Eligibility of PPP Loans Exceeding Maximum Size Standards

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U.S. SMALL BUSINESS ADMINISTRATION
OFFICE OF INSPECTOR GENERAL
Eligibility of PPP Loans Exceeding
Maximum Size Standards
Evaluation Report
Report 25-14
May 1, 2025

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U.S. Small Business Administration
Office of Inspector General

EXECUTIVE SUMMARY
Eligibility of PPP Loans Exceeding Maximum Size Standards
(Report 25-14)
What OIG Reviewed
This report presents the results of our
evaluation of the U.S. Small Business
Administration’s (SBA) handling of Paycheck
Protection Program (PPP) loans exceeding
maximum size standards. This is a follow-up to
our report, Inspection of SBA’s Implementation
of the Paycheck Protection Program (Report
Number 21-07), which identified 355 PPP loans
that likely exceeded the maximum size standard
and may have been erroneously approved.
Subsequent to our prior report, we received
corrected loan data, conducted further analysis,
and removed those loans we concluded had
data errors. Based on our updated data analysis,
we identified that 79 of the 355 loans still
appeared to exceed the maximum size standard.
Our objective was to determine whether PPP
loans were made in accordance with program
size standards.
What OIG Found
Although SBA implemented controls designed to
ensure borrowers met size standard eligibility
requirements, the agency overrode these
controls and did not always validate eligibility for
borrowers flagged as potentially exceeding the
size standard.
We reviewed 64 of the 79 loans identified as
potentially exceeding size standards and
determined SBA did not validate size standard
eligibility requirements for 48 of the 64 loans (or
75 percent), totaling approximately $343
million. Of the 48 loans, 29 totaling $196.5
million were forgiven without completing the
required manual reviews, using memoranda that

were unrelated to size standard requirements;
and 19 totaling $146 million were forgiven
without sufficient documentation to support
loan review decisions. This occurred because
SBA’s process changes allowed it to forgive loans
flagged as potentially ineligible prior to
conducting manual reviews to ensure borrowers
met eligibility requirements, which fueled a pay-
and-chase environment.
As a result, SBA did not have reasonable
assurance that borrowers met size standard
requirements, which increased the risk of
improper payments and loss of taxpayer funds.
Further, without properly evaluating compliance
with size standard requirements for the 48 loans
totaling about $343 million, SBA forgave PPP
loans to potentially ineligible businesses.
What OIG Recommended
We recommended SBA obtain the
documentation necessary to fully assess
borrower size standard eligibility for the 48
loans to ensure eligibility requirements were
met and, if not, seek repayment of forgiveness
amounts granted to ineligible borrowers.
Agency Response
SBA management partially agreed with our
recommendations. Management’s planned
actions for recommendation 1 satisfy the intent
of the recommendation and it is resolved.
However, management’s proposed actions do
not fully satisfy the intent of recommendation 2.
OIG will seek resolution in accordance with our
audit resolution policy.

OFFICE OF INSPECTOR GENERAL
U.S. SMALL BUSINESS ADMINISTRATION
MEMORANDUM
409 Third St. SW, Washington, DC 20416 • (202) 205-6586 • Fax (202) 205-7382
Date:             May 1, 2025
To:
Kelly Loeffler
Administrator

From:
Sheldon Shoemaker
Deputy Inspector General

Subject:
Eligibility of PPP Loans Exceeding Maximum Size Standards (Report 25-14)
This report presents the results of our audit of the Eligibility of PPP Loans Exceeding Maximum
Size Standards. U.S. Small Business Administration management provided formal comments for
the draft report, which we considered when preparing this final report. Management partially
agreed with recommendations 1 and 2. Management’s planned actions for recommendation 1
satisfy the intent of the recommendation and it is resolved. However, management’s planned
actions for recommendation 2 do not fully satisfy the intent of the recommendation and it is
unresolved. We will seek resolution in accordance with our audit resolution policy.
We appreciate the cooperation and courtesies provided by your staff. If you have any questions
or need additional information, please contact me or Andrea Deadwyler, Assistant Inspector
General for Audits, at (202) 205-6586.

