary pandemic assistance
programs. Some portion of the variation in average recovery rates over the fiscal year
2018 to fiscal year 2023 period is likely attributable to unique circumstances experienced
by agencies because of the COVID-19 pandemic.
122Overpayments are reported during the period in which they are established, and
recovered funds are reported as they are collected.
Page 47 GAO-25-106199 Covid-19 Relief
during the quarter, so reported overpayment and recovery amounts can
change from day to day. As we previously reported, recoveries can take
many years to collect, and SWAs can modify recovery figures daily, which
makes comparisons between overpayments and recoveries difficult. 123
Table 2 illustrates the total amount of pandemic-related UI overpayments
and recoveries that SWAs reported for the period of March 2020 through
September 2023.
Table 2: March 2020 through September 2023: Estimated State Workforce Agency Pandemic-Related Unemployment
Insurance Overpayment Recoveries, as of April 10, 2024 (Dollars in Billions)
Overpayments Overpayments Overpayments DOL’s reported Total overpayment
identified waived recovered recovery ratea recovery rateb
$55.2 $11.6 $3.7 8.5% 6.7%
Source: GAO analysis of DOL recovery rate data. | GAO-25-106199
Note: Numbers may not sum because of rounding.
a
The “DOL’s reported recovery rate” calculation excludes waived overpayment amounts.
b
The “Total overpayment recovery rate” calculation includes waived overpayment amounts.
As of April 10, 2024, SWAs reported identifying about $50.9 billion in
identified nonfraudulent UI overpayments in the pandemic-related UI
programs from March 2020 through September 2023. SWAs also
reported nonfraudulent overpayment recoveries of about $3.4 billion,
which is approximately 6.7 percent of nonfraudulent overpayments
identified in pandemic-related UI programs during this period. It is
important to note that as of April 10, 2024, SWAs have identified about
$4.3 billion in fraudulent overpayments and have recovered about $0.3
billion in fraudulent overpayments. However, according to the CARES
Act, SWAs are not allowed to waive fraudulent overpayments. Therefore,
the resulting recovery rate calculations for fraudulent overpayments
based on DOL’s current calculation and the updated calculation would not
be affected. Table 3 provides the total nonfraudulent overpayment
amounts and recoveries for the pandemic-related UI programs reported
by states during this period.
123GAO, Unemployment Insurance: Estimated Amount of Faud during Pandemic Likely
Between $100 Billion and $135 Billion, GAO-23-106696 (Washington, D.C.: Sept. 12,
2023).
Page 48 GAO-25-106199 Covid-19 Relief
Table 3: March 2020 through September 2023: Estimated State Workforce Agency Pandemic-Related Unemployment
Insurance Nonfraudulent Overpayment Recoveries, as of April 10, 2024 (Dollars in Billions)
Nonfraudulent Nonfraudulent Nonfraudulent DOL’s reported Total nonfraudulent
overpayments overpayments overpayments nonfraudulent overpayment recovery
identified waived recovered overpayment recovery ratea rateb
$50.9 $11.6 $3.4 8.7% 6.7%
Source: GAO analysis of DOL recovery rate data. | GAO-25-106199
Note: Numbers may not sum because of rounding.
a
The “DOL’s reported non-fraudulent overpayment recovery rate” calculation excludes waived
overpayment amounts.
b
The “Total non-fraudulent overpayment recovery rate” calculation includes waived overpayment
amounts.
DOL officials provided some reasons why SWAs may struggle to recover
pandemic-related UI overpayments, including the following:
• SWAs continue to work on identifying overpayments, which is
essential to begin the recovery process.
• SWAs created stand-alone systems that did not effectively connect
with their regular UI system to process recoveries via their normal
methods.
• SWAs are unable to use regular UI means of collecting recoveries—
for example, FPUC, MEUC, and PEUC benefit offsets are constrained
under the CARES Act 3-year time limit for benefit offsets for
recoveries of pandemic-related UI overpayments. DOL officials noted
that the 3-year time frame is important to the economic stabilization
impact of future benefits in future downturns. 124
• Identity theft-related overpayments in pandemic-related UI programs
were more prevalent than in regular UI and require that the individual
who filed false claims be identified before a recovery can be
attempted.
