SBA Failed to Help Lenders Root Out PPP Fraud

By David Baumann - May 31, 2022

Report from agency Inspector General highlights issues with program from start, as well as larger organizational shortcomings.


The Small Business Administration (SBA) failed to provide lenders, including credit unions, with crucial guidance they needed to help root out fraud in the Paycheck Protection Program (PPP), the agency’s Inspector General (IG) said in a report released late last week.

“SBA should have provided lenders specific guidance from the onset to identify, track, address and resolve potentially fraudulent loans. Establishing strong upfront controls helps ensure lenders know how to effectively handle fraud,” the highly critical assessment stated.

The IG added that working with lenders was essential because they work directly with borrowers and have the authority to process and service loans.

“Because SBA did not provide specific guidance to lenders, they were faced with uncertainty on how to resolve issues they were uncovering,” the IG said.

Issues Plagued Program From Outset

As of May 31, 2021, SBA had processed 11.8 million guaranteed PPP loans, using about 5,460 private lenders and together totaling $799.8 billion. Agency officials have claimed some of the oversight problems were caused by having to get the program running within 15 days of its creation by Congress.

In previous reports, the IG has revealed that based on its prior work and analysis of SBA’s loan data as of August, 2020, it has identified more than 70,000 loans totaling over $4.6 billion in potentially fraudulent PPP loans. As of December, 2021, a hotline established for PPP complaints had received more than 54,000 calls.

SBA logo

The IG reported that the SBA explained it did not provide specific guidance to lenders, believing they already had industry regulations governing fraud.

As the number of fraud reports increased, SBA officials said they emailed and called individual lenders to assist them.

The IG further noted that officials interviewed by its office reported that because minimal instructions had been issued, they developed their own informal ad hoc processes to deal with potential fraud.

Changes Going Forward

The IG did claim that the agency has been addressing some of its organizational problems, adding that the SBA has created a Fraud Risk Management Board to manage fraud risk. SBA officials also said the agency will work to consolidate existing guidance on fraud and add additional guidance when appropriate.

“SBA will ensure lenders have sufficient guidance when implementing similar future programs,” the IG stated.

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