SBA’S Handling of Returned COVID-19 Economic Injury Disaster Loan Funds and De-obligations of Approved Loans
- Issuer
- SMALL BUSINESS ADMINISTRATION OFFICE OF INSPECTOR GENERAL
- Document type
- Memorandum
- Date
- 2024-04-24
Summary
Management Advisory Report 24-15 of the U.S. Small Business Administration Office of Inspector General, dated April 24, 2024, a memorandum from the Inspector General to Administrator Isabella Casillas Guzman. It reviews the handling of about $9 billion in COVID-19 Economic Injury Disaster Loan funds returned by banks from March 2020 through September 30, 2022. It reports $4.7 billion in 53,660 transactions re-disbursed to original borrowers, $912 million in 37,901 transactions de-obligated, and about $3.4 billion unresolved or pending. It states that eight batch de-obligations between October 25, 2022 and February 14, 2023 covered $3.1 billion in returned funds and $8.1 billion in undisbursed loans, totaling $11.2 billion, after the program closed. It makes one recommendation, to create processing timeframes for returned funds, reported closed after management partially agreed.
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U.S. SMALL BUSINESS ADMINISTRATION OFFICE OF INSPECTOR GENERAL
SBA’s Handling of Returned COVID-19
Economic Injury Disaster Loan Funds
and De-obligations of Approved Loans
Management Advisory
Report 24-15
April 24, 2024
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Washington, DC 20416. In accordance with the Inspector General Act of 1978, codified as
amended at 5 U.S.C. §§ 407(b) and 420(b)(2)(B), confidentiality of a complainant’s personally
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release of such information.
NOTICE:
Pursuant to the James M. Inhofe National Defense Authorization Act for Fiscal Year 2023,
Public Law 117-263, Section 5274, any nongovernmental organizations and business entities
identified in this report have the opportunity to submit a written response for the purpose of
clarifying or providing additional context as it relates to any specific reference contained herein.
Comments must be submitted to AIGA@sba.gov within 30 days of the final report issuance date.
We request that any comments be no longer than two pages, Section 508 compliant, and free
from any proprietary or otherwise sensitive information. The comments may be appended to
this report and posted on our public website.
OFFICE OF INSPECTOR GENERAL
U.S. SMALL BUSINESS ADMINISTRATION
MEMORANDUM
Date: April 24, 2024
To: Isabella Casillas Guzman
Administrator
From: Hannibal “Mike” Ware
Inspector General
Subject: SBA’S Handling of Returned COVID-19 Economic Injury Disaster Loan Funds and
De-obligations of Approved Loans (Report 24-15)
This report presents the results of our review of SBA’S Handling of Returned COVID-19 Economic
Injury Disaster Loan Funds and De-obligations of Approved Loans. We considered management
comments on the draft of this report when preparing the final report. SBA management partially
agreed with the one recommendation and submitted supporting documentation for its closure.
Since management’s actions meet the intent of our recommendation, we are closing this
recommendation upon issuance of this report.
We appreciate the cooperation and courtesies provided by your staff. If you have any
questions, please contact me or Andrea Deadwyler, Assistant Inspector General for Audits, at
(202) 205-6586.
cc: Dilawar Syed, Deputy Administrator, Office of the Administrator
Arthur Plews, Chief of Staff, Office of the Administrator
David Brown, Acting Chief of Staff, Office of the Administrator
Isabelle James, Deputy Chief of Staff, Office of the Administrator
Katie Frost, Associate Administrator, Office of Capital Access
John Miller, Deputy Associate Administrator, Office of Capital Access
Peter Meyers, Senior Advisor, Office of Capital Access, Disaster Loan Program
Rachel Wilson, Program Analyst, Office of Capital Access, Disaster Loan Liaison
Katherine Aaby, Associate Administrator, Office of Performance, Planning, and the
Chief Financial Officer
Therese Meers, General Counsel, Office of General Counsel
Michael Simmons, Attorney Advisor, Office of General Counsel
Anna M. Calcagno, Director, Office of Program Policy, Analysis, and Evaluation
Walter B. Hill Jr., Chief Risk Officer, Office of Strategic Management and Enterprise Integrity,
Office of Performance, Planning, and the Chief Financial Officer
Tonia Butler, Director, Office of the Chief Financial Officer, Office of Internal
Controls
409 Third St. SW, Washington, DC 20416 • (202) 205-6586 • Fax (202) 205-7382
Table of Contents
Background ..................................................................................................................................... 1
Objective ................................................................................................................................... 2
Results ....................................................................................................................................... 2
SBA’s Processing of COVID-19 EIDL Returned Funds....................................................................... 3
Funds Re-disbursed to Original Borrowers................................................................................ 3
Funds De-obligated and Made Available to Other Borrowers .................................................. 4
Funds Unresolved and Pending Action...................................................................................... 5
COVID-19 EIDL De-obligations ......................................................................................................... 5
Recommendations .................................................................................................................... 6
Evaluation of Agency Response....................................................................................................... 6
Scope and Methodology ................................................................................................................. 7
Figures
1 SBA’s Processing of the Approximately $9 Billion in COVID-19 EIDL
Returned Funds From Banks Through September 30, 2022 ..................................... 3
Appendices
1 Agency Response........................................................................................................ 1-1
i
Background
The U.S. Small Business Administration (SBA) Disaster Assistance Program is the federal
government’s primary program for assisting small businesses, small agricultural cooperatives,
and most private, nonprofit organizations that are affected by declared disasters. Under the
Small Business Act, SBA provides up to $2 million in Economic Injury Disaster Loans (EIDL) to help
those who are eligible meet financial obligations and operating expenses.