SWAs have recovered a small percentage of pandemic-related
overpayments ($3.7 billion or 6.7 percent) from March 2020 through
September 30, 2023; however, a large portion of the identified
overpayments remain outstanding ($51.5 billion). Further, when
accounting for the total waived overpayments ($11.6 billion), SWA
recovery efforts continued to fall short of the DOL regular UI ALP and the
average rate reported by agencies over the period. By not having a
124According to the CARES Act, SWAs have up to 3 years to recover overpayments
through benefit offsets.
Page 49 GAO-25-106199 Covid-19 Relief
baseline percentage for SWAs to meet, DOL cannot determine if the
assistance and additional funding that has been provided to SWAs is
helping to improve their pandemic-related UI overpayment recovery
efforts.
Additionally, federal internal control standards state that management
should define objectives in measurable terms so that performance toward
achieving those objectives can be assessed. Management should
continually determine whether performance measures for defined
objectives are appropriate for evaluating the entity’s performance in
achieving those objectives, which includes, for quantitative objectives,
designing measures that indicate a level of performance, such as a
baseline. 125 Including a measurement of success as part of its guidance
to SWAs could better position DOL to monitor states’ efforts to recover
overpayments—potentially billions of dollars—in future temporary
programs.
SBA and DOL moved quickly to establish new programs and expand
Conclusions existing programs to aid small businesses and individuals affected by the
pandemic. The unprecedented demand for these programs and the need
to deliver aid quickly created an increased risk for improper payments,
including overpayments. While it is better to prevent improper payments
from occurring in the first place, effective post-disbursement control
processes help agencies to identify and recover overpayments after they
have occurred. While SBA has taken some steps to address overpayment
risks, SBA could benefit by updating, expanding, and better documenting
its processes to identify and recover overpayments—which could lead to
an increase in overpayment recoveries.
Additionally, while including new lenders helped the PPP reach more
borrowers, it also increased the risk of overpayments as more control was
given to third parties. Although SBA published guidance and notices
related to this concern, it does not have sufficient documentation to
illustrate that it has taken steps to mitigate this increased risk in its
guarantee purchase process, such as ensuring its review process verifies
that lenders and their LSPs complied with programmatic requirements,
which may limit SBA’s ability to recover overpayments.
Finally, although SBA tracked and reported certain data related to
improper payments in its PPP and COVID-19 EIDL program, it does not
125GAO-14-704G.
Page 50 GAO-25-106199 Covid-19 Relief
have the necessary data to determine how effective its recovery methods
are in those programs. Without these data, SBA cannot ensure that it is
maximizing the potential of certain recovery methods, which may limit the
amount of overpayments SBA recovers.
While DOL has procedures in place for pandemic-related UI programs—
which typically follow the regular UI program’s procedures—DOL’s
process for calculating its recovery rate is not capturing all identified
overpayments, leading to inflated or misleading recovery rates. Further,
DOL did not set baseline recovery rates for states to recover pandemic-
related overpayments, possibly resulting in pandemic-related UI
overpayments not being collected in a timely manner.
We are making the following five recommendations, three to SBA and two
Recommendations for to DOL.
Executive Action
The Administrator of SBA should ensure that the Office of Capital Access
expands and documents loan review processes for the PPP and COVID-
19 EIDL program and how loans are reviewed to identify overpayments.
(Recommendation 1)
The Administrator of SBA should ensure that the Office of Capital Access
expands and documents the PPP guarantee purchase process to ensure
that—prior to purchase approval—SBA has collected sufficient
documentation to verify that lenders complied with program requirements.