409 Third St. SW, Washington, DC 20416 • (202) 205-6586 • Fax (202) 205-7382

cc:
Wesley Coopersmith, Chief of Staff, Office of the Administrator

Ben Grayson, Deputy Chief of Staff, Office of the Administrator

Thomas Kimsey, Associate Administrator, Office of Capital Access

Dianna Seaborn, Deputy Associate Administrator, Office of Capital Access

Anna M. Calcagno, Director Office of Performance, Planning, and Chief Financial
   Officer
  Nathan Davis, Chief Financial Officer and Chief Risk Officer of Performance, Planning and
Chief Financial Officer

Deborah Chen, Deputy Chief Financial Officer, Office of Performance, Planning, and Chief
   Financial Officer
Robin Wright, Chief Operating Officer, Office of the Administrator
Wendell Davis, General Counsel, Office of General Counsel
Michael Simmons, Attorney Advisor, Office of General Counsel
  Walter B. Hill, Jr., Financial Program Specialist, Office of Strategic Management and
Enterprise Integrity

Peter Meyers, Senior Advisor, Office of Capital Access

Lance Ausing, Audit Liaison/Program Analyst, Office of Capital Access

i

Contents
Introduction .................................................................................................................................... 1
Background ..................................................................................................................................... 1
Objective ............................................................................................................................... 3
Results ............................................................................................................................................. 3
Finding 1: SBA Based Forgiveness Decisions Solely on Memoranda Unrelated to Size
Standard Requirements..................................................................................................... 5
Finding 2: Manual Reviews Were Not Adequate to Ensure Size Standard Eligibility
Requirements Were Met ................................................................................................... 6
Recommendations ................................................................................................................ 8
Evaluation of Agency Response ....................................................................................................... 9
Summary of Actions Necessary to Close the Recommendations ........................................ 10
Figures
 1
Loans That Potentially Exceeded Size Standards ................................................................. 4
Appendices
 1
Scope and Methodology .................................................................................................. 1-1
 2
Monetary Impact .............................................................................................................. 2-1
 3
Agency Response .............................................................................................................. 3-1

1
Introduction
This report presents the results of our evaluation of the U.S. Small Business Administration’s
(SBA) handling of Paycheck Protection Program (PPP) loans exceeding maximum size standards.
This report is a follow-up to our report, Inspection of SBA’s Implementation of the Paycheck
Protection Program (Report Number 21-07), which reported businesses may have been
erroneously approved for PPP loans because they appeared to exceed the maximum size
standard according to SBA loan data.
Background
Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020 to
provide economic relief from the effects of the COVID-19 pandemic. Section 1102 of the CARES
Act established the PPP under Section 7(a) of the Small Business Act, which provided fully
guaranteed SBA loans for certain eligible borrowers that can be forgiven if loan proceeds are
used as required by the law. Eligible expenses include payroll, rent, utility payments, and other
authorized uses. Additional legislation increased total program funding to $813.7 billion.
Under the CARES Act, borrowers of First Draw PPP loans (those who had not received a PPP loan
before) were generally required to have 500 or fewer employees or meet applicable SBA
employee or revenue-based size standards as denoted by the borrower’s North American
Industry Classification System (NAICS) code for their primary industry, unless the entity was
subject to the per location requirement. 1,2 According to the CARES Act, an employee is “a
person employed on a full-time, part-time, or other basis” such as a temporary worker.3 The
number of employees for a non-seasonal business is determined by the average number of
employees it has per pay period either over the 12 completed calendar months prior to the date
of the loan application, or over the period used to calculate their loan amount.4

 1 The per location requirement allowed industries with NAICS code beginning with 72 to have up to 500 employees
per physical location. Our review did not include any businesses with NAICS codes beginning with 72 or NAICS codes
with revenue-based size standards.
2 CARES Act §1102(a)(2), 15 U.S.C. §636(a)(36)(D)(i).
3 CARES Act §1102(a)(2), 15 U.S.C. §636(a)(36)(D)(v).
4 U.S. Small Bus. Admin., Paycheck Protection Program Loans, Frequently Asked Questions, Question #14 (as of
March 3, 2021).

