SBA Improperly Paid $4.5 Billion on ‘Flawed’ COVID-19 Grant Claims: Watchdog

By Isabel van Brugen
Isabel van Brugen
Isabel van Brugen
Reporter
Isabel van Brugen is an award-winning journalist and currently a news reporter at The Epoch Times. She holds a master's in newspaper journalism from City, University of London.
October 7, 2021 Updated: October 7, 2021

A Small Business Administration (SBA) emergency relief program, implemented during the onset of the pandemic, improperly paid nearly $4.5 billion to self-employed people, some of whom erroneously claimed they had additional workers.

In a report (pdf) released on Thursday, the internal watchdog at the federal agency responsible for managing COVID-19 emergency loans and grants to small business owners and nonprofits said that the $20 billion Economic Injury Disaster Loan (EIDL) program failed to filter out applications with “flawed or illogical information.”

Under the program, recipients were eligible for $1,000 per employee, with a $10,000 cap.

SBA Inspector General Hannibal Ware determined that 542,897 individuals who received at least $1,000 failed to provide an Employer Identification Number (EIN), and claimed more than one employee on their applications.

The absence of an EIN should have meant that the recipients should have received no more than $1,000 each, the inspector general said. Some applicants claimed as many as a million employees on their application form, the internal watchdog found.

“We found SBA did not establish a proper internal control environment at the onset of the program to prevent sole proprietors and independent contractors without employees from receiving Emergency EIDL grants for more than $1,000,” the inspector general wrote. “SBA provided billions of dollars more in Emergency EIDL grants to sole proprietors and independent contractors than they were entitled to receive under SBA’s own policy.”

The SBA “never requested additional information from these sole proprietors to verify the number of employees cited on their grant applications before approving and disbursing the grants,” Ware wrote in his report.

Ware wrote that the federal funding could have been used to provide grants to more eligible small businesses, which was the intent of SBA’s policy of limiting grants to $1,000 per employee.

“However, SBA approved thousands of grant amounts for applications that were not sufficiently vetted because no system of controls was in place to flag applications with flawed or illogical information,” the inspector general wrote.

In a letter included in the report, the SBA said that it disagreed with “key assertions” outlined in the report, and the Trump administration policy that capped EIDL grants and loans.

“The per-employee cap on the original EIDL Advance program was a self-imposed policy instituted by the prior Administration which has generated countless hours of work for SBA teams responding to inquiries from small businesses negatively impacted by the policy,” James Rivera, the head of SBA’s office of disaster resistance, wrote in response to the findings.

In April, Ware told a House committee that the internal watchdog had launched probes into more than 400 cases involving the agency’s relief programs.

“Fraud investigations will be a decades-long effort,” he said at the time.

The internal watchdog as far back as July 2020 said it had found “strong indicators of widespread potential fraud” in the program.

Isabel van Brugen
Isabel van Brugen is an award-winning journalist and currently a news reporter at The Epoch Times. She holds a master's in newspaper journalism from City, University of London.