(Recommendation 2)
The Administrator of SBA should ensure that the Office of Capital Access
expands and documents SBA’s overpayment identification and recovery
process for the PPP and COVID-19 EIDL program, as well as future
programs, to include clear, formalized procedures for tracking all
identified overpayments and subsequent recoveries. (Recommendation
3)
The Secretary of Labor should ensure that the Employment and Training
Administration reports the total overpayment recovery rate in place of, or
along with, the nonwaived overpayment recovery rate for UI programs,
particularly pandemic-related UI programs (i.e., PUA, FPUC, PEUC, and
MEUC). (Recommendation 4)
The Secretary of Labor should ensure that the Employment and Training
Administration expands its UI program guidance to require that future
temporary programs establish state overpayment recovery baselines to
Page 51 GAO-25-106199 Covid-19 Relief
support DOL’s monitoring of states’ progress in recovering identified
overpayments. (Recommendation 5)
We provided a draft of this report to SBA and DOL for review and
Agency Comments comment. In its written comments, reproduced in appendix III, SBA
and Our Evaluation partially agreed with all three of our recommendations and described
activities that are anticipated to remedy the recommendations by
September 25, 2028. DOL disagreed with our recommendations in its
written comments, reproduced in appendix IV. In addition, SBA and DOL
provided technical comments, which we incorporated, as appropriate.
SBA partially agreed with recommendation 1 that it should expand and
document loan review processes for the PPP and COVID-19 EIDL
program, to include how loans are reviewed to identify overpayments.
SBA stated that the agency will review the loan review processes for both
programs to ensure that the processes are appropriately documented and
are effective in identifying overpayments. Without sufficient
documentation to demonstrate how it identifies overpayments resulting
from potential errors or fraud, SBA cannot ensure that its review
processes are effectively identifying overpayments. Correcting this may
help SBA to maximize recoveries.
In regard to recommendation 2, SBA partially agreed that it should
expand and document the PPP purchase guarantee process to ensure
that sufficient documentation has been collected to verify lender
compliance with program requirements prior to purchase approval. SBA
noted that for guarantee purchase requests that have an indication of
potential fraud or potential lender noncompliance with PPP lender
underwriting requirements, the agency will ensure that the proper
documentation has been collected to verify that lenders complied with
program requirements. The guarantee purchase process is one of the last
steps where SBA may be able to prevent an overpayment before
operating in a pay-and-chase method. It is crucial that, prior to approving
a guarantee purchase request, SBA can verify PPP lenders complied with
program requirements. This will help ensure that SBA avoids
overpayments in the guarantee purchase process and recovers
overpayments resulting from a lender’s initial loan application review and
approval.
SBA partially agreed with recommendation 3 that it should expand and
document its overpayment identification and recovery processes for the
PPP and COVID-19 EIDL program, as well as future programs, to include
clear and formalized procedures for tracking overpayments and
subsequent recoveries. SBA stated that the agency will ensure that the
Page 52 GAO-25-106199 Covid-19 Relief
overpayment identification and recovery processes for the PPP and
COVID-19 EIDL program, as well as future programs, are clear and
formalized and can effectively track all identified overpayments and
subsequent recoveries. Having an effective process in place to track
identified overpayments and recoveries may help ensure that SBA is
maximizing its recovery efforts, including that identified overpayments are
pursued for collection, as appropriate.
In its written comments, DOL disagreed with recommendation 4 that it
should ensure that ETA reports the total overpayment recovery rate in
place of the nonwaived overpayment recovery rate for UI programs,
particularly pandemic-related UI programs (PUA, FPUC, PEUC, and
MEUC). The department stated that it has been transparent in describing
the recovery rate, and waived recoveries can already be factored into the
rate using public data. DOL further stated that including waived amounts
in recovery rates would penalize states that waive overpayments in
accordance with state or federal law. According to DOL, including the
waived amounts in recovery rates would distort recovery efforts as, by
nature, recovery of waived overpayments is not pursued.
We maintain that, based on OMB guidance, ETA should report a recovery
rate that reflects all identified overpayments with a formula that includes
total recoveries and total overpayments, regardless of whether recovery
was subsequently waived. However, in light of DOL’s comments, we have
modified our recommendation. The rate could be reported either in place
of or in addition to the nonwaived recovery rate. Doing so would allow
users of the reported overpayment recovery rate to readily understand the
full extent of overpayment recoveries in all UI programs.