2
To determine the number of employees, the borrower is considered together with its affiliates,
unless the borrower qualified for an affiliation waiver.5 A business that exceeded the greater of
500 employees or SBA’s employee-based size standards still could have qualified for a First Draw
PPP loan under SBA’s Alternative Size Standard, which provided that a business, together with its
affiliates, was eligible for a PPP loan if, as of March 27, 2020, the business had:
• A maximum tangible net worth that did not exceed $15 million; and
• An average net income after federal income taxes (excluding any carry-over losses)
for the 2 full fiscal years before the date of the application that did not exceed $5
million.6
Under the Economic Aid Act, a borrower is eligible for a Second Draw PPP loan (a borrower who
had received a First Draw PPP loan) only if it had no more than 300 employees, unless the entity
was subject to per location requirements.7 Second Draw PPP loans do not allow the use of SBA
employee-based size standards or SBA’s Alternative Size Standard.
SBA staff and government contractors, under the supervision of SBA’s Office of Capital Access,
are responsible for the PPP loan review process. SBA’s initial process consisted of automated and
manual reviews of selected loans to test for compliance with program requirements and
evaluate the accuracy of PPP borrowers’ self-certifications and material representations prior to
forgiveness of the loans. In 2021, SBA updated its process to review flagged loans after
forgiveness.
Automated reviews were used, in part, to flag loans with hold codes that triggered consideration
for a manual review, such as hold code 15 for potential ineligible business size. The purpose of
SBA manual reviews was to determine all aspects of loan eligibility, including size standards,
while contractor manual reviews focused primarily on resolving hold codes, including those
related to potential ineligible business size, by reviewing loan data and documentation. When
SBA selects a loan for manual review, it requests lenders to provide the relevant eligibility
information, including documentation related to business size. SBA was required to maintain the
review documentation in its forgiveness platform.

5 Under the CARES Act, affiliation rules were waived for (1) any business concern with not more than 500 employees
that is assigned a NAICS code beginning with 72; (2) any business concern operating as a franchise that is assigned a
franchise identifier code by the Administration; (3) any business concern that receives financial assistance from a
company licensed under Section 301 of the Small Business Investment Act of 1958. The CARES Act was amended by
the Economic Aid Act and the American Rescue Plan Act to expand the waiver of affiliation rules.
6 U.S. Small Bus. Admin., Paycheck Protection Program Loans, Frequently Asked Questions, Question #2 (as of March
3, 2021).
7 Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act § 311(a), 15 U.S.C. §636(a)(37)(A)(iv)(I)(aa).

3
SBA’s Interim Final Rules for PPP loans state that the review of borrower certifications and
representations regarding the borrower’s eligibility for a PPP loan and loan forgiveness is
essential to ensuring loans are directed to the entities Congress intended. If SBA determined the
borrower was ineligible, the borrower would not receive loan forgiveness.8
In our prior report, Inspection of SBA’s Implementation of the Paycheck Protection Program
(Report Number 21-07), based on SBA’s loan data, we identified 355 loans that exceeded both
the 500 employee threshold and the applicable employee-based size standard for the business
industry. Through subsequent analysis of corrected loan data, we identified that 79 of the 355
loans still appeared to exceed the maximum size standard. Of the 79 loans, 78 were approved in
2020 under CARES Act criteria, while the remaining loan was approved in 2021 under Economic
Aid Act criteria. We reviewed 64 of the 79 loans, totaling approximately $465 million.
Objective
Our objective was to determine whether PPP loans were made in accordance with program size
standards.
Results
Although SBA implemented controls that were designed to ensure size standard eligibility
requirements were met, it overrode these controls and did not always validate size standard
eligibility for borrowers flagged as potentially exceeding the size standard. We reviewed 64 of 79
loans identified as potentially exceeding the size standards and found that SBA adequately
determined that borrowers met program size standard requirements for 16 of 64 loans.
However, SBA forgave the remaining 48 (or 75 percent), totaling approximately $343 million
without ensuring borrowers met size standard eligibility requirements.

8 Paycheck Protection Program—Loan Forgiveness Requirements and Loan Review Procedures as Amended by
Economic Aid Act, 86 Federal Register, 8283, 8285-88 (Feb. 5, 2021).

4
Specifically, SBA forgave:
• Twenty-nine loans, totaling $196.5 million, by using memoranda unrelated to size
standard requirements. These loans did not receive the required manual reviews.
• Nineteen loans, totaling $146 million, without conducting adequate manual
reviews to ensure size standard eligibility requirements were met (see Figure 1).
Figure 1: Loans That Potentially Exceeded Size Standards

Source: Analysis of OIG results.
Because SBA incorrectly cleared loans based on unrelated memoranda and manual reviews did
not include sufficient documentation, SBA did not have reasonable assurance that borrowers
met size standard eligibility requirements. As a result, SBA forgave loans flagged as potentially
ineligible for exceeding PPP size standard requirements, fueling a pay-and-chase environment
and increasing the risk of improper payments and loss of taxpayer funds. Further, without
appropriately evaluating the loans for compliance with borrower size standard requirements,
SBA may have allowed businesses that did not qualify as small businesses to access program
funds for which they were not eligible.