Congress approved the Coronavirus Preparedness and Response Supplemental Appropriations
Act, signed by the President on March 6, 2020. This declared the Coronavirus Disease 2019
(COVID-19) pandemic a disaster and authorized SBA to provide EIDLs to eligible entities under
the Small Business Act. At that time, SBA had $1.1 billion in disaster loan credit subsidies
available, which, based on the subsidy rate at that time, was enough to support $8 billion in
lending authority for disaster loans. 1 These funds were exhausted.
On April 24, 2020, Congress approved additional legislation 2 that increased funding to SBA’s
disaster loan program. Congress provided $50 billion in a loan credit subsidy which, based on the
subsidy rate at that time, provided $367 billion in lending authority for fiscal year 2020. The
Consolidated Appropriations Act, 2021, extended the authority for SBA to make COVID-19 EIDLs
through December 31, 2021. SBA stopped accepting applications for new COVID-19 EIDLs or
advances on January 1, 2022. On May 6, 2022, SBA announced that COVID-19 EIDL funds were
exhausted and officially closed the program.
The Senate Small Business and Entrepreneurship Committee expressed concern to SBA in letters
dated May 6, 2022, and July 15, 2022, about whether the agency had exhausted authorized
funds for COVID-19 EIDLs when the program closed. In the July 15, 2022 letter, the committee
believed SBA should have had approximately $7 billion available for lending. Additionally, in the
then Associate Administrator for the Office of Capital Access (OCA) testimony on August 2, 2022,
to the Senate Small Business and Entrepreneurship Committee, it was stated that approximately
61,000 COVID-19 EIDL applications received on or before May 6, 2022, were being processed. Of
the 61,000 pending COVID-19 EIDL applications, 2/3 were loan increase requests, and 1/3 were
1
Lending authority is driven by the subsidy rate that fluctuates each year and is dependent upon expected
payments, disbursements, and defaults.
2
Public Law 116-39 dated April 24, 2020 (Paycheck Protection Program and Health Care Enhancement Act).
1
reconsiderations of denied loan applications. However, the then Associate Administrator stated
that most of these applications were deemed unworkable because the applicants had not filed a
tax return in 2019. 3
SBA had $2 billion in remaining unobligated lending authority on May 6, 2022, when the
program was closed. However, SBA continued to 1) process loan applications they had already
received, 2) reconsider requests previously declined, and 3) consider appeals of previously
declined loans, which left $231 million in unobligated funds remaining as of September 30,
2022. SBA had approved approximately 4 million COVID-19 EIDLs totaling $387 billion as of
September 30, 2022.
Objective
Our objective was to review SBA’s processing of COVID-19 EIDL funds that were returned to the
agency by borrowers, banks, or other sources.
Results
We found significant delays in the decision process related to returned COVID-19 EIDL funds.
These were funds returned to SBA by banks for a variety of reasons, including closed borrower
bank accounts, invalid borrower bank account numbers, or suspicion of fraud. The majority of
these COVID-19 EIDLs were eventually made available to small business owners, including the
original borrowers. However, SBA canceled $3.1 billion of these loans, part of the returned
COVID-19 EIDL funds, over several months.
SBA also canceled $8.1 billion of undisbursed COVID-19 EIDLs. The agency had not disbursed
these loans because of inaccurate applicant information or other reasons, including fraud
indicators that had not yet been resolved. The returned and undisbursed COVID-19 EIDLS,
totaling $11.2 billion, were canceled after the program closed, so the funds could not be made
available to other eligible COVID-19 EIDL borrowers.
On June 3, 2023, the Fiscal Responsibility Act of 2023 was enacted, which rescinded unobligated
COVID-19 EIDL subsidy balances.
3
SBA Office of Inspector General has initiated a separate review of SBA’s reconsideration process for COVID-19
EIDLs.