Nonetheless, we disagree with DOL’s assertion that including waived
amounts in recovery rates would penalize states and distort recovery
efforts. There are no formal penalties imposed on states based on their
reported recovery rates. In addition, including waived amounts would
clarify rather than distort recovery rates. It would help ensure that the
rates reflect recoveries of all identified overpayments, regardless of
whether they were subsequently waived.
In addition, DOL notes its agreement with OMB’s description of
overpayments as “monetary losses that could, in theory, be recovered.”
However, DOL also notes that overpayments waived under state law are
no longer recoverable. Thus, according to DOL, it is incorrect to include
waived overpayments as identified overpayments when calculating the
overpayment recovery rate. We maintain that the overpayments were
theoretically recoverable when made. Waivers would not be necessary
Page 53 GAO-25-106199 Covid-19 Relief
unless recovery was theoretically possible. According to DOL, states
were permitted to grant waivers in cases where recipients were not at
fault and pursuing recovery would be against equity and good
conscience. These reasons imply that recovery is possible but pursuing it
would be unfair and create undue hardship. The overpayments, though
waived, still result in a monetary loss to the government and should be
factored into the recovery rate.
DOL disagreed with recommendation 5 that ETA should expand its
guidance to require that future temporary programs establish state
overpayment recovery baselines to support DOL’s monitoring of states’
progress in recovering identified overpayments. DOL stated that it is
challenging to develop measures for programs that do not exist, and
relevant considerations for future temporary programs may not be known
until enacted by Congress. DOL suggested it could address the intent of
our recommendation through an alternative approach by capturing
lessons learned to help inform actions the department may take for
similar future programs.
We recognize the challenges inherent in creating guidance for future
programs with uncertain requirements, and we appreciate DOL’s
commitment to capturing lessons learned from the pandemic-related UI
programs. We maintain that our recommendation for guidance to require
state overpayment recovery baselines in future emergency programs is
warranted. We note that such baselines could be adjusted as appropriate
as new programs are implemented or modified, and they need not be set
before DOL has a clear picture of future program rules and structure. A
requirement to establish these baselines will help ensure that DOL has
performance measures in place to monitor and assess state overpayment
recovery efforts in future programs.
We are sending copies of this report to the appropriate congressional
committees, the Administrator of the Small Business Administration, the
Acting Secretary of the Department of Labor, and other interested parties.
In addition, the report is available at no charge on the GAO website at
https://www.gao.gov.
If you or your staff have any questions about this report, please contact
me at (202) 512-5683 or padillah@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
Page 54 GAO-25-106199 Covid-19 Relief
page of this report. GAO staff who made key contributions to this report
are listed in appendix V.
M. Hannah Padilla
Director, Financial Management and Assurance
Page 55 GAO-25-106199 Covid-19 Relief
List of Committees
The Honorable Patty Murray
Chairwoman
The Honorable Susan M. Collins
Vice Chairwoman
Committee on Appropriations
United States Senate
The Honorable Ron Wyden
Chairman
The Honorable Mike Crapo
Ranking Member
Committee on Finance
United States Senate
The Honorable Bernard Sanders
Chair
The Honorable Bill Cassidy, M.D.
Ranking Member
Committee on Health, Education, Labor, and Pensions
United States Senate
The Honorable Gary C. Peters
Chair
The Honorable Rand Paul, M.D.
Ranking Member
Committee on Homeland Security and Governmental Affairs
United States Senate
The Honorable Tom Cole
Chair
The Honorable Rosa DeLauro
Ranking Member
Committee on Appropriations
House of Representatives
The Honorable Cathy McMorris Rodgers
Chair
The Honorable Frank Pallone, Jr.
Ranking Member
Committee on Energy and Commerce
House of Representatives
Page 56 GAO-25-106199 Covid-19 Relief
The Honorable Mark E. Green, M.D.