5
Finding 1: SBA Based Forgiveness Decisions Solely on
Memoranda Unrelated to Size Standard Requirements
Based on our review of 64 of 79 loans, we found that SBA incorrectly cleared hold code 15,
which related to potential ineligible business size, and forgave 29 of these loans, totaling $196.5
million, solely based on memoranda unrelated to size standard eligibility requirements.
Specifically, SBA cleared the hold code for:
• Twenty-six loans using its Transition to Review of Remaining Loans in the Manual
Review Population Based on Risk-Priority memorandum, dated June 7, 2021. This
memorandum separated the manual review and forgiveness processes,
automatically allowing SBA-designated low risk loans to be forgiven before
completing the required manual reviews. We found that, on average, SBA forgave
these loans within 3 days of clearing the hold code.
• Two loans using its Implementing Options 1.b and 2.a memorandum, dated May
19, 2021. This memorandum provided instructions for the disposition of certain
loans identified as higher risk prior to completing the required manual reviews.
• One loan using its Machine Learning and Flag Analysis memorandum, dated March
26, 2021. This memorandum applied machine learning to certain PPP loans
identified as low risk, which allowed them to be forgiven prior to completing the
required manual reviews.
According to SBA officials, they applied a hold code 15 to PPP loans for businesses with an
employee count of over 500. This was a control SBA put in place to identify and manually review
potentially ineligible loans before remitting forgiveness payments to the lender. Although SBA
had initially flagged the 29 loans with a hold code 15, neither SBA nor its contractor manually
reviewed them to ensure size standard eligibility requirements were met prior to remitting
forgiveness payments to the lenders.
SBA made process changes which allowed it to use memoranda unrelated to size standard
requirements to clear hold codes before conducting manual reviews. Specifically, these changes
included allowing SBA to disposition large batches of PPP loans with hold codes and forgive them
prior to conducting manual reviews. SBA may review a loan at any time, including those with
hold codes and those that have been forgiven and recover funds, as necessary.9 During the

9 Paycheck Protection Program, 85 Federal Register 20811, 20814 (April 15, 2020); Paycheck Protection Program—
SBA Loan Review Procedures and Related Borrower and Lender Responsibilities, 85 Federal Register 33010, 33012
(June 5, 2020).

6
scope period of our review, we determined that SBA forgave the 29 loans but did not conduct
subsequent reviews of the hold codes. These changes negated its implemented controls, which
increased the risk of financial loss and continue to fuel a pay-and-chase environment.
OMB Circular A-123, Appendix C, effective fiscal year 2021, provided guidance to federal
agencies to ensure they focused on identifying, assessing, prioritizing, and responding to
payment integrity risks to prevent improper payments in the most appropriate manner. The
circular provided that, to be effective, programs should prioritize efforts toward preventing
improper payments from occurring to avoid operating in a pay-and-chase environment.10
We question costs on the 29 loans, totaling $196,518,147, because SBA cleared the size standard
hold code and forgave these loans using memoranda unrelated to size standard requirements
prior to completing the required manual reviews to ensure size standard eligibility requirements
were met.
Finding 2: Manual Reviews Were Not Adequate to Ensure Size
Standard Eligibility Requirements Were Met
We found that manual reviews for 19 of 64 loans, totaling approximately $146.2 million, were
not adequate to ensure borrowers met size standard eligibility requirements. This is because
supporting size standard documentation was not sufficient to substantiate that the borrower
was eligible for the loan and SBA’s subsequent decision to approve loan forgiveness. Of the 19
loans, SBA personnel reviewed and forgave 16, totaling $119.4 million, while SBA’s contractor
reviewed, and SBA then forgave, the remaining 3, totaling $26.8 million. As a result, SBA did not
have reasonable assurance that borrowers met size standard eligibility requirements, which
increased the risk of improper payments and loss of taxpayer funds.
At the onset of the PPP, borrowers were required to submit supporting payroll documents as
part of their loan application.11 We found that SBA was missing supporting documentation, such
as payroll records and tax documents, that was needed to determine employee counts for the
borrower and/or its affiliates. Specifically, we found that 18 of the 19 loans were forgiven
without adequate reviews as they were missing either some or all documents needed to validate
whether the borrower met program size standards. For the remaining loan, SBA did not properly
apply the size standard criteria for the borrower’s Second Draw PPP loan.

