Millions of PPP and EIDL Loans Escape SBA Review, Government Report Finds

By Mellissa Chang
April 5, 2021

A new report from the Government Accountability Office (GAO) has revealed significant oversight deficiencies in the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan program (EIDL). This report demonstrates several of the GAO’s concerning discoveries, including incomplete loan reviews, lapses in recordkeeping, and insufficient oversight plans within the Small Business Administration (SBA). These discoveries and ongoing concerns of fraud have compelled the GAO to add the PPP and EIDL its 2021 High-Risk List, which is the agency’s watchlist for “programs and operations that are vulnerable to waste, fraud, abuse, or mismanagement or in need of transformation.”

Although the SBA has strengthened loan approval processes in the second round of PPP funding, the GAO report states that in the initial round of the PPP, the “SBA did not conduct any review of loan or borrower information.” The report also indicates that the SBA has yet to implement a review process for loans in aggregate, and has only recently started a quality control process to ensure that all steps of the individual loan review process are followed.

The report also highlights significant recordkeeping deficiencies, which were first identified in December by the SBA’s financial statement auditor. According to the GAO, “the auditor reported that SBA was unable to provide adequate documentation to support a significant number of transactions and account balances due to inadequate processes and controls.”

Additionally, the GAO report identified insufficient and inconsistent loan review standards and partial loan reviews. The SBA relies heavily on third-party contractors and proprietary automated software to conduct loan reviews. The software flags applications with irregularities and signs of fraud for further review by loan officers, however, the GAO reports that some changes to SBA fraud criteria were not incorporated into the software. Moreover, the report indicates that reference guides used by loan officers did not always match SBA’s official fraud directives.

Further alarming is that some loans flagged for additional review were never examined by loan officers. According to the GAO, SBA officials used an automated approval system for four months before realizing some “applications contained alerts that should have been reviewed by loan officers.” In fact, the SBA’s financial statement audit identified over 2 million PPP loans that were approved despite being flagged for potential non-compliance, and that over 896,000 errors from lender reporting were identified but not reviewed by the SBA.

In addition to highlighting the need for enhanced fraud prevention strategies, these findings underscore the importance of a robust examination of the millions of loans already approved. To date, 120 individuals have been charged with PPP-related fraud, $580 million in EIDL funds have been seized, and the SBA Office of Inspector General has opened over 260 investigations. While these cases are significant and commendable, they are likely just the tip of the iceberg.

In a series of blog posts on the PPP since January, I have posed the question: what will the government do repair the damage done by the haphazard first wave of the PPP? To that end, the GAO has only heightened the importance and urgency of that question.