Chair
The Honorable Bennie G. Thompson
Ranking Member
Committee on Homeland Security
House of Representatives
The Honorable James Comer
Chairman
The Honorable Jamie Raskin
Ranking Member
Committee on Oversight and Accountability
House of Representatives
The Honorable Jason Smith
Chairman
The Honorable Richard Neal
Ranking Member
Committee on Ways and Means
House of Representatives
Page 57 GAO-25-106199 Covid-19 Relief
Appendix I: Objectives, Scope, and
Appendix I: Objectives, Scope, and
Methodology
Methodology
This report (1) examines the extent to which the Small Business
administration (SBA) and Department of Labor (DOL) have developed
effective processes for identifying and recovering overpayments of
COVID-19 relief funds and (2) analyzed the extent to which SBA and DOL
efforts to recover overpayments of COVID-19 relief funds have been
successful.
To determine which agencies and programs to include in our review, we
looked at the program outlays for the top five COVID-19 spending areas
as of June 30, 2022. We noted that SBA’s business loan and disaster
loan programs’ accounts encompassed $873.5 billion out of the
approximately $3.9 trillion in total outlays at the time. These accounts
included activity for the Paycheck Protection Program (PPP) and COVID-
19 Economic Injury Disaster Loans (EIDL) program. 1 Additionally, DOL’s
Unemployment Insurance (UI) program accounted for $673.1 billion of
these outlays. Combined, according to www.usaspending.gov, these SBA
and DOL programs accounted for approximately 40 percent of COVID-19
outlays at the time. 2 As such, we selected them for our review.
To address our first objective, we reviewed agency documentation
regarding overpayment identification and recovery efforts. We met with
agency officials to discuss the processes and procedures involved in
these efforts. In addition, we reviewed federal laws (including the CARES
Act as amended, Payment Integrity Information Act of 2019, Digital
Accountability and Transparency Act of 2014, and laws governing the
collection of federal claims); Office of Management and Budget (OMB)
guidance to identify key requirements for collecting delinquent debts;
along with federal regulations and standards, including the Debt
Collection Regulations, and the Federal Claims Collection Standards. The
risk assessment component of internal control was significant to this
objective, along with the related principal that management should
identify, analyze, and respond to change. In addition, the control activities
components of internal control as significant to this objective, as well as
the principals that management should (1) design control activities to
achieve its objectives and respond to risks and (2) implement control
1For purposes of this report, we will refer to the Paycheck Protection Program and the
COVID-19 Economic Injury Disaster Loans program as “selected programs” when we are
discussing them together.
2USAspending.gov is the official source of federal government spending data. However,
GAO and others have reported issues and limitations within the website’s data that impact
its accuracy and completeness. As a result, there is a chance that our calculations and
percentages may have been different if all agencies reported their COVID-19 spending.
Page 58 GAO-25-106199 Covid-19 Relief
Appendix I: Objectives, Scope, and
Methodology
activities through policies. 3 We compared the agencies’ overpayment
recovery processes and procedures to the relevant laws and guidance to
determine if they were effective.
To address our second objective, we reviewed and analyzed public
datasets to assess agencies’ recovery efforts to determine the extent of
success regarding the recovery of overpayments. We also reviewed the
annual improper payments datasets from www.paymentaccuracy.gov to
calculate the average recovery rate for all agencies reporting data from
fiscal years 2018-2023. 4 The information and communication component
of internal control was significant to this objective, along with the related
principle that management should use quality information to achieve the
objective. We assessed the extent to which reported SBA and DOL
recovery and improper payments data provided information on the extent
of the agencies’ successful overpayment recoveries.
We conducted this performance audit from August 2022 to November
2024 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
3GAO-14-704G.
4PaymentAccuracy.gov is an official U.S. government website managed by OMB that
contains, among other things, information about current and historical rates and amounts
of improper payments. We have previously reported concerns in the reliability of this data;
however, we concluded the data was reliable for purposes of this report.