10 OMB Circular A-123, Appendix C, effective fiscal year 2021.
11 U.S. Small Bus. Admin., SBA Form 2483, Paycheck Protection Program Borrower Application Form (April 2020).

7
Based on our review of available documents, which included assessing whether borrowers were
subject to per physical location requirements or qualified for an affiliation waiver, we
determined the borrowers exceeded 500 employees and the applicable employee-based size
standard for the business industry. We then analyzed the loans to determine if borrowers
qualified using the alternative size standard which allowed them to document their tangible net
worth and average net income after federal income taxes using tax forms or business financials
to justify their financial position. Although we found borrowers provided tax documents for
some loans, they did not provide similar documents for their affiliates; therefore, we could not
fully assess the alternative size standard for any of these loans.
For example, for one of 18 loans reviewed, a borrower who reported numerous affiliates did not
provide supporting documentation for SBA to assess their number of employees or to support
most of their affiliates’ employee counts either. Although the borrower did not provide this
supporting documentation, SBA approved forgiveness for the full loan amount totaling over $10
million with interest.
In another example, we identified a borrower who was a parent company with multiple
subsidiaries and did not provide the financial information needed to analyze the alternative size
standard. Without the financial information for the borrower and its affiliates, SBA did not have
the necessary documentation to determine eligibility under the alternative size standard.
Although the borrower did not provide the required documentation, SBA approved forgiveness
in full totaling over $5 million with interest.
Regarding the loan for which we determined SBA did not properly apply the size standard criteria
for the borrower’s Second Draw PPP loan, we found that the loan documentation identified the
borrower had over 1,000 employees at the time of application. We determined the borrower
had affiliates; however, the documentation did not support the affiliates’ number of employees.
Accordingly, we determined the borrower exceeded the maximum size standard of 300
employees for Second Draw PPP loans.
The Economic Aid Act states that a borrower is eligible for a Second Draw PPP loan only if it
employed 300 or fewer employees.12 After issuance of this Act, SBA clarified that Second Draw
PPP loans did not allow the use of the SBA employee-based or alternative size standards;13
however, SBA determined the business was eligible for a ‘per physical location’ exemption.
Applicable program requirements stated the exemption was limited to applicants with NAICS

12 Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act §311(a), 15 U.S.C.§636(a)(37)(A)(iv)(I)(aa).
13 U.S Small Bus. Admin., Paycheck Protection Program Loans, Frequently Asked Questions, Question #63 (as of
March 3, 2021).

8
codes beginning with prefix 72, or businesses with other specific industry prefixes that employed
300 or fewer employees per location.14
Based on our review, we identified the business did not have a NAICS code that qualified for the
per location exemption, therefore we concluded the borrower exceeded the size standard and
was ineligible under Second Draw PPP loan size requirements. Notwithstanding, SBA approved
forgiveness for the full loan amount totaling over $2 million with interest.
We question costs for the 19 loans totaling $146,204,791 because SBA did not have sufficient
documentation to ensure borrowers met size standard eligibility requirements to support its
loan review decisions.
Recommendations
To address the potentially ineligible loans, we recommend the Administrator direct the Associate
Administrator of the Office of Capital Access to:
Recommendation 1: Obtain the documentation necessary to fully assess the borrower’s size
standard eligibility for the 29 loans, totaling $196.5 million, that were cleared solely by
memoranda unrelated to size standard eligibility requirements to ensure only eligible borrowers
received funds and, if not, seek repayment of forgiveness amounts on all loans deemed
ineligible.
Recommendation 2: Obtain the documentation necessary to fully assess whether size standard
eligibility requirements were met for the 19 loans, totaling $146.2 million and, if not, seek
repayment of forgiveness amounts for all loans deemed ineligible.

14 U.S. Small Bus. Admin., Paycheck Protection Program Loans, Frequently Asked Questions, Question #63 (as of
March 3, 2021).

