Lawmakers Demand SBA Explain Handling of Fraud-Hit Virus Aid

Two key House lawmakers who oversee the Small Business Administration are pressing the agency to turn over detailed information on its handling of a pandemic bailout program beset by signs of fraud.

In a letter to SBA administrator Jovita Carranza on Friday seeking information on 17 aspects of the Economic Injury Disaster Loan program, Democrats Nydia Velazquez and Judy Chu expressed alarm over evidence it may have been vulnerable to scammers. Velazquez leads the House Small Business Committee, and Chu its subcommittee on investigations, oversight and regulation.

“We are particularly concerned with the inspector general’s findings on the lack of internal controls in the EIDL review process, leading to many fraudulent advances and loans being approved,” the lawmakers wrote. “While we understand SBA had to act quickly to get money into the hands of small business owners, having the proper internal controls in the program is vital to prevent waste, fraud and abuse.”

The disaster-aid program is a key part of the U.S. response to the coronavirus pandemic, offering small businesses $20 billion in grants that didn’t require repayment, but that portion of its funding ran out in July as scammers swarmed. A larger pot offering loans of as much as $150,000 has distributed about $192 billion to date. A report by the agency’s inspector general last month identified tens of billions of dollars in applications that need further inspection.

Bloomberg News described last month how the agency rushed out grants of as much as $10,000 to applicants who weren’t eligible, sometimes ignoring concerns raised by loan officers, and how the SBA’s new computer system, built by an outside contractor for $750 million, proved blind to certain types of fraud and sometimes awarded grants even when it spotted disqualifying features.

On Friday, Bloomberg News reported workers reviewing EIDL applications were told to avoid writing “fraud” or “red flags” in notations and to instead use alternative phrases such as “duplicate” or “unusual,” which could make it harder to convey suspicions to colleagues. The agency said it “strongly denies that staff processing EIDL loans were discouraged from identifying suspected fraud.” It declined to comment on Friday’s letter.

In their letter, Velazquez and Chu said they’re concerned by the “opaqueness” and lack of detail regarding the agency’s processes and called for “greater transparency” to strengthen the program.

The lawmakers pressed the SBA to turn over copies of contracts with contractors and subcontractors, including nondisclosure agreements, as well as certain emails in August laying out new policies to head off fraud. They sought answers by Dec. 11 on how the agency trains staff, spots fraud and plans to address the inspector general’s concerns about lax controls and recoup any stolen funds, among other topics. Chu said in an interview last month that she will eventually hold a hearing to demand accountability.

The SBA inspector general, Hannibal “Mike” Ware, expressed concern in an Oct. 28 report that the agency didn’t appear to be acknowledging the extent of fraud or showing a willingness to undertake adequate steps to fix controls.

“Moving forward, we want to ensure the EIDL program is operating with minimal fraud, SBA can quickly and easily identify improperly disbursed loans, and the agency has the ability to recover the taxpayer dollars identified as fraudulent,” Velazquez and Chu wrote.

©2020 Bloomberg L.P.

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