Page 59 GAO-25-106199 Covid-19 Relief
Appendix II: SBA’s Paycheck Protection
Appendix II: SBA’s Paycheck Protection
Program Eligibility and Forgiveness Review
Program Eligibility and Forgiveness Review
Process
Process
As part of the Paycheck Protection Program (PPP) application process,
Eligibility Reviews loan applications would undergo automatic and manual reviews to
determine borrowers’ eligibility for a loan. These reviews were initially
conducted by a Small Business Administration (SBA) contractor, and then
by an SBA official as needed. The contractor’s loan review process
consisted of up to three consecutive steps: automated screening, triage
reviews, and level 2 reviews. Although these review processes were not
designed specifically to identify overpayments, they could lead to the
identification of overpayments by detecting potential fraud or eligibility
errors. At the end of each step, the loan review contractor recommended
no further action—if no potential issues were identified—or moved the
loan to the next level of review. At the end of the contractor’s review
process, loans with unresolved issues were recommended to SBA for
further review. 1
Step 1: The eligibility reviews consisted of the contractor performing an
automated screening process on all PPP loans that compared loan data
against publicly available information—including Treasury’s Do Not Pay
system—and applied eligibility and fraud detection rules. For example,
the automated screening process issued compliance check error
messages or hold codes if there were discrepancies in the applicant’s
name or if the applicant’s business was no longer active. This automated
screening process flagged the loans for manual reviews by the contractor
and then SBA, if necessary. SBA required that issues identified during the
eligibility reviews be resolved before a borrower received a second draw
PPP loan or SBA forgave the loan.
Step 2: After the automated screening process, loans that were flagged
for manual review moved onto the next step in the process, which was
triage reviews. This process was intended to identify loans of less than $2
million that could be easily resolved by determining an automated alert
was invalid by an analyst conducting an internet search and matching
public data records to information in the borrower’s application.
Step 3: Loans that were escalated from the triage review underwent a
level 2 review. In addition, all loans of $2 million or greater originally
1SBA conducted manual reviews for fraud, abuse, or noncompliance with eligibility
requirements for all loans of $2 million or greater; all loans of less than $2 million for which
the contractor recommended further action; and a sample of loans of less than $2 million
for which the contractor recommended no further action. After SBA determined a
borrower’s loan eligibility, it could notify the lender of its loan eligibility determination, or it
could continue with a forgiveness review if a forgiveness decision had been submitted by
the lender.
Page 60 GAO-25-106199 Covid-19 Relief
Appendix II: SBA’s Paycheck Protection
Program Eligibility and Forgiveness Review
Process
underwent a level 2 review, but this process was changed in April 2021. 2
A level 2 review consisted of analysts researching a business to verify its
existence and good standing. In addition, analysts conducted a risk
indicator analysis, which compared alerts from the automated review to
targeted research in order to corroborate or resolve the alert.
At the end of each step, the loan review contractor recommended no
further action—if no potential issues were identified—or moved the loan
to the next level of review. At the end of the contractor’s review process,
the contractor referred loans that had unresolved issues to SBA with a
recommendation for further review.
See figure 6 for more information related to contractor reviews of PPP
loan eligibility.
Figure 6: Contractor Loan Eligibility Review Process for the Paycheck Protection Program
a
Originally, all loans of $2 million or greater underwent a level 2 review, but this process was changed
in April 2021. To help increase the efficiency of the loan review process, SBA’s contractor identified
certain flags that could be resolved without undergoing further review for loans of $2 million or
greater.
As part of this process, the contractor conducted expedited reviews to
more efficiently resolve alerts on loans that were flagged with low-risk
errors during automated screening, and it conducted aggregate reviews
across all loans to identify potential fraud schemes.
In November 2020, through consultation with SBA, the contractor
identified specific categories of flagged loans that were less than $2
million for an expedited batch process to resolve the alerts without
conducting a manual review. For example, a loan might receive an alert
because the borrower did not have an online presence, such as a
2In May 2021, SBA’s contractor identified approximately 700 loans of $2 million or greater
with certain flags that could be resolved without undergoing further review.
Page 61 GAO-25-106199 Covid-19 Relief
Appendix II: SBA’s Paycheck Protection
Program Eligibility and Forgiveness Review
Process
website. However, a lack of online presence is common for very small
businesses. Therefore, the contractor proposed clearing small businesses
of a certain size that received an alert only for this reason.