9
Evaluation of Agency Response
SBA management provided formal comments on the draft report, which we considered when
preparing this final report. Management partially agreed with recommendations 1 and 2.
Management’s planned actions for recommendation 1 satisfy the intent of the recommendation
and it is resolved. However, management’s planned actions for recommendation 2 do not fully
satisfy the intent of the recommendation and it is unresolved. We will seek resolution in
accordance with our audit resolution policy.
In their response, management stated that OIG is inaccurate regarding its statement that SBA
incorrectly resolved and forgave 29 loans. They stated that SBA cleared the flags for these loans
using a risk-responsive, data-driven approach, resulting in expedited batch disposition without
manual review.
Additionally, management stated they re-examined the 19 loans for which OIG determined
manual reviews were not adequate to ensure borrowers met size standard eligibility
requirements. Management stated that they found 9 of 19 loans had sufficient documentation
to assess whether size standard eligibility requirements were met, and forgiveness was properly
awarded. Six borrowers qualified for an affiliation waiver because their businesses operated as
franchises and had SBA-assigned franchise identifier codes. Three borrowers qualified by
meeting applicable employee-based size standard for their primary industry. Management
stated that they provided this information to OIG.
Of the remaining 10 loans, SBA implicitly acknowledged that it did not contain sufficient
documentation. SBA is currently reviewing one loan and stated that it will immediately flag the
remaining 9 for post-payment reviews.
We disagree with management’s assertion that SBA was not required to conduct manual reviews
for the 29 loans. Specifically, SBA’s review plan stated it would manually review loans identified
by its automated screening process including loans flagged with attributes that may indicate the
business was not eligible. The plan also stated that SBA would manually review loans referred by
OIG. Subsequent to our prior report, Inspection of SBA’s Implementation of the Paycheck
Protection Program (Report Number 21-07), we referred to SBA 355 PPP loans, including these
29 loans, that appeared to exceed maximum size standards. Therefore, based on our
understanding of SBA’s loan selection criteria, we believe the agency was required to manually
review the 29 loans that our office referred.

10
Regarding the 9 of 19 loans in question, we analyzed the information management provided.
Based on our analysis, for the 6 borrowers that SBA stated qualified for an affiliation waiver, we
noted the franchises were not separate legal entities but were instead owned by one singular
business entity that employed individuals to operate the franchises. Therefore, these employees
would contribute to the total employee count for the singular business entity when determining
the number of employees for size standard purposes. For example, one borrower identified over
500 employees in their tax documentation. The borrower operated multiple franchises with
multiple locations for each franchise under one legal entity (the borrower). The borrower’s
employee count exceeded the employee-based size standard and would need to qualify using
the alternative size standard; however, the loan file did not have sufficient documentation to
determine if the borrower qualified for the alternative size standard.
For the remaining 3 borrowers that management stated qualified by meeting applicable
employee-based size standard, we maintain our position that SBA did not have sufficient
documentation to determine size standard eligibility prior to the loan being forgiven or to
support its loan review decisions.
See Appendix 3 for management’s comments in their entirety.
Summary of Actions Necessary to Close the Recommendation(s)
The following section summarizes the status of our recommendations and the actions necessary
to close them.
Recommendation 1
Obtain the documentation necessary to fully assess the borrower's size standard eligibility for
the 29 loans, totaling $196.5 million, that were cleared solely by memoranda unrelated to size
standard eligibility requirements to ensure only eligible borrowers received funds and, if not,
seek repayment of forgiveness amounts on all loans deemed ineligible.
Status: Resolved
Management partially agreed with this recommendation, stating that SBA’s review process did
not require them to review the loans, and they do not believe they failed to properly implement
policies and procedures. However, management agreed to review the 29 loans to ensure the
borrower’s eligibility. In follow-up correspondence, management stated they plan to complete
the reviews by March 31, 2026.

11
Management’s proposed action satisfies the intent of the recommendation. Management plans
to review the loans to ensure eligibility requirements were met. This recommendation can be
closed when management provides evidence that they completed the manual reviews and
obtained the documentation necessary to fully assess the borrower's size standard eligibility for
the 29 loans and are seeking recovery of all ineligible loans.

Recommendation 2
Obtain the documentation necessary to fully assess whether size standard eligibility
requirements were met for the 19 loans, totaling $146.2 million and, if not, seek repayment of
forgiveness amounts for all loans deemed ineligible.
Status: Unresolved
Management partially agreed with the recommendation, stating that they examined the 19
loans and found that 9 loans contained sufficient documentation to confirm size, and the
forgiveness decisions were appropriate. One of the remaining 10 loans is currently undergoing a
post-payment review, and SBA will immediately flag the remaining 9 loans for post-payment
review. SBA will follow the agency’s recovery plan in effect at completion of the reviews if any
issues are found.
This recommendation is unresolved. As stated above in our evaluation of the Agency’s response,
and based on our review of the documentation provided, we disagree with SBA’s determination
that borrowers for 9 of the 19 loans met eligibility requirements. However, we will attempt to
resolve these recommendations with SBA management in accordance with our audit follow-up
policy.

