Watchdog sees potential massive loan fraud at SBA, sparking battle with agency

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But SBA administrator Jovita Carranza dismissed the report, saying the results and numbers “are based on hasty and incomplete conclusions.” The Inspector General continued the investigation, highlighting $ 450 million in 15,000 fraudulent loans that have already been foreclosed, as well as the agency’s decision to fire employees and contractors involved in approving loans or influencing to inappropriately approving loans.

“SBA management continues to insist that its controls are strong despite overwhelming evidence to the contrary,” the inspector general said in the report. “Our analysis of the SBA’s Covid-19 EIDL loan and application data highlights strong indicators of ongoing fraudulent activity in the Covid-19 EIDL program. “

The dispute was the latest example of a conflict between the SBA and federal oversight officials. The agency has also battled in recent months with Government Accountability Office investigators and with journalists seeking to disclose recipients of federal loans.

During the pandemic, the SBA approved $ 192 billion in so-called EIDL loans plus $ 20 billion in disaster grants. In addition, he issued $ 525 billion in forgivable loans under the paycheck protection program that Congress established in March. This is an unprecedented level of activity for the agency.

While some frauds were expected, Ware said it could happen to a greater degree during the pandemic. Speaking at a conference hosted by the National Association of Government Guaranteed Lenders on Wednesday, Ware said he believes SBA loan fraud is “more than normal” and that it is “an apple of discord when discussing it with the agency ”.

“I keep saying this is the very small tip of the iceberg,” he said.

In Wednesday’s report, the Inspector General blamed the SBA and the contractors it used to implement the EIDL program. The inspector general said an ASB team would approve loan packages after review by a subcontractor “with little or no verification of loan information.” The SBA initially set targets for loan officers to make final loan decisions on at least four requests per hour, and its subcontractor’s system did not always report duplicate loans, according to the report.

Investigators found that scammers understood that sending a “rain” of requests increased the likelihood that one or more of them would get through the agency’s guarantees. One candidate completed 38 claims that were flagged as potentially problematic, but at least two were disbursed for $ 384,600. An IP address used by applicants was used for 245 approved loans. One email address had 158 loans approved.

While the Inspector General said the SBA had agreed to make changes to its operations, Carranza rejected the findings in a letter to Ware.

She said the Inspector General “largely failed to investigate whether the” potentially fraudulent loans “raised more than the minimum of suspicion. She said the examples in the report of IPs and shared email addresses involved loan seekers who relied on certified public accountants, law firms, lenders or religious and cultural centers to submit their claims. loan requests.

“The SBA’s analysis fatally undermines much of the draft report’s findings and shows that the draft report significantly overestimated the extent of potential” Covid-19 EIDL “fraud,” she said.

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