Missing E-Tran checks saw SBA issue $ 692 million in duplicate pandemic relief loans

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The Small Business Administration issued $ 692 million in duplicate pandemic relief loans because it failed to add the proper controls to its electronic application system, according to its Office of the Inspector General.

E-Tran did not always prevent duplicates Paycheque Protection Program (PPP) granted between April 3 and August 9, the date on which the loans were disbursed. The reasons included the computer script for detection stopped working, lender submissions used employer identification numbers and social security numbers interchangeably, and some buyers applied through multiple lenders, according to SBA OIGof report.

The special House subcommittee on the coronavirus crisis requested the report, in part, because it wants to ensure that E-Tran’s vulnerabilities are addressed before the remaining $ 150 billion in PPP loans. are not disbursed.

“Loans to ineligible borrowers put taxpayer funds at risk of financial loss and have delayed the amount of critical capital available that eligible businesses need to withstand the effects of the pandemic in the first round of PPP funding.” , we read in the report.

Congress has allocated $ 659 billion, in total, to P3 loans to cover the payroll, rent and utilities of struggling small businesses.

About 4,260 borrowers received multiple PPP loans, despite the SBA working with lenders to implement E-Tran checks in May. The OIG found that the SBA temporarily disabled these checks between June 23 and June 30 to resolve duplicate loans already identified with lenders, resulting in more duplicate loans during that time.

The OIG recommended that the ASB review potential duplicate loans and recover overpayments, review E-Tran controls to ensure these loans are not canceled, strengthen controls for future programs PPP type and improve guidelines for lenders – whatever SBA has agreed to do.

“The Inspector General’s report is in line with the findings of the select subcommittee last year that billions of dollars in PPP loans issued by the previous administration may have been diverted to fraud, waste and abuse.” Jim Clyburn, a Democrat from South Carolina who chairs the subcommittee, said in a statement. “Today’s report is further evidence of the poor implementation of PPP by the Trump administration, which ignored Congress’ intent by failing to provide life-saving assistance to the most needy small businesses.

SBA argued that borrowers were unlikely to intentionally exploit E-Tran’s initial vulnerabilities because only lenders have access to them, but the OIG was quick to point this out. fraud was still happening.

The agency’s loan review plan states that PPP loans are subject to automated screening. But software company Giant Oak was leading the Department of JusticeThe first 57 accused of PPP loan fraud via its GOST tracing platform and discovered that 25% of them had already committed fraud that should have prevented them from receiving relief, CEO Gary Shiffman told FedScoop , who is also a professor at Georgetown.

“It’s a very strong indication that they weren’t doing screening,” Shiffman said. “And in their statements, they were trying to get the money out quickly, so they were relying on the investigation as a deterrent.”

Most scammers assume the odds of an investigation for a loan under $ 150,000 are low, and investigating fraud after the fact is “incredibly ineffective” compared to deterring all of this with tracing, a- he added.

SBA did not respond to multiple requests for comment.

Fraud occurred 16% of the time when the Federal Emergency Management Agency disbursed relief after Hurricanes Katrina and Rita, which in the case of PPP could mean up to $ 105.4 billion at risk, Shiffman said.

If the SBA commits to screening now, it will have to ditch static lists of past criminal convictions in favor of machine learning that examines patterns of fraudulent behavior, he said.

Machine learning models can create prioritized lists from highest to lowest threats, and if SBA checks the top 1%, then they’ve done a “phenomenal job,” Shiffman said.

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