A new report from the Inspector General (IG) of the Small Business Administration (SBA) finds that the agency did not have clearly defined roles in its organizational structure to manage and handle potentially fraudulent Paycheck Protection Program (PPP) loans authorized by Congress in 2020.
According to the IG report, SBA informed lenders to refer potentially fraudulent PPP loans to the agency’s IG office (OIG) through a variety of methods including informal emails, phone calls, and SBA-written guidance with a link to the SBA OIG Hotline complaint portal.
Complaints lodged through the Hotline portal alone totaled 54,000 through the end of 2021, the new IG report says.
But in the midst of administering the PPP program, SBA did not provide specific guidance to lenders because it believed lenders already had industry regulations regarding fraud, which could then serve as guidance for handling PPP fraud.
“Because of the size and scope of the PPP and delegated authority given to lenders, specific guidance would have better prepared lenders to handle the large volume of fraudulent loans they received. Federal internal control standards recommend management implement internal controls by documenting responsibilities and providing guidance,” the IG report states.
To reduce fraud risk, the OIG recommended that SBA direct its Associate Administrator of the Office of Capital Access to establish clearly defined and detailed roles, responsibilities, and processes for SBA offices to reduce the risk of ineligible applicants receiving PPP forgiveness.
Additionally, the IG recommended that SBA provide lenders with formal guidance to effectively and consistently handle potentially fraudulent PPP loans and ensure lenders have sufficient guidance for implementing similar future programs.
SBA agreed with both recommendations made by the IG. It plans to complete final action on both recommendations by Sept. 30, 2022.