Fraud has been committed against a federal COVID-19 relief program for small businesses and nonprofits, however, not as much as initially feared according to an audit. Only about 2% of the COVID-19 Economic Injury Disaster Loans and EIDL Advance Grants made in March-December of 2020 went to “potentially ineligible recipients,” according to the audit from the U.S. Small Business Administration’s Office of Inspector General.

Expected Fraud

In a previous audit conducted in July of 2020, Inspector General Hannibal “Mike” Ware said there was potentially rampant fraud in the EIDL program. The more recently conducted audit shows that the SBA approved 75,180 EIDL loan applications, and 117,135 grant applicants which totaled around $3.7 billion given to businesses and nonprofits that are barred from receiving federal funds. These applicants used the names of dead people, have been convicted of tax fraud, barred from securing federal contracts or engaged in other questionable activities.

Small Margin, Big Mistake

Overall, it appears that about 2% of the $210 billion distributed last year was given out incorrectly, which is much more conservative than Inspector General Hannibal Ware had previously predicted. Even with a lower rate than originally predicted, there were still some pretty glaring mistakes made in the process. The largest mistake made likely was the agency’s failure to perform a legally required check of applicants’ identifying details against the Treasury Department’s “Do Not Pay” system.

The Do Not Pay system was set up in 2011 in an attempt to reduce improper payments to people who are dead, convicted of tax fraud, and many other red flags. There were many grant and loan recipients who received the EIDL payments despite the system indicating that there was a high likelihood they should not be receiving them. Included in Mr. Ware’s report, was a response that stated that in early April of 2021 the SBA began cross-referencing the Do Not Pay records before sending out finds.

Wrapping Up

The process for determining who should be receiving EIDL funds and who should not definitely had a few issues, likely due to the rapid setup that happened under the Trump Administration. The fast turn-around time needed to roll the program out prohibited the set-up of “Adequate front-end controls to determine eligibility for the loans and led to the distribution of COVID relief to potentially ineligible recipients,” according to Mr. Ware.

Can this affect you? For a better understanding feel free to give us a call at 516-541-6549.

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