SBA requests help fighting “the biggest fraud in a generation.”

SBA is no stranger to fighting fraud. For instance, despite effective controls, businesses sometimes misrepresent their eligibility for small business programs to compete for lucrative set aside contracts for small businesses. This is not surprising given that in 2021, the Federal Government set aside over $154.2 billion (27% of the government’s overall contracting budget) to small businesses. While small business misrepresentations certainly merit attention, SBA is preparing itself for the tidal wave of fraud allegations associated with PPP and EIDL programs.

As my colleague Matt Moriarty predicted, “forgiveness applications [for PPP and EIDL loans] are going to get a lot more attention than the initial applications did.” As of December 2022, the oversight and investigative work conducted by the Office of Inspector General (OIG) resulted in 776 indictments, 621 arrests, and 426 convictions. By the numbers, over $8 billion in EIDL funds have been returned to SBA by financial institutions and another $20 billion by borrowers. However, this is just the “tip of the iceberg” as the fraud landscape is much broader. Identified as “the biggest fraud in a generation,” OIG believes that over 80,000 of the 230,000-plus complaints received involve potential pandemic fraud claims.  As it stands, OIG’s current resources only allow for a caseload of less than 600 per year. Said differently, it would take OIG over one hundred years with its current workforce and budget to fully investigate the mounting fraud complaints it has received so far.

To accommodate the anticipated workload, OIG has requested over $63 million to fund the upcoming year—an increase of over $29 million from its 2023 operating budget. While the funds are needed to maintain and expand OIG’s investigative and oversight capacity, the funding was also made in direct response to new laws that have extended the statute of limitations for pandemic-related fraud claims to 10 years.

The nearly $30 million in additional funding will be used to:

• Maintain and carry forward positions currently providing oversight of pandemic programs
• Hire additional criminal investigators, analysists, and support services to increase caseload capacity
• Hire data scientists to promote the production of higher quality audit and investigative evidence
• Hire additional auditors to enhance review capacity
• Hire administrative professionals to support administrative needs
• Obtain additional equipment and services
• Accommodate pay increases for personnel.

Put simply, the agency is overwhelmed. Without proper funding, the government has to make tough decisions on which cases and investigations it should focus on and which cases it should cast away. In general, firms are often incentivized to abandon cases containing complicated or bad facts. On the other hand, cases that have good facts are more likely to be pursued. Ultimately, because OIG is understaffed, this means that legitimate cases with bad or cumbersome facts may slip through the cracks. With more resources and personnel, the government would be better positioned to investigate, capture, and convict pandemic fraud.

If you have questions about pandemic fraud claims and appeals, or your business finds itself on the adverse end of an SBA PPP decision, we’d be happy to take your call and address your questions in stride.