2
SBA’s Processing of COVID-19 EIDL Returned
Funds
We reviewed approximately $9 billion in COVID-19 EIDL funds returned by banks from the start
of the COVID-19 EIDL program, March 2020 through September 30, 2022 (figure 1). These funds
were re-disbursed to the original borrower, de-obligated and made available to other borrowers,
or were in unresolved or pending status.
Figure 1: SBA’s Processing of the $9 Billion in COVID-19 EIDL Returned Funds From
Banks Through September 30, 2022
Source: Data provided by the SBA Office of Performance, Planning, and the Chief Financial Officer
Funds Re-disbursed to Original Borrowers
Of the $9 billion in COVID-19 EIDL funds returned by banks, we found 53,660 transactions
totaling approximately $4.7 billion that were re-disbursed to original borrowers. This
represented 34 percent of all returned funds (see figure 1). The range of processing
times for re-disbursements to original borrowers was between 1 and 840 days, averaging
114 days.
3
Our analysis of processing times for these re-disbursements, as of September 30, 2022, showed
approximately:
• 51 percent of the re-disbursements were processed within 1–60 days;
• 31 percent were processed within 61 and 180 days;
• 11 percent were processed between 181 and 365 days; and
• 7 percent were processed after 365 days.
SBA indicated processing was contingent upon borrowers returning requested documents. While
more than half of the re-disbursements were processed within 2 months, SBA did not have any
processing timeframes or written procedures in place to manage and monitor the final decision
process.
Funds De-obligated and Made Available to Other Borrowers
Of the $9 billion in COVID-19 EIDL returned funds, there were 37,901 transactions totaling
$912 million that were subsequently de-obligated as of September 30, 2022. This represented
25 percent of all returned funds (see figure 1). More than 80 percent of these de-obligations
were processed after 1 year. The range of processing times for de-obligation was between 1 and
801 days, averaging 417 days.
Our analysis of processing times for these de-obligations, as of September 30, 2022, showed
approximately:
• 2 percent were processed between 1 and 60 days;
• 7 percent were processed between 61 and 180 days;
• 7 percent were processed between 181 and 365 days; and
• 84 percent were processed after 365 days.
Our analysis shows that, overall, the agency re-disbursed funds to original borrowers faster than
de-obligating funds.
Our analysis also showed that SBA did not have any processing timeframes or written
procedures in place to manage and monitor the de-obligation of loans. Had these loans been
de-obligated within a reasonable time from when the returned funds occurred, these funds
could have been loaned to other borrowers who were informed that funds were exhausted
when the program closed on May 6, 2022.
4
Funds Unresolved and Pending Action
Of the $9 billion of COVID-19 EIDL returned funds, there were 63,075 totaling approximately
$3.4 billion that were in unresolved or pending status as of September 30, 2022. This represents
41 percent of all returned funds (see figure 1). Specifically, there was neither a re-disbursement
to the original borrower nor a de-obligation of the loan to free up funds. Between October 25,
2022, through February 14, 2023, SBA de-obligated $3.1 billion of this $3.4 billion (see section
below entitled “COVID-19 EIDL De-obligations”). If these loans had been de-obligated within a
reasonable time from when the funds were returned, these funds could have been loaned to
other borrowers prior to the program closing on May 6, 2022.
COVID-19 EIDL De-obligations
In addition to the returned COVID-19 EIDL funds, SBA had a backlog of undisbursed COVID-19
EIDLs totaling $8.1 billion. This was due to inaccurate applicant information, fraud indicators the
agency had not yet resolved, or because the borrower declined funds.
Between October 25, 2022, and February 14, 2023, SBA processed eight batch de-obligations
that consisted of $3.1 billion of returned funds and the backlog of $8.1 billion of undisbursed
COVID-19 EIDLs, totaling $11.2 billion. These de-obligations were processed after the program
closed; therefore, these funds could not be made available to other borrowers.
The range of processing times for these batch de-obligations was between 176 and 1,015 days,
averaging 873 days.
Our analysis of processing times for these batch de-obligations showed approximately:
• 0.5 percent were processed between 176 and 365 days,
• 65.7 percent were processed between 366 and 900 days, and
• 33.8 percent of the de-obligations were processed after 900 days.
As previously noted, SBA did not have any processing goals or written procedures in place to
manage and monitor this function. As a result of the batch de-obligations, the balance of
unobligated funds increased.
The unobligated funds were authorized exclusively for making COVID-19 EIDLs, but the program
closed in May 2022, and on June 3, 2023, the Fiscal Responsibility Act of 2023 was enacted,
which rescinded unobligated COVID EIDL subsidy balances.