1-1
Appendix 1: Scope and Methodology
The scope of our review covered Paycheck Protection Program (PPP) loans disbursed in fiscal
years 2020 and 2021 and forgiven as of May 2022. To gain an understanding of size standard
requirements for the PPP and the various changes over time, we conducted extensive research
on the statutes, regulations, forms, FAQs, and other guidance published from the beginning of
the program (March 27, 2020) through May 2022. We interviewed U.S. Small Business
Administration (SBA) personnel and SBA’s contractor to gain an understanding of the loan review
process related to size standard eligibility. We developed a loan review checklist to analyze and
assess the appropriateness of SBA and contractor manual review decisions regarding size
standard eligibility requirements for loans in our sample that were manually reviewed.
To ensure that our final sample would include only loans exceeding the size standard, we refined
the data using the 355 potentially ineligible loans from SBA Office of Inspector General Report
Number 21-07 as a reference point as data analysis showed they exceeded both 500 employees
and the employee-based size standard for their business industry. To begin, we removed loans
which would not fall under the scope of this review (i.e., revenue-based North American Industry
Classification System (NAICS), NAICS beginning with 72, NAICS codes that changed from
origination to forgiveness, or the number of employees listed in the data was fewer than 500).
We further refined our universe based on our scope period. We identified 178 loans that still
exceeded the employee-based size standard after forgiveness, which included a small number of
loans that were not part of the original universe of 355.
After noticing anomalies in some of the critical data fields, we performed additional analyses.
Specific tests included removing loans where (1) employee counts were not reasonable based on
a calculation of the borrower’s payroll dollar amount per employee, (2) employee count fields
contained an extra zero, and (3) the employee count fields matched the loan amount or the
borrower’s ZIP Code. Based on our analyses and data refinement, we identified 79 PPP loans,
totaling approximately $570 million, that potentially exceeded the employee-based size
standard. We reviewed 64 of 79 loans, totaling approximately $465 million, as described below.
At the time of our review, 29 of the 79 loans in our final universe received only an automated
review. We reviewed the loans that only received automated reviews and analyzed forgiveness
data to determine if the loans were cleared by memoranda prior to the completion of a manual
review. For the remaining 50 loans, SBA conducted in-depth reviews for 27 and its contractor
manually reviewed 23 in order to clear the size standard hold code. We reviewed all 27 loans

1-2
that SBA manually reviewed to determine if they were eligible under PPP size standard
requirements and judgmentally selected 8 of the 23 loans manually reviewed by a contractor to
determine if those loans were eligible under PPP size standard requirements.
We conducted this evaluation in accordance with the Council of the Inspectors General on
Integrity and Efficiency’s Quality Standards for Inspection and Evaluation. These standards
require that we adequately plan and perform the evaluation to obtain sufficient and appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our objective.
We believe that the evidence provides a reasonable basis for our conclusions based on our
objective.
Use of Computer-Processed Data
We relied on information from SBA’s Loan Accounting System, E-Tran, Forgiveness Platform to
conduct our analyses. We conducted numerous analyses of PPP data to determine if SBA’s
reported data were reliable. We performed reliability testing for fields that we used in the data
which were critical to our review, such as the NAICS code and number of employee fields. To
provide further confidence in the data we used for this report, we validated the NAICS and
employee counts on a loan-by-loan basis by reviewing source documents, when possible. In
many instances, loans did not have a source document for comparison purposes that contained
the needed data. With further validation on a loan-by-loan basis we were able to use conclusions
from other documentation, such as payroll documents, tax information, and other loan
documentation to provide confidence in our results. Through specific data reliability testing as
well as conducting further validations on specific data elements and reviews of additional
documentation, we believe the data elements used in this report are sufficiently reliable to
support our report conclusions.
Prior Audit Coverage
The following lists OIG’s previous audit coverage related to the objective of this report:
Report Number
Report Title
Report Date
Report 21-07
Inspection of SBA’s Implementation of the
Paycheck Protection Program
January 14, 2021
Report 22-09
SBA’s Paycheck Protection Program Loan
Review Processes
February 28, 2022