Further, following enactment of the simplified forgiveness process for
loans of $150,000 or less in the Economic Aid to Hard-Hit Small
Businesses, Nonprofits, and Venues Act of 2021, the contractor proposed
several options for a batch process to clear certain flagged loans with a
value under $150,000.
Under SBA rules and guidance, the loan forgiveness process has three
Forgiveness Reviews potential steps: borrower submission of a forgiveness application; lender
review, decision, and referral to SBA; and SBA manual review, as
necessary.
Step 1: The borrower submits a forgiveness application and
documentation to the lender. In July 2021, SBA announced the availability
of a Direct Borrower Forgiveness Platform that provided a single secure
location for PPP borrowers to apply for loan forgiveness using the
electronic equivalent of a simplified borrower forgiveness application. This
platform was previously limited to (1) borrowers with loans of $150,000 or
less using the simplified forgiveness application and (2) borrowers with
PPP lenders that opted-in to use the platform. However, in February
2024, SBA announced the expansion of this platform to allow all PPP
borrowers that have not yet received forgiveness to submit their
forgiveness applications through it, regardless of loan amount or PPP
lender. 3
Step 2: After a lender receives a forgiveness application, it will review the
application and submit its forgiveness decision (approved in full, approved
in part, or denied) to SBA. 4 Once a lender submitted a forgiveness
decision, SBA would perform an automated screening process to review
and validate that decision. According to SBA officials, loans that are not
identified for additional review, as discussed below, are automatically paid
3SBA Procedural Notice, 5000-854502: Expansion of SBA Direct Borrower Forgiveness
Platform to Allow Submission of Borrower Forgiveness Applications for All PPP Loans
Regardless of Loan Amount and PPP Lender.
4Lenders have 60 days from receipt of the application to submit this decision.
Page 62 GAO-25-106199 Covid-19 Relief
Appendix II: SBA’s Paycheck Protection
Program Eligibility and Forgiveness Review
Process
by SBA. In general, SBA must remit the forgiveness amount to the lender
within 90 days of that amount being determined. 5
Step 3: In addition, SBA would conduct manual loan forgiveness reviews
based on a sample of all loans and as it determined necessary. As part of
this process, SBA would review the lender’s submitted forgiveness
decision to make a final determination as to whether (1) the borrower was
eligible for the requested forgiveness amount; (2) the borrower was
eligible for a forgiveness amount smaller than the lender determined; or
(3) the borrower was not eligible for forgiveness.
5In its interim final rule on loan forgiveness published in June 2020, SBA stated it will
extend this time frame if the loan or forgiveness application is under SBA review.
Page 63 GAO-25-106199 Covid-19 Relief
Appendix III: Comments from SBA
Appendix III: Comments from SBA
Page 64 GAO-25-106199 Covid-19 Relief
Appendix III: Comments from SBA
Page 65 GAO-25-106199 Covid-19 Relief
Appendix IV: Comments from DOL
Appendix IV: Comments from DOL
Page 66 GAO-25-106199 Covid-19 Relief
Appendix IV: Comments from DOL
Page 67 GAO-25-106199 Covid-19 Relief
Appendix IV: Comments from DOL
Page 68 GAO-25-106199 Covid-19 Relief
Appendix IV: Comments from DOL
Page 69 GAO-25-106199 Covid-19 Relief
Appendix IV: Comments from DOL
Page 70 GAO-25-106199 Covid-19 Relief
Appendix V: GAO Contact and Staff
Appendix V: GAO Contact and
Staff Acknowledgments
Acknowledgments
M. Hannah Padilla, (202) 512-5683 or padillah@gao.gov
GAO Contact
In addition to the contact named above, Dan Flavin (Assistant Director),
Staff Cole Haase (Auditor in Charge), Giovanna Cruz, Pat Frey, Arkeyvia
Acknowledgments Hang, Daniel Harris, Michael LaForge, Christina Skinner, Amanda
Stogsdill, and Landon Western made key contributions to this report.
Page 71 GAO-25-106199 Covid-19 Relief
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