5
Recommendations
To address our findings, we recommend the Administrator direct the Associate Administrator for
the Office of Capital Access to:
Recommendation 1: Create processing timeframes for returned funds for current and future
disaster programs.
Evaluation of Agency Response
SBA management provided formal comments that are included in their entirety in appendix 1.
Management partially agreed with recommendation 1 and submitted supporting documentation
for its closure.
Management stated that it had previously provided OIG with documentation of historical
de-obligation of funds and cancellations related to non-COVID disaster lending programs and
that the Fiscal Responsibility Act of 2023 rescinded unobligated COVID-19 balances on June 3,
2023.
It is important to note that this review was limited to COVID-19 EIDLs; therefore, we did not
request or obtain documentation for non-COVID disaster programs. Additionally, as noted in
our report, we acknowledge that the program closed in May 2022 and that the Act rescinded
unobligated balances in June 2023, and as a result, we did not make a recommendation
regarding this matter.
The following section summarizes the status of our recommendation.
Recommendation 1
We recommend the Administrator direct the Associate Administrator for the Office of Capital
Access to create processing timeframes for returned funds for current and future disaster
programs.
Status: Closed
Management partially agreed with the recommendation and submitted documentation with
their response demonstrating the recommendation has been resolved and implemented.
Specifically, management provided a policy titled “Overview of Disbursement Process in Unified
Lending Platform” that establishes processing timeframes for the handling of returned funds
6
within the ULP system. Management’s actions meet the intent of our recommendation;
therefore, we are closing this recommendation upon issuance of the report.
Scope and Methodology
We prepared this management advisory to bring to your attention concerns with SBA’s
processing of COVID-19 EIDL funds that were returned to the agency by borrowers, banks, or
other sources. We reviewed federal laws, regulations, policies, and procedures pertaining to the
SBA COVID-19 EIDL loan program and met with officials from the Office of the Chief Financial
Officer and SBA Office of Capital Access to discuss processing of COVID-19 EIDLs and handling of
returned funds.
We reviewed COVID-19 EIDL data from the inception of the program through September 30,
2022. We also reviewed data of batch de-obligations of COVID-19 EIDLs between October 25,
2022, through February 14, 2023. This data was provided to us by SBA. The Independent
Auditors' Report on SBA's Fiscal Year 2022 Financial Statements (Report 23-02) issued on
November 15, 2022, by KPMG noted concerns with SBA information systems, indicating the data
may not be reliable. We performed limited testing of SBA’s data by tracing a sample of 15 items
from the list of returned funds to the Electronic Loan Information Processing System. While we
could not completely test the data for reliability, we based this review on the data the agency
uses to manage its program and that which was provided to us.
We conducted this review in alignment with the Office of Inspector General’s quality control
standards and the Council of the Inspectors General on Integrity and Efficiency’s Quality
Standards for Federal Offices of Inspector General, which requires that we conduct our work
with integrity, objectivity, and independence.
7
Appendix 1: Agency Response
U.S. Small Business Administration
Response to Report
1-1
U.S. SMALL BUSINESS ADMINISTRATION
WASHINGTON, D.C. 20416
TO: Hannibal “Mike” Ware, Inspector General
The Office of Inspector General (OIG)
FROM: Jihoon Kim JI KIM Digitally signed by JI KIM
Date: 2024.04.04 17:15:31
-04'00'
Director of Financial Program Operations,
Office of Capital Access
SUBJECT: Management Response to OIG Draft
Report “SBA’S Handling of Returned
COVID-19 Economic Injury Disaster
Loan Funds and De-obligations of
Approved Loans (Project 22805)
DATE: April 03, 2024
Thank you for providing the Office of Capital Access (OCA) the opportunity to respond to
OIG’s Draft Report entitled, “Management Response: SBA’S Handling of Returned COVID-19
Economic Injury Disaster Loan Funds and De-obligations of Approved Loans (Project 22805),”
dated March 04, 2024.
OIG Recommendation 1 – To address our findings, we recommend the Administrator direct the
Associate Administrator for the Office of Capital Access to create processing timeframes for returned
funds for current and future disaster programs.
SBA Response: SBA partially agrees with the recommendation and has previously provided the OIG
with documentation of historical de-obligation of funds and cancellations related to non-COVID disaster
lending programs. On June 3, 2023, the Fiscal Responsibility Act of 2023 was enacted, which rescinded
unobligated COVID-19 subsidy balances. The program has closed and unobligated funds have been
resolved. SBA has documented the historical processes and procedures for returned funds in current and
future disaster lending programs. SBA has submitted documentation with this Management Response to
demonstrate the recommendation made by the OIG has been mitigated and we are requesting closure of
this recommendation on issuance of the OIG Final Report.
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