2-1
Appendix 2: Monetary Impact
Monetary impact identified in this report is categorized as questioned costs. Questioned costs are
expenses not supported by adequate documentation at the time of the audit, or which otherwise do
not comply with legal, regulatory, or contractual requirements.
Table 2: OIG Schedule of Monetary Impact (Questioned Cost)
Source: OIG analysis of loan data.
Description
Amount (Dollars)
Explanation
Unsupported Costs
$196,518,147
We found that SBA forgave 29
loans by incorrectly using
memoranda that were
unrelated to size standard
requirements, without
conducting the required manual
review.
Unsupported Costs
$146,204,791
We found that SBA or its
contractor did not conduct
adequate manual reviews on 19
loans to ensure size standard
eligibility requirements were
met.
Total Overall Questioned Cost
$342,722,938

3-1
Appendix 3: Agency Response

U.S. SMALL BUSINESS ADMINISTRATION
WASHINGTON, DC 20416

To:
Sheldon Shoemaker
Deputy Inspector General
U.S. Small Business Administration

From:
Jihoon Kim, Director, Office of Financial Program Operations, OCA
JI KIM
Digitally signed by JI KIM
Date: 2025.03.27 11:35:16 -04'00'
Date:
March 28th, 2025

Subject:
Response to OIG Draft Report – Eligibility of PPP Loans Exceeding Maximum
Size Standards (Project 22015)
We appreciate the role the Office of Inspector General (OIG) plays in working with management
in ensuring that our programs are effectively managed, and for the feedback provided in this
draft report. We offer the following comments to the draft and Recommendations:

OIG inaccurately states that SBA incorrectly resolved and forgave 29 loans, totaling $196.5
million, that were flagged for potential ineligible business size. In fact, the loans did not require a
manual review under SBA’s procedures. SBA cleared the flags using a risk responsive, data
driven approach in which specific categories of flagged loans that presented minimal risk of
noncompliance with eligibility requirements, fraud, or abuse, for expedited batch-disposition
without manual review. This was necessitated by the challenges posed by the volume of PPP
loans and the statutory timeframe for reviews.
OIG states in this report that manual reviews for 19 of 64 loans, totaling approximately $146.2
million, were not adequate to ensure borrowers met size standard eligibility requirements
because supporting size standard documentation was not sufficient to substantiate that the
borrower was eligible for the loan. SBA re-reviewed the 19 loans and found that for 9 loans,
sufficient documentation exists in the file to assess whether size standard eligibility requirements
were met, and forgiveness was properly awarded. Six borrowers qualified for an affiliation
waiver based on the fact that the business operated as a franchise that was assigned a franchise
identifier code by the Agency. Three borrowers qualified by meeting the applicable employee-
based size standard corresponding to its primary industry NAICS code.

SBA previously provided OIG with a list of the 9 loans totaling $75,284,095 which we believe
contained sufficient documentation in the file at the time of manual review to confirm size
standard eligibility. OIG disagreed with SBA’s determination and requested additional

information during this 30-day comment period. SBA subsequently provided the OIG with a
detailed spreadsheet outlining its findings as well as citing the specific docs within the loan files
that confirm the eligibility of the 9 loans.

Recommendation 1: Obtain the documentation necessary to fully assess the borrower's size
standard eligibility for the 29 loans, totaling $196.5 million, that were cleared solely by
memoranda unrelated to size standard eligibility requirements to ensure only eligible borrowers
received funds and, if not, seek repayment of forgiveness amounts on all loans deemed
ineligible.
SBA Response: SBA partially agrees. While our review processes did not require us to look at
these loans when they were originally forgiven and SBA does not believe it failed to properly
implement its policies and procedures, we do agree to move forward with conducting the 29
reviews to ensure that the borrower was an eligible size at the time the loan was made.

Recommendation 2: Obtain the documentation necessary to fully assess whether size standard
eligibility requirements were met for the 19 loans, totaling $146.2 million and, if not, seek
repayment of forgiveness amounts for all loans deemed ineligible.
SBA Response: SBA partially agrees. SBA re-examined the 19 loans and found that 9 loans
contained sufficient documentation to confirm size, and the forgiveness decisions were
appropriate. Of the remaining 10 loans, one is currently undergoing a post payment review, and
SBA will immediately flag the remaining 9 loans for post payment reviews. SBA will follow the
Agency’s recovery plan in effect at the time of completion of the reviews if any issues are found
with the remaining loans.

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